Home in Bankruptcy

The following is a portion of an interview of attorney Ryan Simpson who regularly practices in bankruptcy court talk about protection your home in a bankruptcy case.

Interviewer: All right. And just for the transcriptionist, this is the interviewer.

Ryan E. Simpson, Esq.: That’s right.

Interviewer: And Ryan is the attorney. So – OK. So what are the big warning signs that you’re seeing in bankruptcy right now? What are the problems that we’re seeing?

Ryan E. Simpson, Esq.: The last 12 to 24 months, real estate values have gone up and the homestead exemption is only $30,000 to $60,000 depending on whether you’re married or not. I’m watching a lot of young attorneys and other attorneys who aren’t watching real estate values get their clients in trouble because they’re not aware of the value of the property.

Interviewer: So what’s a homestead exemption? What does that mean?

Ryan E. Simpson, Esq.: The homestead exemption is the Utah code that lets you exempt or protect up to $60,000 equity in your home. So if you have less than 60 grand equity in your home, if you’re a married couple, the trustee cannot touch your home or sell your home.

Interviewer: Well, how do you know if you have equity in your home? Like I mean is it based on your tax value, that notice you get once a year from the county?

Ryan E. Simpson, Esq.: In a chapter 7 bankruptcy, the value is based upon back where the market is, what a realtor would sell it for. Typically I use Zillow as a gauge to determine what it’s worth. Zillow isn’t always accurate but it’s a good gauge to determine what a realtor would sell it for and if it’s even close to the homestead exemption, then we are looking at filing a check with 13 bankruptcy where we can protect the equity in your home.

Interviewer: What if you have more than $30,000 or more than $60,000 equity and you want to file a chapter seven in order to have that fresh start?

Ryan E. Simpson, Esq.: If you had more equity than what is exempted, the chapter 7 trustee will sell your home, give you $30,000, $60,000, tell you thank you because he or she will put 10 to 20 grand in their pocket for their work and pay the rest of your creditors. You will lose your house unless you have –

Interviewer: So if you file a chapter 7, you’re going to lose your house if you have a lot of equity.

Ryan E. Simpson, Esq.: Yes.

Interviewer: OK. So what do you do? What’s the other – are there other options?

Ryan E. Simpson, Esq.: To protect yourself, there’s always a chapter 13 bankruptcy. The chapter 13 bankruptcy looks at the assessor value and for the last two years the assessor value has been considerably lower than the CMAs or the market value. And if you do have more than the exemption amount, we can always buy back the equity, the chapter 13 plan by paying more to your creditors up to the non-protected amount of your equity.

Interviewer: What do you mean when you say buy back equity? What does that mean in a chapter 13?

Ryan E. Simpson, Esq.: For example if you’re a married couple, you can claim $60,000 exemption on your home. But if you had $80,000 equity, so basically there’s $20,000 that is not protected. The $20,000 we can pay back to your creditors over a five-year period into your bankruptcy plan. So basically you would be paying about $350 a month to save your house for five years.

Interviewer: What if you can’t afford that 350 a month? You just don’t have any room in the budget for 350 a month? What are your options at that point?

Ryan E. Simpson, Esq.: Then we have to get really creative on whether we’re going to file – to buy you some time while we figure out how to refinance your house or to buy you time to sell it and recoup the equity. There are still options. They do become more limited but there are options. In a chapter 13 bankruptcy, after 12 months of on-time payments, you are generally eligible for an FHA loan. So there is an option where we might be able to get your home refi-ed and pay off your debts also that way.

Interviewer: OK. So what if you don’t qualify for a loan? What if FHA changes their requirements? So are you just out of luck or is it just having to constantly meet with you to make sure that we’re doing the right thing?

Ryan E. Simpson, Esq.: If the FHA requirements do change, then we will continually meet and figure out other strategies. Loans are always changing. A loan today may not be around a couple of years from now. But also new products are always coming up.

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