What does equity in my house have to do with bankruptcy if I’m current on my mortgage payments? In Georgia, a lot!

When you file bankruptcy, the bankruptcy rule allows you to keep a certain amount of assets. These are controlled by exemptions. In Georgia, one debtor can retain up to $21,500 equity in his/her house.  So, if you’re married, you can keep up to $43,000 equity in your house. And by house I mean, your primary residence.  If it’s a rental property, this exemption does not apply. This is based on the Homestead Exemption, O.C.G.A. § 44-13-100(a)(1). If you have more equity than the allowed exemption in your primary residence, then you have to file a Chapter 13 bankruptcy case and pay the amount of the equity that is over the exemption in order to keep your house after filing. If you file a Chapter 7 bankruptcy, then the trustee will force a sale of your house to take out the equity and pay back your creditors, thus, you will lose your house even if you’re current on your mortgage.

Read more on: HB 1024: Partner and State Representative Soo Hong Helps Lead Modernization of Georgia Bankruptcy Protections

For example, if you are single and you owe $100,000 on your mortgage and the market value or if you can sell your house for $300,000, then you have $200,000 in equity.  In Georgia, since you are only allowed to exempt/keep $21,500 in equity in your house, you cannot exempt all of the equity in your house.  This means that if you file a Chapter 7 bankruptcy case, then the trustee will force a sale of your house so they can take the $200,000 equity to pay back your creditors.  If you want to keep your house, then you have to file a Chapter 13 bankruptcy case and pay back, at the minimum, $200,000 of your debts through a monthly plan payment.  If you owe less than $200,000 in debt, then you pay back the total amount you owe.  This is the only way you can keep your house once you file a bankruptcy case.

Please be sure to contact a lawyer to assess your case before filing a bankruptcy case. I offer a free evaluation to assess these issues.