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.
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.