Most people take mortgages when they purchase their house. With time the property value might appreciate or depreciate. Being unable to make mortgage payments might send you in debt. When you file for bankruptcy, you have options to save your home. However, an accurate assessment of what your home is worth is essential. According to lawyers of Los Angeles based bankruptcy law firm Recovery Law Group , when you file for bankruptcy, some equity of homestead exemption is available to protect your home. Individuals can opt for federal or state exemptions (if the choice is available in their state). The exemptions vary from state to state. Contact expert bankruptcy lawyers at 888-297-6023 to find out how much homestead exemption is available in your state and how you can protect your home during bankruptcy.
What is your home worth?
It is important to know the accurate value of your home in order to protect it. This is important because you can protect up to a fixed amount of equity in the home when you file for bankruptcy. To calculate the equity in your home, you need to have your property evaluated, and deduct mortgage balance from the amount. If this amount is less than the homestead protection available, then you can protect your home during bankruptcy.
In case of Chapter 7 bankruptcy, in case the equity exceeds the exemption limit, the trustee can sell your house to pay the mortgage, give you your exempt equity and distribute the remaining amount amongst your unsecured creditors. If you have filed for Chapter 13 bankruptcy, you might be able to keep your house, but you need to pay an amount equal to the non-exempt equity to your creditors through a 3 to 5-years repayment plan. This can be difficult for people with a huge amount of non-exempt equity but not substantial income for monthly payments through a repayment plan.
How to calculate the current value of your property?
There are different methods available to know the “current value” of your home. Your valuation is not the only factor to determine the value of your home as the bankruptcy trustee also determines the same. in case of any discrepancy, the bankruptcy judge makes the final call. The various methods employed to find the fair market value include:
- Real estate websites
This is a preliminary way to determine the value of your home. It is generally used when the mortgage amount is high, and homestead exemption might be enough to protect the property. Websites like Trulia.com and Realtor.com can provide you a rough estimate of what your property is worth, for an accurate evaluation you can go for a full appraisal.
- Full house appraisal
Get the most accurate value for your home through this method. Refinancing the home or modifying the loan can give you the latest appraisal, or you can hire a licensed real estate appraiser to inspect your property. Based on certain factors, the appraiser sets a value to the property and explains the valuation in his report. This routine procedure is followed in most bankruptcy cases, especially if you are planning to have second mortgages stripped in case of Chapter 13 bankruptcy.
- Comparable market analysis
Relatively less expensive than a full appraisal, in this option, a licensed realtor compares your house with similar houses sold in your area. The market analysis uses data from the sale of the home which were in the same locality, were similar in size, condition and structure to yours to get an estimate of your home’s worth.
However, you should steer clear of some valuation methods as they are considered unreliable for bankruptcy purposes. These include:
- Quick sale value
Many people need to sell off their property on short notice. This often results in a lower value and thus cannot give an accurate estimate of the actual worth of the property. This method, therefore, cannot be used during bankruptcy. Additionally, it might make you think you can protect your home through the homestead exemption.
- Property tax appraiser value
Getting your property evaluated for real estate tax purpose by a property tax appraiser might not work in bankruptcy proceedings since they are not an accurate representation of the actual market value of the property.