This post is a continuation from my previous post which dealt with the sale of personal assets in bankruptcy. Lately, the theme of this blawg has been: what are the bad reasons for putting off filing for bankruptcy protection. In continuation with that theme, I would say that worrying about losing your house is one of the bad reasons – because you probably will not lose your house. In fact, many times, people file chapter 13 bankruptcy in Utah in order to save their house. However, as a salt lake city bankruptcy lawyer, I want to point out that when it comes to real property (houses) the issue is a little bit stickier than with personal property.
First, a short primer. “Personal Property” consists of most of the items you own. Everything from your clothing, appliances, furniture, cars, etc is personal property. That is, everything except land. For some strange reason having something to do with the origins of our legal system in old England, land treated differently in property law and is referred to as “Real Property”. Thus, your house is “real property”, everything else you own is “personal property”.
Now, there are two reasons that your real property warrants a different blog entry than your personal property. First, generally speaking, real property is worth a whole lot more than personal property – making it more valuable to the bankruptcy trustee who is administering your bankruptcy estate. Second, unlike personal property, it is not worth less because it is “used”.
So, the bottom line is that if you own some real property, and you file chapter 7 bankruptcy, the bankruptcy trustee is probably going to want to sell that property because it is not going to be of “inconsequential value” like your old TV. That being said, there are still three reasons why, in practicality, people don’t often lose their houses when filing for bankruptcy:
- Exemptions: just as with personal property, there is an exemption allowed for personal property in Utah Bankruptcy Laws. If your property is worth less than the exemption level, then you don’t have to worry about the trustee taking it, because it is exempt. Now, it should be noted that Utah’s personal property exemptions are among the lowest in the nation at just $25,000 per person. If you are filing jointly, you can combine those exemptions to get $50,000. However, that is still not a whole lot. Which brings us to reason #2.
- Low Equity: even though the exemption amount sounds low at $50,000, your Utah bankruptcy attorney will point out that this amount refers to your actual equity in the house – not the value of the house as a whole. Not a lot of people have houses that are worth less than $50,000, but plenty of people (especially considering the recent market crash) have houses with less than $50,000 of equity. For example, if a couple filing jointly has less than $50,000 in equity, and wants to file a Utah chapter 7 bankruptcy, but does not want to lose their house, then they are able to do so, provided that they are willing to reaffirm the mortgage on their house.
- The third reason is, again, Chapter 13 bankruptcy. If you own property outright, or your equity exceeds the exemption levels, you still have the option of keeping your house by filing a chapter 13 bankruptcy instead of a chapter 7 bankruptcy.