Job loss, underemployment, medical bills and significant debt are among the reasons that many Kentucky residents consider bankruptcy. However, you may worry about losing your home if you file. The amount of equity you have in your home might determine the amount of protection available and whether you file for Chapter 13 or Chapter 7.
According to Corporate Finance Institute, home equity is the appraised value of your home minus the mortgage and any property liens. The unencumbered portion of your home’s value is an asset in bankruptcy.
The way the court treats your home depends on whether it is exempt and if you filed for Chapter 13 or Chapter 7. In Chapter 13, you can keep all of your property. However, exemptions help determine the minimum amount you must repay during your repayment plan.
The court also uses exemptions when determining which property you may keep during and after Chapter 7 bankruptcy. After the bankruptcy trustee liquidates your non-exempt assets, he divides the proceeds and pays your creditors. If you have more home equity than you can protect with an exemption, the trustee may liquidate it.
You can choose between Kentucky and federal exemptions when filing bankruptcy. The Kentucky Homestead Exemption for 2021-2022 is $40,500. The federal homestead exemption is $25,150 for individuals and $50,300 for spouses who co-own property. To claim your home under the homestead exemption, it must be your residence for at least 40 months prior to filing bankruptcy.
Understanding your options and choosing the right type of bankruptcy for your situation is critical. It can help you protect the maximum amount of property and help you move forward, giving your peace of mind.