Can You Keep Your Vacation Home If You File Chapter 7 Bankruptcy?
by Veeti Lepisto
Making the decision to file Chapter 7 bankruptcy is never an easy one. Navigating the complicated rules of what is considered exempt and what you can discharge can be difficult. One of the key concerns about bankruptcy is what happens to your home. Chapter 7 rules have some distinct methods to let you keep your existing primary home. However, what if you have a second home? There are some very specific instances where you may be able to keep a vacation home under Chapter 7 rules.
How Much Equity?
Under the rules of Chapter 7 bankruptcy, all of your property must be reviewed by a neutral trustee. They make the decision on what to sell to raise funds to pay off your creditors. Every piece of property has an exemption, which is a dollar amount that you are allowed to keep from each item. The trustee makes the decision if selling a piece of property makes sense based on the exemption.
If your second home has a mortgage for $200,000 and you still owe $150,000, you have $50,000 in equity. The trustee then decides if it is worth it to sell the home based on the amount of money left after paying your exemption, liens, his commission, and selling costs.
What Exemptions?
While the homestead exemption for Chapter 7 bankruptcy will protect your primary residence, you cannot use it on vacation homes. There may be other exemptions you can use, however. In most cases, the exemption you can use is called the wildcard exemption. Unfortunately, the wildcard is usually not that large, so it may not cover the equity you have in your vacation home. For example, in California, the wildcard exemption is only $1,350. However, you can also apply any unused amount of the homestead exemption.
The second exemption that can save your vacation home during a Chapter 7 bankruptcy is actually your primary exemption. If for some reason you don't need your homestead exemption to protect your primary home (for instance, if you don't have enough equity to make selling it worthwhile), you can use it to cover your second home if your dependents live there. An example of this is if you have children from another relationship and they live in the second home. The homestead act would apply here then.
Undergoing a bankruptcy is a difficult process and stressful for everyone involved. However, knowing what you can expect from your trustee and the courts can go a long way toward making it easier. With some foresight, you can make plans on how you will have to deal with a second home during a bankruptcy.
For more assistance, contact a local debt defense attorney.
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About Me
Several years ago, one of my best friends married the guy of her dreams. This tall, quiet man adored my friend. Almost every week during their courtship, he presented her with a beautiful, fragrant arrangement of flowers. At the time, my friend’s mom joked that her home resembled a funeral home because of all of the flowers her boyfriend sent her. After the happy pair married, they purchased a new home together and quickly began running out of money, meaning that he could no longer afford to give her the flowers she loved. They even discovered they couldn’t afford to pay the monthly mortgage. After only a few years of marriage, they filed for bankruptcy. On this blog, you will discover the ways a reputable bankruptcy attorney can help you successfully recover from financial ruin.