I am concerned though because I don't want to lose my home because of a Bankruptcy. I was told that by filing a Chapter 7 Bankruptcy they will take my house and I get to keep it in a Chapter 13. The house is worth $425,000 and I have a mortgage with $500,000 outstanding. That is really my only asset. What are my options?
Good question. First, it is important to understand that there is a $150,000 homestead exemption in New York City (this is doubled for married couples). Essentially you are allowed to keep up to $150,000 in the equity that you have in your home. You can determine the equity in your home by taking the value of you house (Appraisal is a good indicator of current value) and subtract the amount remaining on your mortgage(s) (aka. liability). A payoff letter from your lender will determine how much is owed on your mortgage. Even if you have more than $150,000 in equity in your home we can add in the costs of sale and trustees administrative fees to increase the amount of equity you can keep. If you have too much equity in your home or you need time to catch up on your mortgage payments then you would file a chapter 13 Bankruptcy.
In your case we would take the value of your house : $425,000 and subtract the payoff amount on your mortgage: $500,000 and end up with -$75,000 in equity. Since your house is underwater you will have no problem keeping your home in a chapter 7 Bankruptcy. When you file your Chapter 7 petition in the Southern District of New York your statement of intent will say "retain and remain current" with regards to your mortgage. The beauty of this is that once you receive a discharge in a chapter 7 you will no longer be liable for the mortgage and as long as you remain current on your mortgage you will get to stay there. This is called a bankruptcy "ride-through".
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You will not lose your house should you opt to file a Chapter 7 as long as you continue payments on the mortgage. Since you have no equity in your house there is nothing for the Chapter 7 trustee to liquidate. You were advised incorrectly about the risk to the house in a Chapter 7. Seek the counsel of a qualifed bankruptcy attorney in your area to avoid future bad advice.
This answer in no way creates an attorney-client relationship. The answer is not a complete answer and requires additional facts in order to provide the best options. The submitter accepts the risk of relying on such an incomplete answer and waives any claims of damages for doing so. As stated in the answer the submitter should contact a qualified bankruptcy attorney is discuss these issues further before any action is taken. Any action taken without advise and counsel of a qualified attorney is inadvisable.
It depends on the exemptions available to you in New York (since federal bankruptcy exeptions are not available to NY residents) but generally, when you're underwater on your primary residence (having no equity) you would be allowed to choose to keep the home in Chapter 7 or 13.
Advice on this forum is for informational purposes only and should never be mistaken as a substitute for legal advice. If you are in need of legal advice, you should consult local legal counsel.
Chapter 7 Bankruptcy Attorney
NEW YORK STATE HAS MADE IT EASIER FOR HOMEOWNERS TO FILE CHAPTER 7
New York State has now made it possible for many New Yorkers to file for chapter 7 even if they have homes. This is because the homestead exemption has substantially increased.
Homeowners who live in in New York downstate area (Counties of Nassau, Suffolk, Kings, Queens, Bronz, RIchmond, Rockland, Westchester and Putnam) have a $150,000 exemption. Homeowners who live in Counties of Dutchess, Albany, Columbia, Orange, Saratoga and Ulster have a $125,000 exemption. Homeowners in other New York areas have a $75,000 exemption. The amount DOUBLES if spouses who own the home file bankruptcy jointly. In your case, assuming the validity of your numbers, you should be able to file for chapters and 7 and 13. However, assuming certain facts, it would be advantageous to you to file for chapter 7 as you will be able to discharge your debts within a few months of the filing. On the other hand, a chapter 13 contemplates payments over time, such a 3 or 5 years and the debtor first receives the discharge of his or her debts after successfully making all of the payments. I would recommend that you visit www.zillow.com to see what the estimated value of your property is worth. Also, you can have a broker provide you with a written evaluation after visiting your home.
Feel free to contact me if you have any further questions. If you feel this answer was helpful, feel free to give me a "thumbs up." Best of luck, Barbie D. Lieber
Lieber & Lieber, LLP
60 East 42nd Street, Suite 2102
New York, NY 10165
Legal disclaimer: Barbie D. Lieber, 60 East 42nd Street, Suite 2102 New York, New York 10165. www.lieberlegal.com. All information given on this site is general in nature and for informational purposes only, and not legal advice. Only a lawyer, reviewing the underlying documents and facts, in a meeting in person or over the phone, can determine what course of action any person can take. No attorney/client relationship is created by participation on this site. No attorney/client privilege attaches to any communication on this site