Determining the equity in your home is very important in bankruptcy law. Any equity that you have in your home must be exempted in order to protect it from your creditors. So, when you speak with a bankruptcy attorney, they are likely to ask, “how much equity do you have in your home?” What do they mean?
In short, equity is the value of your home minus anything that you owe on it.
The value of your home, at least in the bankruptcy context, is generally the current market value. This can be determined several ways. The most accurate way is to get an appraisal done. This will cost several hundred dollars, but will give the most accurate number. You may also be able to use comparable values listed on real estate websites. If your home was purchased recently and you have not made any major renovations, you may be able to use the purchase price, with a slight increase.
It should be noted that the Bankruptcy Court does not generally except tax assessment values for valuation on homes. This is because tax assessment values are notoriously inaccurate and sometimes are long out-of-date.
Once the value of your home is determined, you must next list all of the mortgages and liens against your home. Your equity is reduced by whatever you owe on the home. Obviously, this would include your first mortgage. It would also include home equity loans and second mortgages. Less obvious, but equally as important, tax liens on your home can also reduce your equity. Judgment liens can reduce it as well. When you deduct all of the mortgages and liens from the value of your home, you will have your current equity.
As an example, imagine that you have received an appraisal of your home that comes back at $200,000. You have a first mortgage of $150,000, a home equity loan of $10,000, and a tax lien of $5,000. In this example, you have a $200,000 home, minus $165,000 in liens. So, you would have $35,000 in equity. This would need to be exempted to protect it from your creditors.
Call us with any questions about bankruptcy or whether or not your home will be fully exempt from your creditors. I would be happy to discuss your situation and and see if I can help.