On of the most common misconceptions about bankruptcy is that you'll lose your all your stuff. One of our most frequently asked questions from homeowners is whether they'll lose their home. Thankfully, there's very little to worry about here. First, this is never an issue in a Chapter 13 bankruptcy. There is simply no involuntary loss of property in a Chapter 13 case.
A Chapter 7 bankruptcy, on the other hand, is considered a liquidation of assets. However, the vast majority of cases are "no asset" cases in which no property is lost. This is because exemptions allow you to protect the equity in your assets.
In Massachusetts, we have the option to choose from two completely different exemption schemes: the default federal exemptions or the Massachusetts state-specific exemptions.
If you have equity in your home, this can be an important decision.
Under the default federal exemption scheme, you can only protect up to $23,675 in equity in your home per person (this is doubled to $47,350 if you file bankruptcy jointly with your spouse). Massachusetts state law is much more generous.
Under the Massachusetts scheme, you are entitled to an automatic homestead protection of up to $125,000. By recording a simple form at the registry of deeds, though, this exemption increases to $500,000.
Elderly or disabled spouses can also stack together personal exemptions, so that a total of up to one million dollars is protected.
Because of these generous exemptions, most homeowners that have significant equity in their home will choose to use the Massachusetts state-specific exemption scheme.
However, there are some limitations that rarely come up, but should be noted for full disclosure.
First, your exemption may be capped if the court finds that you obtained the equity as a result of some wrongful act taken within the last 10 years to hinder, delay, or defraud a creditor.
Second, if you acquired your home within the last 1,215 days, then the exemption is currently capped at $160,375. (This amount regularly adjusts to account for changes in costs of living).
Third, your exemption will also be capped at this same amount if you've been convicted of certain crimes, owe debt resulting from criminal acts, intentional torts, misconduct, fraud, and/or certain other bad acts. There is also an exception to this exception, so be sure to review this with your attorney if you think this might apply to you, as this area of the law can be quite complicated.
Assuming you haven't committed one of these bad acts, you may claim the full homestead exemption to ensure that the nobody can take your home from you.
To review your particular circumstances, contact Brine Consumer Law today for a free consultation.
