Q: I'm in the process of buying a small house with help of dad. Can I file ch. 7 and keep home & get rid of other debt
A: The bankruptcy court and Ch. 7 Trustee assigned to your case probably won't be interested in your new house, unless there is substantial equity value in it (you don't say how much your father will kick in, but routinely, Mortgage lenders want buyers to pony up twenty per cent of the purchase price). The Federal exemptions in Section 523 of the Bankruptcy Code permit you to exempt (retain) about $24,000 in your home equity (that figure is adjusted upward each year). If you claim your new house as exempt property, you should have no worries about the bankruptcy threatening your home purchase.
More importantly, a bankruptcy filing, if done before you close on the home purchase, will likely scare off your mortgage lender. You should, of course, confer with a local bankruptcy lawyer about these issues, especially to determine whether your new home equity will be exempt in your state.
A: The answer to this question will vary from state to state, depending on the applicable exemption laws. Every state has a legislative schematic which allows a bankruptcy debtor to protect, or "exempt" a portion of the equity in their "homestead." A chapter 7 bankruptcy case is a liquidation bankruptcy, so assets that have value which are not subject to being collateral for a loan (or property with a statutory or judicial lien attached to it, such as a tax lien or judgment lien) can be sold to create a fund to distribute to creditors. It is of the highest order of importance to go over this scenario with an attorney experienced in bankruptcy law. If you file Chapter 7 and later realize that a mistake was made, there is no guarantee that you can convert the case to Chapter 13 in an effort to "fix" the problem. The Court also has exclusive jurisdiction over a motion to dismiss a Chapter 7 (A ch 7 can only be dismissed with approval of the bankruptcy court, for cause). Bring your attorney all of the information on the home, including the mortgage note, promissory note and any Appraisal records you have. Obtain a current payoff balance for the mortgage so the exact balance is known by your attorney. A copy of your Settlement Statement for the purchase of the home (formerly known as a HUD -1) will disclose your down payment and purchase price for the home- this info is important to determine value.
A: PART II of Response: Please note that the federal bankruptcy exemptions listed in 11 U.S. Code Section 523 do not apply in all states. The State of Alabama, for example ( where I practice), has opted out of the federal bankruptcy exemptions, and has set out its own exemptions. Individual federal statutes which apply to subjects not covered by a state's statutes, or ones that over-write, or "pre-empt" a state law, can also apply to assets in bankruptcy cases. An example would be a tax exempt retirement account ( 401k, IRA, pension etc), social security benefits, VA Disability, and several other types of federally protected property. As for the homestead exemption, it is usually of primary importance that the Debtor be residing in the home on the date of bankruptcy filing so that the exemption can be properly claimed. The deed to the property should also be properly recorded along with the mortgage, so that the secured part of the claim takes legal precedence over the rights of the Chapter 7 Trustee. A bankruptcy attorney should take the necessary time to interview you and go over all of these issues, more than just once. If you are getting brushed off at the law office, or stuck talking to a clerk or non-lawyer, I'd suggest getting a second opinion before you pull the trigger on Chapter 7 where there are assets.
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