When a debtor files for a Chapter 7 bankruptcy, he or she can make use of certain exemptions. Exemptions allow a person to keep personal property, such as a home, car, pension and other personal items. Homestead exemptions can be the most significant exemptions a person can apply during the bankruptcy process, because homes typically have high value. The value of homestead exemptions can vary according to different states as well. For example, in the states of Missouri and Illinois one may claim up to $15,000 in a homestead exemption. In other states, the homestead exemptions can be much higher.
In states like Missouri, there can be some issues in attempting to claim a property under the homestead exemption. For example, a person who is also facing a foreclosure may want to transfer the homestead to the mortgage company and remain living in the home until the end of the foreclosure process. The trustee could object to this behavior and want to find that a person lacks the necessary intent to surrender a property in continuing to live in a home. Confused? On debtor’s bankruptcy petition, the debtor has to state whether he wants to surrender or reaffirm real estate (redemptions is not an option for real estate). The bankruptcy code requires that debtor’s intention must be completed within 30 days after the first set of the meeting of creditors (the 341 meeting). A trustee could argue that if debtor surrenders the house, he must move out within 30 days after the trustee’s meeting or pay rent. In addition, a homestead exemption is lost because of the surrendering of the real estate. The answer to this issue depends on in which district you live in. Court decided the issue differently. Some districts allow you to retain and to pay your real estate until the foreclosure takes place and allow you to apply your homestead exemption until foreclosure. The courts held that just through the intent surrendering your home does not make you lose your homestead exemption.
When filing to make use of a homestead exemption, one must declare whether he or she intends to keep the mortgage in existence and continue to live in the house. The home must be considered a person’s primary residence if a person wants to use the homestead exemption for filing for bankruptcy. A secondary home or vacation home may not be used with a homestead exemption. During a Chapter 7 bankruptcy proceeding, a debtor must also state whether he or she wants to surrender the property to a lender. If he or she decides to go this route, then personal liability for the mortgage note will be discharged.
Courts have ruled on this contentious issue. They have found that living in a home and attempting to transfer the homestead to a mortgage company did not amount to a surrendering of a property. Even if a debtor submits a statement with his intentions to surrender his homestead to a mortgage company in a court document, this does not mean he has to leave the property. His statement of intention to the court has no bearing on his intention in regards to the future foreclosure of his home.
This is an important distinction to understand in bankruptcy law, because it means that more people can live in their homes during the foreclosure process and bankruptcy proceeding.
- Will Bankruptcy Stop Foreclosure? (bankruptcyattorneystl.com)
- What Property Will I Lose in Bankruptcy? (bankruptcyattorneystl.com)
- When to File Chapter 13, by Bankruptcy Attorney in St. Charles, MO Tobias Licker (mobankruptcyblog.com)