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Will I need to liquidate my home?

Cincinnati residents who file for Chapter 7 are usually very concerned about what they will be able to keep and what they will be forced to liquidate when it comes to their personal property. Since the most valuable possession most people have is their home, the question of whether or not bankruptcy filers can keep their homes is a common one. In some cases, it is not required to liquidate the family home in Chapter 7, but in other cases, it will be liquidated.

Whether or not the home will be liquidated depends primarily on two factors: how much equity is in the home; and the amount of the homestead exemption that applies to the residence.

When the paperwork is filed for a Chapter 7 bankruptcy, the bankruptcy court will create an estate that contains all of the filer's assets -- including the family home. The court-appointed bankruptcy trustee then has the authorization to liquidate the nonexempt assets and provide the sales proceeds to creditors. In cases where there is no equity in the home -- like if the mortgage holder is underwater on the mortgage -- the home will not be sold.

If the home has equity, then a homestead exemption might be the ticket to preventing liquidation. The state of California has two homestead exemption plans: System 1 and System 2. Under System 1, single and non-disabled homeowners can receive a maximum of $75,000 in exemptions on their home equity. Meanwhile, people living with family members can exempt up to $100,000; disabled persons and people over the age of 64 can receive a $175,000 exemption and low income persons under the age of 56 can also receive a $175,000 exemption. Under System 2, homeowners will receive an automatic exemption of $25,575.

When it comes to the question of whether a home will be exempt in Chapter 7 proceedings, it is best to discuss the matter with a qualified bankruptcy attorney. An attorney will know what factors to look at to determine whether a home will be liquidated. One of the worst things that can happen is to go into Chapter 7 proceedings believing that a home will be retained, when in it will in fact need to be liquidated.

Source: Nolo, "Will I Lose My Home If I File for Chapter 7 Bankruptcy?," accessed Feb. 19, 2016

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