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By Michael S. Anderson of Anderson Tax Law logo for Arizona tax attorney Michael S. Anderson P.C.
  • Arizona Bankruptcy Filing? Will you lose your home?

    Arizona Bankruptcy Filing?  Will you lose your home?

    The equity in most residential homes i.e. the home you live in, is safe in a chapter 7 bankruptcy up to $150,000.00 if Arizona exemptions can be used.  Even if the equity is greater than the exemption amount, there will be costs associated with liquidating the home.  The chapter 7 trustee will take those costs into account before attempting to take the home.

    In the current economic climate, I see very few homes with more than the exemption amount in equity.

    The more common issue is that the chapter 7 bankruptcy doesn’t relieve the property of liability for a voluntary liens, like a deed of trust or for a tax lien.  The lender has the right to foreclose if the payment isn’t made.  (In a chapter 13 bankruptcy, a wholly unsecured 2nd mortgage may be removed from the residence).  If the equity amount is safe as a result of the exemption and the payment is made to the bank on time each month, everyone is happy.

    If the value of the equity is greater than the exemption amount, a chapter 13 bankruptcy would allow you to pay the value of that non exempt portion of the home to your creditors, thereby paying them what they would have received had you filed a chapter 7 bankruptcy case and given the non exempt portion up.

    So…if there is equity in your residence, first determine how much and than determine whether the bankruptcy exemptions that are available to you equal or exceed the equity in the home.  Again, if the equity is exempt and you pay the mortgage, the home is safe.  If the exemption is insufficient, consider a chapter 13 case.

    If the home is upside down substantially, you should speak to your attorney about the opposite problem…whether you should keep the home at all.