ABA Family Legal Guide

Consumer Bankruptcy

Straight Bankruptcy: Chapter 7

Chapter 7 Defined

So if the value of my house is more than the exempt value, will I lose it? What exactly does the above list mean?

Let's use the example of your home to see how this works. As noted above, under the federal statute you can exempt from bankruptcy up to $18,450 of the equity in your home. A couple filing a joint Chapter 7 case may exempt twice this much (as outlined below)—a total of $36,900 worth of equity in their home. This is called their homestead exemption. If the home is worth $65,000 and has a $25,000 mortgage, then the couple has $40,000 worth of equity in their home. Since $36,900 is exempt by federal law, the couple's creditors can claim only $3,100 (the difference between the couple's equity of $40,000 and the $36,900 exemption). As a matter of practice, the couple would probably keep their home—perhaps at the cost of paying that $3,100 in nonexempt equity to the bankruptcy trustee—rather than have it sold for the benefit of their creditors.