Vacation Homes in Chapter 7 Bankruptcy
We’ve discussed what happens to your primary residence when filing for bankruptcy protection, but what happens to vacation homes in Chapter 7 bankruptcy? Chapter 7 bankruptcy protection can, in many cases, save your primary residence assuming you are able to exempt the equity in the home, or if the amount of equity you have is insignificant. While there is no bankruptcy law that states you cannot keep a vacation home or second house, you may have difficulty keeping it in a Chapter 7 bankruptcy if you have significant equity in the vacation home.
When you file Chapter 7, all property in your name will enter into what’s called your bankruptcy estate. A Bankruptcy trustee will be assigned to sell all nonexempt property in your estate to pay back your creditors. If you have a second home, and live in a state that has a wild card exemption, you may utilize this to cover equity in your vacation home. A wild card exemption is essentially an extra exemption that you can use to protect a certain amount of property of your choosing. States have amounts and rules regarding wildcard exemptions, therefore you’ll want to ask your bankruptcy attorney if your state has a wildcard exemption and if so, which option will give you the highest dollar amount in exemptions.
When attempting to find out if you will be able to keep both homes in a Chapter 7 bankruptcy, you should obtain recent appraisals or comparative sales analyses and then subtract the balance of loans and liens on the properties. Once the equity is calculated from your second home, the trustee will determine to sell the house or not depending on if there will be enough money left over after deducting the costs associated with selling the property, the trustee’s commission, paying you your exemption, and paying off liens associated with the home. If the trustee believes that selling the home will still produce the money to pay your creditors back they will most likely sell the second property.
The exemptions that can be used to save your vacation home in Chapter 7 bankruptcy differ from state to state. Because of the complexity of the bankruptcy laws combined with the enormous implications of your decision-making during the bankruptcy process, you should definitely obtain the services of an experienced Sacramento bankruptcy attorney where you file. This will not only help ensure that your debts are discharged at the conclusion of the bankruptcy, but also ensure that you keep your vacation home if it is possible.