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Keeping Your Home In Personal Bankruptcy

Now that the housing market is starting to recover, more and more folks have some equity in their homes.  Nevertheless they still may need to file for bankruptcy protection because they can’t pay all their bills.  Many folks have managed to pay their mortgages, especially if they were lucky enough to refinance with lower interest rates, yet creditors are hounding folks that owe monies on credit cards, medical bills, personal loans, and utility bills.

Massachusetts Homeowners Have More Equity

According to the data, about 4,000 homeowners a month are recovering from being underwater on their mortgages over the past year.  But there are still about 129,000, or 16% of homeowners in Greater Boston who are underwater in their mortgages; that is, owe more to their lender, or lenders, than the home is worth.  This is good news, and largely attributable to the fact that the housing market is recovering – homes are worth more.  In fact, the average home in the Greater Boston area is now worth over $321,000.

How does this help?  First, folks that have positive equity in their homes have a better chance at refinancing.  Since interest rates are historically low, home mortgage rates are low and monthly payments can be lowered. Second, when houses have positive equity, they can be sold by the homeowner who can avoid foreclosure.  Thus, if the homeowner needs to move for work, or for any other reason, they have more flexibility.  In a market economy, flexibility is key.  Folks that have no option to sell are stuck.  Or worse, they get foreclosed on.  In a perfect world, everyone has the option to buy, or sell, when they want, so their economic decision making is not hampered by the burden of their mortgage.

Is the upswing moving equally?  Apparently not.  Some towns have recovered quicker than others.  Plymouth County is moving slower than Middlesex.  Brockton foreclosure rates are high.  Parts of Boston have fully recovered while others have not recovered much at all.   And, having positive equity is not the same as having sufficient funds to sell and buy a new home.  That requires at least 5% and up to 20% for most mortgages.

How Does Home Equity Recovery Affect Bankruptcy?

Home equity can be protected from creditors when filing for bankruptcy in Massachusetts.  In fact, you can protect up to $500,000 in home equity under the Massachusetts Homestead Act.  This can be particularly helpful when planning a bankruptcy because it is a very large exemption.  Planning, with a qualified and experience bankruptcy lawyer, can be the key to saving your home and other assets.

On the hand, if your home is under water, that is you can’t sell it and have any net gain, it may make sense to work with a bankruptcy lawyer to discharge your other debts and walk away from the home.  Many folks want to retain their home even though it is under water.  You can do that too in a bankruptcy.

We often advise folks to ignore the statistics.  You know what you home is worth and what the likelihood is that it will be worth more soon, and whether you can continue to afford it.  If you have significant personal debt, and you need to file bankruptcy, call an experienced bankruptcy lawyer for a free consultation, make a plan, execute the plan, and get the “fresh start” that the bankruptcy law affords.

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