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A.J.
A.J., Attorney
Category: Bankruptcy Law
Satisfied Customers: 4268
Experience:  Experienced consumer bankruptcy attorney.
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Debtors has approximately $140,000 to $155,000. equity in their

Customer Question

Debtors has approximately $140,000 to $155,000. equity in their home. Husband is 58 yrs. old and wife is 48 yrs. old. Husband gross income is $25,500 and wife about $11,000.
1) Are they qualified for homestead exemption up to $175,000 in system 1 in CA?
2) In computing for the value of their house, do you use the current market value or factor in or deduct the expenses in selling the property (about 6% to 7 % total) in valuing the property for BK purposes?

3) If the husband and wife file for chapter 13 bk, will the equity in the house be automatically exempted or protected or is chap. 13 a viable alternative versus a chap. 7 to protect their equity?
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  A.J. replied 1 year ago.

SavyLawyer :

Hello, and thank you for contacting Just Answer. My name isXXXXX am a bankruptcy law professional, and I look forward to answering your question today. Give me just a moment to review your question.

Customer:

okay

SavyLawyer :

First, chapter 13 is certainly a viable option if the debtors are able to make plan payments to pay off their debts in 3-5 years. Often, where debtors have significant equity in their home chapter 13 is used instead of chapter 7 for this very reason, to protect the home.

SavyLawyer :

If there is still a secured debt on the home, often the chapter 13 plan is a way to pay that debt (in addition to other debts) down. It is important to remember that, unlike with a chapter 7 bankruptcy, the chapter 13 is intended to repay a large portion (although often not all) of the debts owed, and in exchange the creditors may not pursue any other means of collecting on the debts (whereas in a chapter 7, the debts are completely discharged after property is sold to repay if property is available).

SavyLawyer :

Now, California is one of those states that has more complicated rules than others, and as you note, there are really 2 different homestead exemptions that can be used. It can get a little complicated, which is why it is ultimately a good idea, where there is so much equity in the home, to work with a bankruptcy attorney licensed in your state before filing. However, based on the information provided, you probably make a little too much to qualify for equity exemption up to $175,000, but arguably should qualify for up to $100,000 because there are two family members living together (At least that is how it would be argued).

SavyLawyer :

The gross income limit for the $175k equity exemption is 35,000 and it sounds as if the debtors in your scenario are a little bit over that.

Customer:

1) also the fact that the wife is only 48 yrs. of age will that be a problem for system 1 exemption bec. only the husband is above 55 yrs. old.?So in a chap 13 the debtors will most probably continue to pay for the house mortgage in full and their monthly payment to the trustte will be distributed to unsecured creditors?

Customer:

3) also if husband and wife cannot fulfill the chap. 13 can they convert to a chap 07 and in the inverse if they file a chap 7 and does not work out can they convert to a chap 13?

SavyLawyer :

That is correct, yes, to both questions. Depending on how the chapter 13 plan is structured, generally the home owner that is current on the mortgage can keep paying and not lose the home, and the trustee then distributes payments to all unsecured creditors listed as part of the chapter 13 plan.

SavyLawyer :

Yes, bankruptcies can be voluntarily converted in either direction, with permission of the court. Generally, the court will grant permission so long as there is no indication that the process has been used to perpetrate a fraud on creditors or the court.

SavyLawyer :

Again (not to sound like a broken record), but where there is such a possibility, it is a good idea to be working with an attorney, to make sure that everything is filed properly, both for the initial bankruptcy and if a conversion is necessary. The state bar association provides a referral service at:

SavyLawyer :

http://www.calbar.ca.gov/Public/LawyerReferralServicesLRS.aspx

SavyLawyer :

I hope this helps, and let me know if you have any additional questions. Otherwise, please remember to RATE my answer positively so that I can receive credit for my work.

Customer:

thanks, XXXXX XXXXX clarification on wife's age of 48, will that be an issue if they try to qualify for haomestead exemption on system 1 as the husband is the only spouse that is over 55 yers old.?

SavyLawyer :

I do not believe so, no. The rule as written is a little tough to understand, but as written it states that where the debtor(s) live with together/are a family, the homestead exemption should be up to 100K under "system" 1.

A.J., Attorney
Category: Bankruptcy Law
Satisfied Customers: 4268
Experience: Experienced consumer bankruptcy attorney.
A.J. and other Bankruptcy Law Specialists are ready to help you

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