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Law Offices of Seymour Wasserstrum
205 W Landis Ave
Vineland, NJ 08360

1040 Kings Highway North
Suite 404
Cherry Hill, NJ 08034

Phone: 856-696-8300
Toll Free: 1-888-845-4533
Fax: 856-696-3586

Free consultations • Credit cards accepted • Evening and Weekend appointments available • Open 8 am to 8 pm

Home Equity Exemption

There is a limitation on the amount of equity an individual can have in his/her home and still be able to totally wipe out his/her unsecured bills. Presently the bankruptcy law permits one person to have equity in his/her home in the amount of $20,200. If two people jointly own their home, the law permits net equity of $40,400 in that home.

What this means in simple terms is that if a married couple (or 2 other joint owners) wants to wipe out their credit card bills, in order to completely wipe them out, the net equity in their home cannot exceed $40,400. There is also something called a wild card exemption which in certain cases will permit an additional sum of approximately $2,100 to be added to the $40,400. The exact amount of the $2,100 wild card that can be applied to the house depends on other facts of the case.

Here is an illustration of what this all means. Let's assume that we have a married couple with $50,000.00 in credit card debt that they are trying to wipe out. Let's further assume that this married couple owns a house worth $100,000.00 and the mortgage payoff is $70,000.00.

Here is an example of how equity is determined. First of all, a 10% deduction is taken from the value of the house as theoretical costs of sale, on the assumption that if the house was sold, it would cost 10% to pay real estate commissions and other costs associated with the sale of the house. This brings the number down to $90,000.00. If the mortgage payoff is $70,000.00 we subtract $70,000.00 from $90,000.00 and we have a net equity in the home of $20,000.00. This amount of $20,000.00 is well below the $40,400.00 permitted and this couple can wipe out their unsecured debts (provided they meet the other qualifications for bankruptcy).

Now let's take another example. The same couple in the same house worth $100,000.00, the same unsecured bills of $50,000.00, however, the mortgage payoff is $40,000.00.

Here is what happens in this example. First we take 10% costs of sale which brings us down to $90,000.00. Then we deduct the mortgage payoff of $40,000.00 which now brings us to $50,000.00 net equity in the home. The net equity in the home of $50,000.00 is greater then $40,400.00 by $9,600.00. This means that the couple exceeds the legal exemption by $9,600.00.

What does this all mean? It means that this couple would be required to make a payment of $9,600.00 towards their credit card bills. In other words, instead of wiping them out completely and paying zero and wiping out $50,000.00 in bills, they now have to pay $9,600.00 to wipe out $50,000.00 worth of bills. They are therefore paying something like $.20 on a dollar.

If this particular situation were to apply, the couple would not have to pay $9,600.00 all at once. Instead, the case can be switched over or converted to a Chapter 13, and the couple can pay the $9,600.00 over a period of five years. In a Chapter 13 the trustee get a 10% commission, so in effect the couple would be paying about $10,560.00 to wipe out $50,000.00 worth of bills.

If the house in the above examples was owned by just one owner, then the exemption permitted would be $20,200 (1/2 of the $40,400.) As an example, if one owner had a house worth $100,000 and a mortgage payoff of $50,000, you get a 10% deduction, which brings you down to $90,000. You deduct $20,200, which bring you down to $69,800. The mortgage payoff is $41,000. This person is therefore $28, 800 over the legal limit, and he/she would have to pay that amount towards unsecured bills because of the large amount of equity in the home

Therefore, the net equity in your home is very important. This number helps to determine whether or not all the unsecured bills can be legally wiped out in your case. That is why we always need to document the value of your home and the amount of your mortgage payoffs.

NOTICE TO CLIENTS - YOUR RESPONSIBILITY FOR FUTURE PAYMENTS TO THE TRUSTEE AND OTHER CREDITORS.

WHAT YOU CAN DO IF FOR SOME REASON YOU CANNOT MAKE A REGULAR MONTHLY PAYMENT TO THE TRUSTEE OR ANOTHER CREDITOR IN THE FUTURE

Please make regular payments to the trustee on the first day of the month by money order, writing your case number on the money order. Your first payment is due on the first day of the month after we file your plan with the Court.

You must make your first payment to Ms. Balboa before we go with you for your meeting with Ms. Balboa.

Sometimes, unexpected things can happen in the future, and through no fault of your own, you might be faced with a situation where you cannot make a regular payment to the trustee. Hopefully this will never happen to you, but we have had clients who have experienced situations such as loss of a job, car accidents, health problems, family problems, or any of a number of other things that unexpectedly occur and make it extremely difficult or impossible for the client to make a payment to the trustee when that payment is due.

The trustee keeps track of all payments by computer, and if payments start to fall behind schedule, the trustee will be alerted to that fact and sooner or later can bring an application to the bankruptcy court for dismissal of a person's case.

Hopefully you will never have any problems in the future concerning the ability to make regular monthly payments. We do want you to know, however, that if something unexpected should occur, and you cannot make a regular timely payment to the trustee, you should let us know. There is a special procedure available where we have the right to make an application to the bankruptcy court to temporarily suspend one or more trustee payments due to something unexpected happening in a person's life which adversely affects his or her ability to make the monthly payments.

The above procedure can also be used if you cannot make a rent payment, mortgage payment, or car payment on time so if you unexpectedly are unable to make such a payment when it becomes due, please let us know.

Therefore, if you are unable to make one or more monthly payments on schedule, the worst thing you can do is to simply not pay and not say anything to anybody. The best thing you can do is contact us and let us know what has happened that makes it difficult or impossible for you to pay.

As long as you keep in communication with us, we can take steps to protect your legal rights and to fight against any efforts of Ms. Balboa or a creditor to dismiss your case. We know you want your bankruptcy to be successful and we want to help you make it successful.

We like to keep clients fully informed of their rights and that is why we are giving you this document. Hopefully you will be able to make all your payments on schedule in the future without any problems and your bankruptcy will be totally successful. Since no one knows what the future will bring, we did want you to know now that if something unexpected does happen that makes it difficult or impossible for you to make a required payment, that you do have rights that we can assert on your behalf to protect you from dismissal of your case.

We are here to help and want to answer any questions you might have at any time, so feel free to call us anytime you have any questions or concerns.

If you ever need the services of an attorney in the future for any other types of matters, we would like you to know that we do many other things besides bankruptcy. We help people with such things as traffic tickets, personal injuries from accidents, social security disability, uncontested divorces, real estate matters, workers compensation, legal malpractice, medical malpractice, and many other types of legal matters. If for some reason we cannot help you in a particular legal area, we can certainly refer you to other extremely well qualified attorneys who have expertise in a legal area with which you might need future assistance.

We are enclosing a supplement which lists other legal areas with which we can help if you, family members, or friends have any legal needs in the future.

We are happy that we could help you with your bankruptcy and if you or any of your family or friends might need our services in the future, please feel free to contact us at any time.

NOTICE TO CLIENTS CONCERNING JUDGMENTS THAT HAVE BEEN ENTERED AGAINST YOU BEFORE BANKRUPTCY

Bankruptcy normally wipes out unsecured debts by wiping out (the legal term is "discharging") your personal obligation to pay. However, there is an unusual quirk in the bankruptcy law as follows:

If a judgment has been entered against a client (meaning that the client has been sued before the bankruptcy, and the creditor has won), that judgment can often survive bankruptcy.

Let's give you an example. What if you have a credit card debt of $5,000 and you want to wipe it out in your bankruptcy? Normally you can wipe that debt out, and you don't have to pay.

What if, however, before you filed your bankruptcy the credit card company sued you for $5,000, and they obtained a judgment against you? In most circumstances that judgment will survive the bankruptcy. This means that the credit card company cannot come after you to collect on the money. But beware. The judgment can come back to haunt you someday in the future.

The judgment creditor cannot put a freeze on your bank account or attach your wages or anything like that. Nevertheless, this judgment can remain on the record for 20 years. This can affect you if you are presently a real estate owner or you become a real estate owner in the future.

We have had a number of clients in the past who have had their debts wiped out. Then, two or three years later, they have come to us because they were buying a home or refinancing a home. They tell us that all of a sudden a judgment appeared on their record that they did not know about, and the creditor is claiming that this judgment should be paid.

There is usually a simple solution to these situations. One answer is that one year after you get a bankruptcy discharge, you can normally file a motion in the State Court to avoid any judgment that was obtained before the bankruptcy. Taking this action will release any lien or judgments against your property. By taking this action you won't have to worry about judgments and liens preventing you from purchasing or refinancing a home in the future.

There is another option. You do not have to necessarily wait for one year after your bankruptcy discharge. We can actually file a motion in the Bankruptcy Court while your bankruptcy case is active.

One more option is to reopen your bankruptcy case after it has been closed and make a motion to invalidate the judgments or liens, but that would probably be more costly.

What if you owe surcharges on your license and the Motor Vehicle Commission has taken out what is known as a "statutory lien" against you? This also could haunt you in the future after your bankruptcy has been discharged. This is similar to having a judgment against you as stated above and you also need to take action to wipe out those liens. Otherwise you may have problems later.

The important points to understand are as follows:

  1. Your bankruptcy wipes out your personal obligation to pay a debt, and you do not have to worry about a creditor harassing you to collect.
  2. If you have a judgment against you that was obtained before you filed bankruptcy, either from somebody having sued you or for something like a motor vehicle lien, or even a lien from unemployment for some sort of improper payment of unemployment benefits, these things can come back to haunt you at a later date. You need to take action (in addition to your bankruptcy filing) to get rid of these judgments and liens.
  3. The way to start to resolve these issues is by first letting us know about these judgments or liens. We can do a judgment search or title search, but that would cost money, and we don't want you to have to spend money to obtain information that you may already have in your records.
  4. One year after you have obtained your bankruptcy discharge, we can file a motion in the State Court with respect to each judgment or lien.
  5. There is a fee for filing these motions and the fee is based upon the complexity of the motion. In general the minimum fees and costs run between $350 to $400. This is not something that you need to do now, but this is something you need to be aware of for the future.
  6. The other option, as discussed above, is to file a motion while you are in bankruptcy. This may be easier because it is often better to get rid of these judgments and liens while you are in bankruptcy. A motion of this nature filed in the Bankruptcy Court will only be granted if your bankruptcy is totally successful and you have obtained a discharge. If you want us to file such a motion while your bankruptcy is active, let us know and we can work out an arrangement with you for payment of our additional fees.

Feel free to discuss with your attorney any questions you have on these issues.

These are important issues. If they relate to you, and if you have a judgment or some kind of lien against you, make sure to tell us about it. That way we can deal with it in the proper fashion so it will not cause unanticipated problems for you in the future.