BANKRUPTCY AND PROTECTING THE EQUITY IN YOUR HOME
Exemptions are what keeps most of your creditors from taking your home, selling it and taking the equity in your home to pay themselves some or all of what you may owe. Exemptions do not protect your home if you have given a lien on the property voluntarily.
This means that a mortgage, UCC or any voluntary lien that you give that put on your home is not subject to exemptions. A judgment that was put against the property by a judgment creditor is subject to the exemptions. The exemption will be protect the property from the lien of the judgment creditor, but, the mortgage creditor has the right to be paid before you can claim an exemption.
The amount of the exemption is up to $56,150.00 as of July 1, 2012 for each property owner who lives in the property and can also be claimed if the dependents of the debtor live in the house. There is a limit on the total amount of exemptions that can be claimed. In this market, there are very few properties that will have enough equity to have to worry about having too much equity.
Exemptions do not protect against a claim of taxing authorities, public service districts, home owner associations and/or an order to sell the property to pay child support or alimony. There are some other exceptions, but, they are very rare and most persons will never have to worry about those exceptions.
Remember, however, you may not claim the exemption unless it is your home or the home of your dependents and you must have an ownership interest in the property. This status is determined as of the date your bankruptcy case is filed. It is conceivable that you could move into a home one day and file bankruptcy the next day and claim the exemption in your bankruptcy case.
An illustration may help you better understand how an exemption may help protect your property. Assume that your home is worth $125,000.00 and that you have a mortgage on the property of $75,000.00 which was filed before the judgment was filed. There would be $50,000.00 left after the mortgage was paid off. (For purposes of this example, I am ignoring the costs of sale and other things that would reduce the net to less than $50,000.00) If a judgment creditor tries to sell the property, the sum of $56,150.00 must be guaranteed to the property owner and the mortgage paid in full before the judgment creditor can receive anything. The judgment creditor will have to pay out of pocket for the sale. No judgment creditor will ever take the property unless he is able to make some money on the sale for the debt owed the judgment creditor.
Some people think that a judgment creditor has to do something for the judgment lien to attach. The lien of a judgment creditor attaches to any real property owned by the debtor located in the county where a debtor owns property. For that reason, judgment creditors will often record a judgment in multiple counties of South Carolina. If you later buy a piece of real estate or inherit it from someone and the judgment has been recorded, the judgment will attach when the debtor takes title to the property.
A serious problem arises when real property is appreciating in value. A judgment that is attaching to property that does not have enough equity at this time, may have enough equity in a couple of years with the mortgage balance being paid down and the value of the property going up.
Even if you real property is judgment proof at this time, it may lose that protection later on. If you own real estate and there is a judgment against your home, you should meet with an attorney to see how to protect yourself from losing the property at some later time. If you decide to sell your property later, the judgment will have to be paid off in order to sell the property.
Contact the office of Nathan Davis by calling 843-571-4042 and make sure that your strategy regarding the judgment against you will not cause you to lose your home later.