When filing bankruptcy, one of the first questions an attorney will ask is, ‘How much equity do you have in your home?’ The amount of equity often caused a hardship on Tennessee residents who owned their homes when it came to their bankruptcy options. The homestead exemption is what protects a debtor from forcibly selling their primary residence in Chapter 7 bankruptcy and plays a large role in how much a homeowner filing Chapter 13 will pay back to their unsecured creditors.
Tennessee homeowners under the age of 62 with no minor children living in the home currently only receive an exemption of $5000; joint owners, $7500. The homestead exemption increases only if the filer has a minor child living in the home; $25000 for a single individual with at least one minor and $50000 for a married couple with at least one minor child in the home. Most bankruptcy filers do not qualify for the increased exemptions allotted for those individuals over 62 years of age.
Several of my clients were impaired by this low exemption due to the real estate boom or ‘bubble’ in the East Tennessee area in recent months. Cases that previously would have gone through with ease, were being scrutinized heavily regarding the value of the home ending in several clients having to pay the trustee for the equity in the home or sell their home outright. (Homestead Exemptions by State 2021, 2021) https://worldpopulationreview.com/state-rankings/homestead-exemptions-by-state
|Median Home Value
(BestPlaces, 2021) https://www.bestplaces.net
Finally, help is on the way!
Beginning January 2022, the homestead exemption for Tennessee will be simplified and increased.
The exemptions will be more of a one-size-fits-all. No longer will a homeowner have to have minor children living in the home to claim the higher exemption. The single homeowner exemption will increase from $5,000 to $35,000. The joint homeowner exemption will increase from $7,500 to $52,500.
What does this mean for the average Chapter 7 or Chapter 13 bankruptcy filer?
Many homeowners with equity who had to file Chapter 13 bankruptcy in the past, would now qualify to file Chapter 7. This would benefit these homeowners with cheaper attorney and filing fees and eliminate the trustee administration fee. In most cases, they would receive a discharge from all unsecured debt (excluding taxes, domestic support, and student loans) without paying those creditors anything.
Also, the debtor’s time in bankruptcy would decrease from 3-5 years to 90-120 days.
Those homeowners that still need to file Chapter 13, either because their equity is more than the exemption or their mortgage or vehicle arrearages need to be included in the bankruptcy, will also benefit from the increased exemption. The amount of equity minus the exemption amount plays a role in determining how much one pays back to their unsecured creditors in Chapter 13.
So, you can see how this could affect how much a homeowner would have to pay into bankruptcy by $30,000 for a single filer.
To learn more about which bankruptcy option is best and how it can stop a debt cycle of taking out home equity loans to pay off debt, a homeowner may want to seek a thorough evaluation of his or her case.
Federal Foreclosure Moratorium
This increase in the exemption can benefit many homeowners who are still struggling after the end of the federal foreclosure moratorium. Many who were not able to get home equity loans or pull money from other resources may have delayed looking into or pushing the button on filing bankruptcy because their equity was too high. Now, might be the time to reconsider.
Those having taken advantage of the moratorium or their mortgage company’s offer to delay or forbear their payments should consider their options in bankruptcy, as well. Mortgage companies can now begin the process of foreclosure causing an issue particularly for those allowed to only delay their mortgage payments, rather than modify their loan.
Contact our office as soon as your mortgage company begins talking about or sending you notices of default and foreclosure. We will be happy to look at your circumstances and discuss all your options.