Bankruptcy A-Z: E is for Equity
December 24th, 2011 | 
Author: Bankruptcy A-Z: E is also for “Equity”.
When it comes to dealing with debt, the first thing you need to know is your exposure to creditors. What can they get from you?
If it’s nothing, you have nothing to fear. Remember the old say “You can’t get blood from a turnip?”
You have to look at everything you owe and everyone who owes you any money, including wages. Then look to your state and federal exemptions for what you can protect. When you evaluate your property, you only need to look at the equity. The equity is the value of the property minus any liens on it. The value is based on the intended use of the property.
In Chapter 13 cases, you cannot deduct the cost of sale. In Chapter 7 cases, you can’t either, but the trustee has to. Think about it. The trustee’s job is to find money for creditors. If he (or she) administers the property, he has to sell it to get money to pay creditors. To do that, he has to pay off all liens, plus all exemptions, plus he has to hire someone to sell it.
If an asset of yours would sell for more than it would cost to pay any liens and the costs of sale, it probably has Equity. For example, if your car would sell for $10,000, you have a car loan of $7,000, and it would cost $500 to sell the car, you have $2,500 in Equity. Most household goods and furnishings and clothing, since they can sell for very little if anything, have little Equity.
If your house would sell for $150,000 and you owe $100,000 AND the cost of sale is $15,000 (about 10% is reasonable) AND you have exemptions of $25,000 (wishful thinking in Virginia), the property only has $10,000 in equity in a Chapter 7 case. To save the house, you can either pay this equity (or a negotiated amount) to the trustee) OR file for Chapter 13 (you would have $25,000 in equity in that case).
Many people seem to think that the bank owns their property if they are still paying the loan on it. In reality, they own the property, but the bank can repossess (personal property) it or foreclosure (real estate) on it if they do not make the required payments.
If you fall behind on payments and want to know whether property is worth keeping, just look at the equity. The numbers might surprise you.
If you need to protect your equity from creditors and are in the metro Richmond area, or anywhere in central Virginia, contact bankruptcy and consumer lawyer Mitchell Goldstein at (804) 592-1674 or by email at mitch at mitchellpgoldstein dot com.
See my prior post for other E posts.
Photo Credit: Scott Coulter
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