Transcript:

Jeff Kelly: Hello, this is Jeff Kelly and in today’s episode I want to talk about how rising home prices cause bankruptcy problems. How in the world could rise any equity in real estate cause financial problems for a homeowner? I know that sounds super strange, but I’m going to go on to explain how it’s happening.

Jeff Kelly: I have been practicing consumer bankruptcy for over 22 years, and I’ve never seen a real estate market like the one that is currently roaring. You would think that rising Home Equity would be good for all owners. But that is not the case for families who are in need of getting relief from credit card and medical debt that has accrued because of COVID related unemployment. How can rising home value stop people from filing bankruptcy?

Jeff Kelly: In Georgia, the most equity that a married couple can protect is $43,000. A single person can protect only 21,500. So what happens if you need to file bankruptcy? But you have equity that is way over the limits? The answer to this question is the same as the answer to most legal questions. It depends, depends on what? it depends on the exact amount of equity. When a family has slightly more equity than the exempted limits, they usually won’t present a significant problem in bankruptcy. Because you have to factor in real estate transaction cost if the trustee were to move to sell the house in question. You know, in most cases, you can count on 10% of the purchase price is going to go to real estate commission real estate costs and legal costs for closing on a house. However, it’s not uncommon right now. For me to see potential clients who have over $100,000 in equity, because real estate is so ridiculously hot right now. It is so hot. I’ve got a family member who just put their house for sale in Cobb County. And no joke in one week. They have 23 offers. It’s crazy. I’ve never seen anything like it. When is it going to end? I don’t know.

Jeff Kelly: The funny thing about real estate to me right now is that most of my clients don’t realize how high the value of their homes have climbed. In the past, we could rely on the tax assessor evaluations. Now the market is so ridiculously hot. Zillow seems to be a better source in most cases, and Zillow seems to be getting better and better at their formula for how they evaluate. So the question is, can you lose your house in a chapter 7 if you have too much equity? And the answer is yes, you can. The reason a person must be extremely careful and ascertaining the value of their home before filing chapter 7 bankruptcy is because once you’re in the thick of it, you can’t get out.

Jeff Kelly: Little side note, one of my favorite television shows growing up was Gilligan’s Island. And it seemed like there were a lot of episodes where Gilligan would get stuck in quicksand. Now, of course, Gilligan’s Island is a great, wonderful show. And so he always got out, but I mean, sometimes he had to struggle really, really hard. Okay. But chapter 7, if you’ve got equity in your house is kind of like quicksand. But unlike