Filing for bankruptcy can provide relief if you're struggling with high debt. Much of the processes of Chapter 7 and Chapter 13 bankruptcies involve evaluating assets, including real estate, to determine what can be used to pay back creditors and banks. If you also have equity in your home or another property, it can impact the case. The following guide outlines more about this topic. 

Does Equity in Real Estate Affect Bankruptcy?

Equity is the difference between what is owed on a home and its current market value. As the property is paid down, the equity grows so that if it were sold, there would—in theory—be cash available. As a result, it's viewed as an asset. However, the way equity impacts a bankruptcy case depends on the category under which you're filing.

With Chapter 7 bankruptcy, assets are liquidated or sold to help cover the cost of the debt, and in exchange, the accounts are cleared. If you choose this route, the trustee assigned to the case can sell all non-exempt property, including real estate. 

Chapter 13 bankruptcy, on the other hand, condenses debt into a more digestible amount with a single payment. However, the court can require that the repayment total include at least the amount of a non-exempt home's equity. 

What Are the Exemptions?

Homestead laws allow property owners to protect up to a specific value of a property. In Kentucky, the statute protects a person up to $5,000. If your home equity is estimated under that amount, then you can exempt it from the liquidation process with Chapter 7 bankruptcy. As a result, you may be able to protect the property and maintain ownership. 

Under Chapter 13 filings, the allowed exemption is subtracted from the repayment total. As a result, you often end up saving money over the three- to five-year period that you have to pay back debts.

If you have more questions about equity and its effect on bankruptcy filings, get in touch with the team at Bentley, George, & Sparks, Attorneys at Law in London, KY. These experienced lawyers work with residents across Laurel County to help them find debt relief. They also offer guidance on estate planning and can help you draft a will. Visit the firm online to learn more about filing for Chapter 7 or Chapter 13 bankruptcy, or call (608) 877-0088 to book a consultation.