Bankruptcy can affect anybody, and oftentimes, clients want to know, from a Chapter 7 bankruptcy lawyer, “Can I keep a second home in bankruptcy?” The answer to this question is typically no, bankruptcy laws do not permit the keeping of a second home, a vacation home or a house that is used as an investment. The good news is that there is nothing within the bankruptcy laws that are strictly forbidden to a person keeping a second home when filing a Chapter 7 bankruptcy.
On the other hand, it is important to remember that because the state does not have a specific exemption on a second property, there is still a high likelihood that the trustee will require that the second home is turned over to the bankruptcy trustee.
Basis for determination
Essentially, whether or not a person will be allowed to keep their second, or vacation, home is determined to a great extent by how much equity is in the house, what bankruptcy exceptions can be applied, and whether or not there any dependents in the picture who use the house as a residence.
These are complex questions and vary from case to case. Thus, we strongly advise that somebody preparing to file Chapter 7 bankruptcy and owning a second home, consult with a Chapter 7 bankruptcy attorney before proceeding with the filing.
Value of the second home
Perhaps the most important question in determining whether or not a person is allowed to keep a second home during a Chapter 7 bankruptcy proceeding, is the value of the home itself. As a Chapter 7 bankruptcy lawyer, we will be working with the client to make sure that the house is properly evaluated, all deductions are removed and a correct value of the house is presented to the trustee.
In cases where there is not sufficient equity in the house to make a dent on the filer’s debts, the trustee may allow the filer to maintain the second home. All bankruptcy filers need to realize that they are going to have to report all real estate to the trustee. Therefore, it is important that a second home is properly evaluated by how much the home is worth if sold, and how much equity the homeowner has in the home.
This evaluation will then be reported to the trustee, and while there is no guarantee that the trustee will not order the home to be sold anyway, if there is not significant equity there is a potential to make an argument for allowing the home to remain.
Dependents
Sometimes, as a Chapter 7 bankruptcy lawyer, we are able to claim a homestead exemption to protect the second home. These are rare cases, where a number of factors must be taken into consideration:
- The filer must not need the homestead exemption to protect their own current residence
- There are dependents of the filer, for example, minor children from a previous marriage, living at the second home
If these factors can be successfully demonstrated, a trustee may be inclined to allow the petitioner to keep their second home.
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Note: This is for information purposes only and does not constitute legal advice.