If you qualify for Chapter 7 bankruptcy, it probably means that your income is currently below the state median. You may also have only limited assets that you have to worry about protecting from the liquidation process.
For many people in Massachusetts considering Chapter 7 bankruptcy, concerns about their home equity will influence their decisions. The good news for those in need of debt relief is that Massachusetts has a generous homestead exemption that allows for the protection of a significant amount of home equity when you file for bankruptcy.
What limit does Massachusetts put on home equity in bankruptcy?
Those who file for bankruptcy have the right to exempt a certain amount of equity in their primary residence for homestead. The state allows individuals to protect as much as $500,000 worth of equity from liquidation to repay creditors in Chapter 7 proceedings.
Typically, in order to receive full protection, individuals need to file paperwork with the state declaring the property their homestead. However, elderly individuals and those with disabilities do not have to file any paperwork to protect the acquired equity in their homestead. Those who don’t fall into either of those two protected categories and who do not file homestead paperwork can only protect $125,000 worth of equity in their home.
Protect your home instead of cashing out your equity to repay debt
Whether you face aggressive collection activity or you simply can’t pay all of your bills, you might consider taking out a home equity line of credit in order to turn some of the accumulated equity in your home into liquid capital to repay your debt.
With the exception of situations where your total equity exceeds the amounts permitted via the state homestead exemption, reducing your home equity before you file for bankruptcy could be a real mistake. Making the most of the exemptions available can allow you to protect some of your property in bankruptcy and help you develop a stable foundation for a better financial future after your discharge.
Discussing your financial situation and the value of your home with someone who understands Massachusetts bankruptcy proceedings can help you make more informed decisions.