In a Chapter 7 the Trustee Can Seize the Debtor’s House, as long as …

A house owned by a person or persons is an asset of that person or persons.  An asset is anything that is owned by someone and has worth in terms on money.  A liquid asset is an asset that can be sold relatively quickly for money.  The opposite is an illiquid asset.  If an asset was purchased by means of a loan or a mortgage, and the asset is the security for the loan or mortgage, then the asset is a secured asset.  When a secured asset has worth above what the owner paid to purchase the asset, then the asset is said to have equity.  Equity is the profit an asset owner expects when that owner sells that asset at its current worth.  In the monetary considerations of a Chapter 7 bankruptcy, all of the above has meaning and purpose.  When a person files for Chapter 7, that person has to pass a “means test”.  This test is to confirm that the filer has an income that is sufficiently low, total income against total liabilities, to make the Chapter 7 process worthwhile.  If a person has an income that is too high for the Chapter 7 bankruptcy, then that person has the option of using Chapter 13, which reorganizes debt for payoff and discharge after three to five years.

If the person is accepted for Chapter 7 bankruptcy, the court assigns a trustee who will assess each asset the filer has and determine which asset are worth seizing and which are not.   A part of this process is to identify assets, income versus property, identify exemptions for these assets, and determine if there are assets that can be liquidated to provide profit for paying creditors.  Once this process is set, the bankruptcy is discharged.  Okay, great, now … what about the house?   Ah, yes … the house.

A house is an asset, like any other.  If it has a mortgage, it is secured, but that does not exempt it from seizure.  The trustee will evaluate whatever liabilities and or liens the house has versus its market worth and its “quick sale” worth.  The trustee decides if after the sale, its cost, fees and whatever, if there is enough money to make the selling worth it.  Also, state bankruptcy laws also weigh in on the exemptions for a person, persons, family living in the house.  Each state has its own supplemental laws on bankruptcy points, so a good bankruptcy lawyer is a worthwhile person to have on the debtor’s side.  It could be that with the exemptions, the house is not worth seizing … right then.  Notice back in the previous paragraph about the discharging of a bankruptcy.  It is not unheard of that a trustee waited several months or longer for a house to be fixed or gain equity by market shifts, and then seize the house for creditor payment.  The discharge does not end the bankruptcy; it stays on a credit record for seven years.  Yes, a trustee can and will seize a filer’s house if the situation makes it worthwhile.

 

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