How Do I Determine the Value of My Home If I’m Filing Bankruptcy?
The value of your home, from a bankruptcy perspective, is a major concern that you will want to be aware of. From too much equity to the possibility of “stripping a lien“, the value of your home plays a key part in your bankruptcy. With the ever fluctuating real estate market, determining the value of your home may seem like a difficult and challenging task.
The Bankruptcy Court for the most part will rely on the tax value of your property as recorded by the Tax Assessor in the county which you reside. Many counties now have websites in which you can access detailed information on your property including the assessed value. Unfortunately, tax values don?t always reflect the true value of what your home may be worth. If you think that the tax value of your property is overstated (or understated for that matter) you can always try a different avenue in determining the value of your home such as a Comparative Market Analysis.
A Comparative Market Analysis, which is also referred to as a CMA, is an analysis done by a real estate agent to establish a home?s market value. It is not an appraisal. The CMA compares homes of similar size, condition, age, and style in the same area or neighborhood that are currently on the market, under contract and that have recently sold. The comparables will in most cases better reflect the actual value of a home. It may seem like a lot of work to obtain a CMA but if it means protecting your home and your equity, in most cases, it?s worth it.
While most real estate agents will provide you with a Comparative Market Analysis of your home at no charge, some real estate agents may charge you if you are not putting your house on the market.
Every Bankruptcy Trustee is different and you will need to discuss your home?s value and what issues may arise around it with your attorney so he or she may give you advice that is tailored to your case.
Is Life Insurance Protected in Bankruptcy?
There are two primary types of life insurance: term life and whole life. There are many ways these can be structured, e.g. as a universal policy, but for our purposes we will look at the simplified term life insurance and whole life insurance policies.
A term life insurance policy does not mature until someone’s death. As a result, when you file bankruptcy your term life insurance policy, or a policy that you are the beneficiary of, does not have any value until someone’s death. If there is no value there is nothing to protect in your bankruptcy. However, if you are paying premiums for a term life policy, the monthly premium should be listed in your budget.
A whole life insurance policy has a “cash surrender value”. This means after having the policy for a period of time, you can borrow against the proceeds. Those proceeds could then be used to pay your debts. Fortunately, as long as the whole life policy has your spouse and/or children as the beneficiaries and you are using North Carolina exemptions, it is protected under the North Carolina Constitution and the North Carolina General Statutes. The North Carolina Constitution states that life insurance proceeds where the spouse and/or children are the beneficiary are protected from the claims of creditors. As a result, you should be able to fully protect your while life insurance policy when you file bankruptcy.
If you are the beneficiary of a term life policy or a whole life policy and the person dies while you are in bankruptcy, those proceeds belong to your estate or the court. As an example, if your great uncle Billy dies and leaves you $100,000, the $100,000 life insurance proceeds would be payable to the bankruptcy trustee to pay your debts. If the life insurance proceeds pay all your debts in full, any remaining life insurance proceeds would be paid to you. Life insurance proceeds that you become entitled to within 180 days of the date the bankruptcy is filed with the court is also property of the estate. As a result, if uncle Billy dies two months after your bankruptcy is completed, but it is within the 180 days of the date you filed bankruptcy, those proceeds would become the property of the estate as well. Therefore, you should tell your bankruptcy attorney if you believe you may receive any life insurance proceeds during the six months after you file. As always, you should seek the advice of your bankruptcy attorney.
What Is Income for Purposes of the Means Test?
Wait a second…I have to qualify to file bankruptcy? Isn’t it enough that I just simply cannot pay my bills? How do I determine whether or not I would qualify? The answer is simple enough: the Means Test. What is the Means Test you might ask? The Means Test is a formula used to determine your ability to pay back all of your debts. This will help determine whether or not you qualify for a Chapter 7 bankruptcy or if you will need to pay back some of your debts and file a Chapter 13 bankruptcy. The Means Test will take in consideration all of the income coming into the home, as well as some of the expenses that are coming out.
What is considered income for the purpose of the Means Test? Here are the most common types of income that factor into the Means Test:
Types of Means Test Income
| W2 Wages/Tips | Self Employment Income (this also includes babysitting income) |
| Family Support | Alimony |
| Income from Rental Properties | Child Support |
| 401k / IRA / Life Insurance Withdrawals | Trust Accounts |
| Unemployment | Pensions |
Almost all income is considered for the purposes of the Means Test. However, there is a small number of sources of income, generally those that derive from the federal Social Security Act, that are not considered for Means Test purposes.
The Means Test regularly changes requirements for each state, currently, North Carolina is as follows:
| Household Size: | Median Income for Means Test: |
| 1 | $37,781 |
| 2 | $50,630 |
| 3 | $55,468 |
| 4 | $67,578 |
Make too much? Before you get discouraged, there are “qualified” deductions that help bring down that means. Some qualified deductions are: taxes, medical insurance, life insurance premiums, mandatory deductions from you pay, charitable contributions, court ordered payments, and out of pocket co-pays and prescriptions.
You will need to sit down with your bankruptcy attorney and let them run a complete Means Test on you to determine whether or not you qualify at this time. Looking at the past six months of pay stubs or a profit and loss will help an attorney determine whether or not you are able to pass the Means Test.
Is Family Support Considered Income for Bankruptcy?
If you are considering filing bankruptcy, I am sure that you have been researching what types of bankruptcy are common and what they may involve. Upon doing your research, I am sure that you have seen the word “qualify” a good number of times. “How do I qualify? Is it not enough that I can’t pay my bills?!?!” one might say, but indeed you must meet income qualifications which have a major impact on which ever bankruptcy you choose to file. What is considered income you may ask? The most common type of income is a salary or wages you earn from employment.
Many people going through financially tough times will get support from their family and friends. So, with that said, is family support considered income for bankruptcy? Yes. If you receive financial support from family on a regular basis it is also considered income and must be included in your budget. Just because it’s not reported to the IRS or State when you file your taxes, doesn’t mean it’s not considered income in your bankruptcy.
Here are some other kinds of income that must be included in your bankruptcy:
Unemployment compensation
Babysitting/Side jobs
Child Support
Alimony
Self Employment
SSI (Social Security Income)
Retirement/Pensions
Retirement/Pension withdrawals
Sales of stock
Rental income
Money received for room and board (support from a roommate)
I Recently Financed a Purchase, Can I File Bankruptcy?
If you recently financed a purchase, e.g., a home, car, furniture or appliance, you should definitely speak with your attorney. Any purchase made within the 90 days prior to filing bankruptcy may be considered a fraudulent transaction. Depending on the amount of the purchase or how the funds were obtained to finance the purchase, the Court and/or your creditors could argue there was fraudulent intent even beyond the 90 days.
There are several things the Court may consider when someone purchases an asset shortly before filing bankruptcy:
Was the purchase for a necessity? If you financed a vehicle because your previous car had a major mechanical problem and needed costly repairs, you may be able to explain why it was necessary to make the purchase shortly before filing bankruptcy. The same may be true if an appliance, e.g. your refrigerator, stopped working.
Was the type of purchase reasonable? Did you purchase a used 2006 Honda Odyssey or did you purchase a new 2011 Hummer? You needed a vehicle large enough for your family of five, but you must use the reasonable test. The 2006 Honda will probably serve your family’s needs and be a bit more economical than the 2011 Hummer.
Was the financing completed with a legal process? This is best demonstrated with two examples.
If you went to your local dealership and obtained financing, you will probably have no problems with the financing following all of the legal steps. The only question for this type of financing is whether the dealership and their finance company should have known you were insolvent, bankrupt, at the time they provided the loan to you. This is an issue that could be played out in the bankruptcy court, but in most cases is not an issue.
If your brother-in-law gave you a $10,000 loan to purchase that used car and did not put a lien on the title of the vehicle, you and your brother-in-law will have some concerns and issues after you file bankruptcy. Without a valid lien on the title, the loan is not considered a “secured” loan but an “unsecured” loan. In other words, your brother-in-law cannot legally repossess the vehicle if you fail to make payments to him. In your bankruptcy, he would be treated like a credit card or medical bill and paid nothing or only a percentage of the amount owed to him depending on the type of bankruptcy you file. In addition, you may not be able to fully protect the equity in the vehicle. In that situation, the bankruptcy Trustee could actually sell the car and use the proceeds to pay your creditors. Needless to say, you or your brother-in-law will be happy with this outcome.
How was the asset purchased? If you recently purchased an asset and charged it on a credit card, you may be required to repay the debt. If you used a credit card to purchase that $10,000 car with hopes of discharging or eliminating the debt in bankruptcy, you should think again. Any purchase on a credit card will be reviewed, but any large purchase will most certainly be scrutinized by the credit card company and their attorney. You can expect a lawsuit in bankruptcy, also known as an adversary proceeding, to be filed against you by the credit card company. They will argue this debt should not be eliminated in bankruptcy and they will most likely win that argument. Similarly, if you decided to remodel your home and purchase new stainless steel appliances on your credit card, that debt will most likely not be eliminated. You may even find that the credit card used to purchase those items is considered a secured creditor.
Was the purchase used to protect an otherwise unprotected asset in bankruptcy? This approach is most often taken by someone who thinks he or she understands the implications of filing bankruptcy. Again, an example is the best way to explain. A person had $20,000 in stock that could not be protected in bankruptcy. Rather than lose the stock, the person decided to cash out the stock and use it as a down payment on a new home. Now the $20,000 of stock is invested in the home. It is no longer an unprotected asset, since the person can use his homestead exemption, currently $35,000 for an individual and $70,000 for a couple in North Carolina, to protect the equity in his home. But not so fast, the person must disclose the sale of an asset within two years of the bankruptcy filing. Failure to disclose the sale of the stock within the two years would most likely be discovered on review of the person’s tax returns. Needless to say, the Court would almost certainly see this as an attempt to defraud or perjury if it were not listed on the bankruptcy filing.
Not all purchases financed shortly before filing bankruptcy are problematic, some are for legitimate reasons. However, you should expect any purchases financed within three to six months of filing bankruptcy to be scrutinized. This timeframe could be for even longer if the assets purchased were for large dollar amounts or items not necessarily considered a necessity. You should obviously discuss any recent purchases with your attorney.
