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Do I need to do a home appraisal before filing for bankruptcy?
17 November 2015

It depends. Generally, most bankruptcy filings do not require a home appraisal on a debtor’s real property unless the house has significant equity or the debtor uncertain as to the value of the real property. Additionally, many people use third party sites to derive an estimate value of the property and not a formal appraisal. Such third party sites may not be accurate or as accurate as a formal appraisal. Further, with the collapse of the house market, most home values have plummeted to a value less than the value of the mortgage(s) encumbering the home. In such scenario, a formal appraisal is not required.

A home appraisal should be obtained by a debtor when the home value exceeds the total encumbrances on the home and depending on the exemption system used by the debtor. Certain exemption systems allow for the protection of the equity in the home. However, many factors apply besides which exemption system to use. Such factors to evaluate include but are not limited to, the debtor(s) marital status, disability status, age, income and whether the home is the debtor’s primary residence or a secondary/rental property.

For example, let’s assume debtors Dan and Deborah owns a home in which they personally estimate the value to be $300,000 and which is encumbered by a single mortgage for $100,000, which leaves an equity of $200,000. This equity must be protected using exemptions to avoid sale of the property by the assigned trustee in a Chapter 7 bankruptcy. Depending on the exemption system and factors in the case, Dan and Deborah may be able to protect up to $175,000 of the equity in the property, leaving $25,000 unprotected and subject to possible sale by the assigned trustee. Here, Dan and Deborah should obtain an appraisal to revaluate the property to ensure it is worth $300,000 and not more or less. If the appraisal valuates the property at $275,000 or less, Dan and Deborah can thus protect the full equity and avoid a possible sale of the property.

Filing for bankruptcy is a complex process. Further, selecting the appropriate bankruptcy exemption and how to exempt property is difficult enough and should be done without error to avoid mistakenly having your property subject to being taken. Thus, it is crucial that you select a highly skilled bankruptcy attorney. I make it my goal to provide each client the dedicated time and experience to assist the client with his/her bankruptcy.

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