Disabled with Equity in Home Can I file Chapter 7 Bankruptcy. Are you disabled? Have you applied for disability but are waiting for approval? Have you applied, been denied and have appealed disability? Do you have over $20,000 in credit card debt and can pay your credit cards? Have you owned your own home for many years and now have equity? You’re not alone. Many Americans are now seeing the value of their home rise, but are saddled with unsecured debt such as credit cards.
Recently, I had a similar situation. Debtor had $50,000 in unsecured debt i.e. credit cards. Debtor had applied for disability but was denied and had been working half shifts for the last several years pending approval of disability. Debtor did not qualify with his income to get a new home equity loan or refinance his home, but has $80,000 of non-exempt equity. What does debtor do?
1) Cannot file Chapter 7. This will result in the home being sold in the bankruptcy to pay off creditors at 100% which results in debtor losing home, not getting full value of home and debts are paid off in same fashion as outside of bankruptcy.
2) Debtor cannot refinance or get home equity loan even though he has $80,000 of free and clear equity. This is because debtor cannot prove adequate current income to be approved for refinance or new home equity loan.
3) Debtor cannot sell his home because an apartment that matches his current income would not provide enough space for his family.
4) Debtor cannot file Chapter 13 because his income is inadequate and even if he had full disability pay, this is not considered income under Chapter 13 and the case would be dismissed.
The only solution; add a credit worthy person to the title of the home and have them apply for home equity loan, hope that full disability is approved soon and then pay off loan as normal with additional person being primarily liable for the refinance or home equity loan. This type of application will typically only apply to individuals who have family units or friends who are comfortable with the risk associated with this type of arrange.
