The Unintended Consequence of Rising Home Equity

man carrying house on back

Although the housing market has recently begun to cool a bit, chances are your home’s value is still well above what it was just one year ago. This means that, even without making any home improvements, your home’s equity has likewise increased. While this is a ‘plus’ for most homeowners who can either leverage that equity for a home improvement loan/line‐of‐credit or simply ‘cash out’ by selling their property, it can complicate matters for anyone struggling with debt. If you are currently in debt and considering bankruptcy as a solution, your inflated equity might now disqualify you from filing for Chapter 7.

Most bankruptcy filers pursue Chapter 7 bankruptcy since it is the quickest and least involved (and therefore least costly option) for debt elimination. To qualify for Chapter 7, filers must pass what’s known as the ‘means test’. Put simply, the means test examines a filer’s income and expenses to determine how much – if any – disposable income could be used to pay down debt. If a filer does NOT pass the means test, s/he MAY consider filing Chapter 13. OR – assuming there’s an anticipated drop in income (or the real estate market continues to fall) or increase in expenses – simply re‐take the means test in six months. Whatever the result of the means test, the right attorney can go over ALL your options and steer you in the direction that’s best for your unique financial situation. Regardless of which side of the balance sheet your assets fall, I’m the attorney to call. Whether you want to leverage your increased home value to build even more wealth or restructure your debt, I can help.

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