Devalued Homes and Chapter 7

Many homeowners fear filing for chapter 7 because New Jersey does not have a homestead exemption. New Jersey, however, allows debtors to choose between the NJ set of exemptions or the federal exemptions. The federal exemptions allow individuals to exempt $20,200 worth of equity in a home and $40,400 for married couples. Many of my clients rely on a one to two year old appraisal for real estate valuation. This is a mistake. As per the old appraisals, most of these individuals would not qualify because they have too much equity in their home. If they were to file a chapter 7 bankruptcy in NJ, they fear losing their home. Prior to considering yourself ineligible for a chapter 7 filing in New Jersey, you should consider obtaining a new appraisal. This new appraisal will reflect the significant decrease in property values. I recently had a couple in my office who stated their home was valued at $850,000. I asked them to obtain a new appraisal so we can get an idea of the true value. After some hesitation, the couple decided to obtain a new appraisal in hopes of qualifying. The result: their home was valued at $675,000. This was significantly less than my clients had thought. Fortunately, it qualified them for a NJ Chapter 7 filing because they no longer had any equity in the home. Prior to ruling out the possibility of a New Jersey Chapter 7 filing, obtain an appraisal.