How to Value Your Home in Bankruptcy

Learn why keeping your home in bankruptcy can depend on home market values and a bankruptcy appraisal.

By , Attorney · University of the Pacific McGeorge School of Law

A bankruptcy appraisal will give you an accurate home valuation you can use to determine whether you can protect your home before you decide to file for bankruptcy. Learn how to find the current value of your home using home market values and bankruptcy home appraisals.

Protecting Your Home With a Bankruptcy Home Appraisal

Almost all states let residents who file for bankruptcy protect some amount of equity using a homestead exemption. However, the extent of that protection varies.

In some states, such as Florida, the entire homestead is protected regardless of value. Iowa and Texas have liberal exemption statutes, as well. By contrast, homestead protection can be very little in other states, such as Kentucky. Learn more about state bankruptcy exemptions.

Why Home Market Values Matter

You'll need an accurate home valuation to determine whether you can protect your home in bankruptcy. Next, you'll deduct the mortgage balance and determine the equity. If the equity is less than the amount of your state's homestead exemption—and possibly a wildcard exemption if you can stack the two—you can protect your house in bankruptcy.

When you can't protect all of your equity, what happens next depends on the bankruptcy chapter you file.

When You'll Need a Chapter 7 Home Appraisal

If the equity exceeds the available homestead protection, your house might be at risk in Chapter 7 bankruptcy. The bankruptcy trustee would sell it, pay off the mortgage, give you your exempt equity, and distribute the remainder to creditors.

Getting a Chapter 7 home appraisal before filing for bankruptcy could help you determine whether you could keep your home in Chapter 7 and potentially avoid filing if you would lose it. Learn more about your home in Chapter 7 bankruptcy.

When You'll Need a Chapter 13 Home Appraisal

You can keep your house by filing for Chapter 13 bankruptcy. However, one of the requirements of keeping the home is paying creditors an amount equal to the home's nonexempt equity through a three- to five-year repayment plan.

If the amount of equity is in question, you might need a bankruptcy home appraisal in Chapter 13. Learn more about your home in Chapter 13 bankruptcy.

Valuing Your Home With a Bankruptcy Appraisal: Your Options

When you fill out the bankruptcy forms, you'll be asked to provide the "current value" of your home on the date that you file for bankruptcy. Another term for current value is "fair market value," which is the amount a seller who isn't pressured to purchase would agree to pay for the home.

You can use different ways to determine the value of your home before you file for bankruptcy. However, the most important thing to remember is that your valuation isn't the deciding factor. The bankruptcy trustee appointed to oversee your case will also determine the value of your home. If there's a disagreement, a bankruptcy judge will review the basis for both valuations and make a final decision.

Full House Appraisal

A full appraisal will give you the most accurate value for your property. You might have a recent appraisal if you refinanced your home or modified your loan. What is considered a recent appraisal will depend on the current housing climate.

To get a full appraisal, you hire a licensed real estate appraiser who inspects your property and prepares a lengthy report containing information on your home and sales of comparable homes. Based on that information and any other factors the appraiser finds necessary, the appraiser will set a value and explain the valuation.

A full appraisal is the most expensive option and isn't needed in most routine bankruptcy cases. However, it is necessary if you plan to try to strip the second mortgage on your property in a Chapter 13 bankruptcy. See Getting Rid of Second Mortgages in Chapter 13.

Comparable Market Analysis

A comparable market analysis, which is less expensive than a full appraisal, might provide an accurate home valuation when preparing your bankruptcy paperwork. Under this option, a licensed realtor will compare your house to other homes sold in your area. A market analysis will use data from the sales of homes close to yours that are similar in size, style, and condition.

Real Estate Websites

These might be useful if you have a high mortgage amount and believe the homestead protection will be more than sufficient to protect your property. The information you can obtain might confirm your understanding of your home's value. If not, you can get a more formal valuation if necessary. and are two places to start. Your local trustee will likely prefer a particular site (and view others with more skepticism). It might be helpful to contact the local branch of the U.S. Trustee's office for clarification.

Valuation Methods Not to Use

Some valuation methods aren't reliable for bankruptcy purposes and shouldn't be used.

Property Tax Appraiser Values

Your locality may have a property tax appraiser who values your property for real estate tax purposes. These valuations are rarely utilized in a bankruptcy proceeding.

The property tax appraiser often uses methods that are not acceptable for sale purposes, and the value is often not an accurate representation of the home's market value.

Quick Sale Values

This valuation method produces a lower value based on a need to dispose of property quickly. It isn't readily applicable to real estate. A bankruptcy trustee will sell a house the same way a homeowner would—by hiring a real estate broker to market the property. As a result, a "quick sale" value is not helpful when considering bankruptcy.

Also, if you rely on an artificially deflated value, you might incorrectly assume you can keep your home. It's essential to get it right because many Chapter 7 bankruptcy judges won't let you dismiss your case just because it turns out that you'll lose property you thought you'd be able to keep.

Need More Bankruptcy Help?

Did you know Nolo has made the law accessible for over fifty years? It's true, and we want to ensure you find what you need. Below, you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!

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Helpful Bankruptcy Sites

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United States Courts Bankruptcy Forms

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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