"My House, My Piggy Bank" (Requires free registration)
Here's the part that talks about the homeowner's exemption, and how it works:
"I've never sold a house," said Barbara Katz, the Briggses' trustee, who worked on bankruptcy cases since 1992. The arithmetic works like this: Because their $269,000 house has $127,000 in mortgages on it, a sale would generate $142,000, less than the $150,000 exemption. The couple would be allowed to keep the entire $142,000, and there would be nothing to give to creditors, Ms. Katz said.
In sharp contrast, New Jersey allows only a $37,000 exemption; a law increasing that to $250,000 was conditionally vetoed by Acting Gov. Richard J. Codey but could be passed with modifications later this year. Until Aug. 31, New York allowed just a $20,000 exemption for a couple. (It is now $100,000, but more on that later.) With property values and home equity rising rapidly, virtually all homeowners had more than $20,000 in equity, so homes could be sold to pay off credit-card debt.
Every state has its own way of handling the exemptions — if any — on debtors' homes and their equity in them. If you're interested in how your state handles it, you can check it out here.
A few more passages, and my thoughts on them:
A review of bankruptcy trends by The New York Times shows that areas in New York and New Jersey with the highest concentration of homeowners have had little or no increase in bankruptcy since 2002. In areas where there are few homeowners, bankruptcy rates have increased sharply; in some places they have doubled. The pattern is consistent with what bankruptcy lawyers and researchers see in their practices and studies: Homeowners in the suburbs are taking on more and more home-equity debt to stay out of bankruptcy.
I'll just say this: When your house is your ATM of last resort, you've got problems. There will come a time when that ATM stops working. And then . . ..
"Some people have been spared filing the petitions because they have home equity," said Andrew Thaler, a bankruptcy trustee on Long Island. "My guess is when the housing market flattens, people are not going to be able to sustain the lifestyle they've been maintaining, and you'll suddenly see a lot more bankruptcies."
Exactly. But home prices only go up, right?
A young couple from Cortlandt Manor, N.Y., told a woeful tale of lost jobs, a lost home in Florida, a deeply troubled 12-year-old, and a kiting operation that kept all their credit-card payments up to date. "I had to take money from the Optima card to pay the bill on the MBNA," the wife said. "But I always paid." With $258,685 on more than 60 cards, they finally filed for bankruptcy.
No, you didn't "always pay." You just moved your debt — much the same as those who borrow against their homes. "Paying" would involve using your own money and your own assets.
The whole [bankruptcy] process, from filing to discharge, takes four months, on average. But obtaining credit after declaring bankruptcy is far more difficult.
From what I've read, obtaining credit after bankruptcy isn't too tough at all. Obtaining credit at decent terms ... now that might be tough.