In this post, I will discuss how to value your real estate when preparing to file bankruptcy.
The Bankruptcy Code and Georgia law provide that a certain amount of your ownership interest (equity) in real estate is exempt when you file bankruptcy. You can exempt (shelter) the first $21,500 of equity in real estate when you file bankruptcy. If you file jointly with your spouse, you can shelter $43,000 of equity.
This means, for example that if you own a house worth $200,000, and you owe $180,000, no one can lay claim to your $20,000 worth of equity. Your ability to exempt property makes bankruptcy filing a lot more palatable and doable.
Interestingly, while bankruptcy law is federal in nature, Georgia law controls which and how much property you can exempt. The Georgia exemption rules are set out at the Official Code of Georgia, Section 44-13-100.
How to Value Real Estate for Bankruptcy Purposes
An issue that often arises in Georgia bankruptcy court – how does a bankruptcy debtor accurately calculate the value of his or her house. If you own real estate, you will be asked by your lawyer to estimate a value – and you need to be as accurate as possible.
At Ginsberg Law Offices, we encourage our clients to determine their home valuation based on a “quick sale” valuation – in other words, how much would you net (after commissions and closing costs and needed repairs) if you needed to sell your house in two weeks.
Written Evidence of Real Estate Values a Plus
Whenever possible, we recommend to our clients that they contact a local real estate brokerage company to request a “drive by” appraisal – it is always helpful to have a written “walk away” number if your estimate is ever questioned.
There are also several on-line tools you can use to get a valuation range, including:
Our experience has been that bankruptcy trustees – either in Chapter 7 or Chapter 13 – will usually accept your valuation estimate if there is some written backup.
Formal Appraisals Sometimes Needed
In rare cases, we might recommend that you obtain a formal appraisal of your property. For example, if you recently refinanced, and the appraisal purchased by the refinance lender shows a valuation higher that what your house would actually produce, you may need to get a “real world” appraisal for evidence.
Problems Arising from Inaccurate Valuation
Significant errors in real estate valuation can create problems in your bankruptcy.
If you list a valuation that is too low, you run the risk of a trustee objecting to your scheduled valuation and asking the Court for permission to seize your home.
In addition an obvious under-valuation will call your honesty, truthfulness and credibility into question in future dealings with your Bankruptcy Judge, your trustee and opposing counsel.
If you list a valuation that is too high, you may miss out on the availability of Chapter 7 or you may pay back more than is necessary in a Chapter 13. If you own real estate and you are considering bankruptcy, take the time to research the value of your home or any other real estate you may own. Whenever possible, obtain written documentation from a reliable source to support your estimate of valuation.