If you apply for Chapter 7 bankruptcy, you will get to keep your primary residence, but you will lose any other real estate property you may own to the trustee. However, there are a few exceptions that may allow you to keep your second home. Here are three examples of these exceptions:
You Save the Home Via a Wildcard Exemption
The federal and state government don't want you to be destitute because of your bankruptcy application. This is why bankruptcy law exempts some properties during asset seizure by the trustee. Apart from the specified exemptions, there are also federal and state wildcard exemptions that you can apply to any property. You can use this wildcard exemption to save your second home.
Whether or not the wildcard exemption can save your home depends on different factors such as these:
- State laws – some states restrict the wildcard exemption to personal property while in other states you can use it on any property.
- Limits – the wildcard exemption usually has a low dollar limit that may not be adequate for your house; however, you may be able to augment it by combining it with your unused homestead exemption.
You Exchange the Home With an Exempt Property
Secondly, you may also get to keep your second home if you can give the trustee an exempt property on its behalf. For example, cash in the bank is exempt in Chapter 7 bankruptcy, so you can "buy" your home from the trustee. If you have a collector's car whose value is equal to that of your second home, you can also use it to save your second home. Don't forget that the trustee will have to sell the property you are exchanging for your second home, so they will only take the property if it is easy to sell.
The Trustee Abandons the Property
You also get to keep your second home if the trustee abandons it. The trustee may abandon your second home if they feel that it has no value that can benefit the creditors. This may be the case, for example, if no one wants to buy the property (perhaps its location is terrible), it has numerous liens, or there won't be much left from its sale after subtracting the expenses associated with the sale.
Therefore, don't assume that your second home is toast while applying for bankruptcy. Talk to a bankruptcy lawyer like Greg Dunn Bankruptcy Attorney about the above exceptions and any other ways to keep your second home if that is your wish.