Homestead exemption
People seeking a discharge of their debts through Chapter 7 bankruptcy are allowed a homestead exemption for their personal residence, but frequently clients find themselves in the situation of owning a second property used for rental income. While such homeowners would not be able to keep the second property after a “no asset” Chapter 7 filing, if the second property is close to foreclosure, the owner may wish to file bankruptcy and get a discharge from the second property mortgage as well as other debts. Such a debtor could retain their residence and continue paying the mortgage. Bankruptcy is an answer to assist those in such foreclosure situations unable to make mortgage payments on the second property even after rental income is factored in. While rental income would be factored into the debtor’s household income, so long as their total income falls below the recently readjusted median levels and debtor’s share of household expenses are at a proportionate level, such individuals can still qualify for Chapter 7 relief. Be sure to check with a qualified bankruptcy practitioner in your jurisdiction as the amounts allowed for personal residence homestead exemptions would vary considerably from state to state.
