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Bankruptcy May Be Your Option

Is Your Home Safe in Bankruptcy?

Quite often a client is concerned whether they will lose their home if they file bankruptcy. For those individuals living in a handful of states, like Oklahoma with an unlimited homestead exemption, the answer is typically a resounding yes. However, the homestead exemption has limitations, a cap, and in some cases a doughnut hole.

When an individual files bankruptcy, all of their property, with certain exceptions, becomes part of what is called a bankruptcy estate. Property included in the bankruptcy estate can be used to satisfy your debts. However, under Bankruptcy Code § 522, the debtor is entitled to exempt certain property from their bankruptcy estate and the list of this exempt property is called the list of exemptions. If property is exempted from the bankruptcy estate, it is safe and cannot be taken to satisfy the debtor's financial obligations or debts.

There are strict time limits for the taking of legal action in such cases, so do not hesitate to send us an email or call us at 918-236-8385 for a consultation.

What exemptions an individual is allowed to use is dependent upon the state where the debtor files his or her bankruptcy. Each state is allowed to select whether a debtor will use the federal exemptions contained in § 522 of the Bankruptcy Code or the state's exemptions. Oklahoma, like many states, has elected to use the exemptions provided by federal, state, and local law and not the exemptions provided in section 522 of the Bankruptcy Code. In other words, if you file bankruptcy in the Northern, Eastern, or Western federal districts of Oklahoma, the law of the State of Oklahoma dictates whether your home is exempted from the bankruptcy estate.

Oklahoma law provides at 31 O.S. §§ 1 and 2, that an individual's interest in their homestead is exempt, unlimited in value. While the value of the homestead exemption is unlimited, it is limited in size. If the debtor lives within the city limits of any city, the size of the homestead is limited to 1 acre. If the debtor lives outside the city limits, the size of the homestead is limited to 160 acres and the 160 acres need not be contiguous. If the homestead exceeds the acreage limits, the debtor is allowed to select the portion or portions of the property to exempt. A skilled bankruptcy attorney like The Colpitts Law Firm can maximize the exemption of your home in order to help you save your home.

Besides the acreage limitations, there are certain other limitations to the homestead exemption that were incorporated into the Bankruptcy Code by the 2005 BAP/CPA amendments. The use of non-exempt property by a debtor within 10 years prior to filing bankruptcy to increase the debtor's equity in the residence can create a non-exempt doughnut hole in the homestead exemption if the transaction was done with the intent to hinder, delay, or defraud a creditor. An example of such a transaction would be to cash in a non-exempt investment account and use the proceeds to pay down or pay off a mortgage loan within the 10 year period before the filing of bankruptcy. The question then becomes whether the debtor used the investment account proceeds to hinder, delay, or defraud a creditor. If a Bankruptcy Court determines that the debtor's actions were undertaken with the intent to hinder, delay, or defraud a creditor, the Chapter 7 trustee can force the sale of the home in order to obtain the non-exempt portion of the home.

Another limitation on the homestead exemption brought about by BAP/CPA is a homestead exemption cap of $146,450.00 (indexed for inflation). In order for the homestead exemption cap to apply, the debtor must have acquired the interest in the homestead within 1,215 days immediately preceding the filing of the bankruptcy. The homestead exemption cap applies where the equity in the homestead exceeds the adjusted amount and the interest was acquired within 1,215 days immediately preceding the filing of bankruptcy. There are exceptions and court opinions which affect the outcome of this cap. In most cases, a debtor's equity (the value of the homestead over any mortgage loan balance) is below the adjusted cap or an exception applies. However, if the value of equity in your residence exceeds the adjusted cap, you should contact a qualified bankruptcy attorney to discuss your options before filing bankruptcy. The Colpitts Law Firm has the skill and knowledge to answer your question regarding this and other bankruptcy issues.

Finally, if an individual has resided in the state where they file bankruptcy for less than 2 years, the individual will not be able to use that state's exemptions and will be forced to use the state in which they resided during the 180 days immediately preceding the 2 year period or the greater part of the 180 days. If that state does not allow the extraterritorial use of its exemptions, the debtor will have to use the federal exemptions contained in section 522 of the Bankruptcy Code. Under the federal exemptions, the homestead exemption is limited to $21,625.00, indexed for inflation.

The availability of exemptions is not always clear cut and there can be pit falls and traps for the uneducated. As a result, the election of exemptions can be one of the most important and complicated aspects of filing bankruptcy. You should make sure that the attorney you hire to file your bankruptcy is experienced in bankruptcy so that you can maximize your exemptions and save your home.

To get started on your case right now, simply complete our Confidential Consultation Form or give us a call at 918-236-8385 . Let us start working on your Tulsa bankruptcy case immediately.

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