What Is This "equity" That Everyone Talks About?

When thinking about what assets are at risk when you file a bankruptcy, the first thing you have to look at is whether or not your "stuff" has any "equity." Equity is the value of your stuff (a home, for example) minus the amount you owe to the lender or the lenders (the amount of your mortgage(s) including lines of credit). If your assets have equity and that equity cannot be protected, then you will need to pay your creditors something.

For example, you have a home worth $500,000. There is a first mortgage of $300,000 and you have a home equity line of credit for $250,000. You would calculate the equity in your home this way:

                                                         $500,000
                                                         $300,000
                                                       - $250,000
                                                       - $50,000

Since the difference between your $500,000 home and your mortgages is a negative number, you have no equity in your home. In most any bankruptcy you file, no one will be interested in taking your home because there would be no benefit to your creditors.

Let's say your home is worth $500,000 and you owe your first mortgage $300,000 and you have a home equity line of credit owed $100,000. You would calculate equity in this manner:

                                                          $500,000
                                                          $300,000
                                                        - $100,000
                                                          $100,000

The difference between the value of your home and all your mortgages is approximately $100K - meaning you have approximately $100,000 of equity in your home.

In a state where you have no homestead exemption or a state with low dollar amount protections, having $100,000 of equity in your home could mean there is a chance your home could be sold. In California you may be allowed to use a homestead exemption to protect this equity. The amount of your exemption depends on many factors. When you meet with one of our attorneys, we make sure that you get all of the information to figure out whether your stuff is, or is not, at risk.

To calculate the equity in something like a car or RV, you do the same type of calculation. You take the fair market value of the car or vehicle, subtract the amount you still owe on the vehicle and the difference is the equity. If your vehicle has no equity, then it will not be taken.

Our job is to try to help you keep your "stuff". We are darn good at it, so give us a call if you have any questions.