Home prices across the country have continued to rise steadily throughout 2023. In New Jersey, prices in October were up 10.6 percent compared to last year. What’s more, despite soaring mortgage rates, the market shows no signs of abating. This is due to a relative shortage of housing inventory.

This increase in value might seem to be beneficial to homeowners, but it can actually work against those who are contemplating filing for bankruptcy. Protecting a home from sale to satisfy creditors becomes more difficult. This is because the federal homestead exemption — the only exemption available in New Jersey — remains static as home equity increases with rising market value. The exemption is $55,800 for a married couple and $27,900 for a single person. But equity value for some homes in the current market can easily be in excess of $100,000.

If you file a Chapter 7 bankruptcy and your home equity is less than or even slightly above the amount of the homestead exemption, you should be able to keep the home. But if the equity far exceeds the exemption, it’s likely that the bankruptcy trustee will sell the home, pay off the mortgage and other expenses, pay you the value of your exemption and use the balance of sale proceeds to satisfy creditors.

You may have a better chance of protecting your home through a Chapter 13 bankruptcy, as long as you qualify. Chapter 13 requires committing to a plan for repaying a portion of your unsecured debts, including mortgage arrears, over a period of three to five years. This can allow you to keep your home. But to qualify for Chapter 13, you must have sufficient disposable income, after meeting your monthly living expenses, to make your monthly payments.

Your Chapter 13 plan will require you to pay off the amount of home equity not covered by the homestead exemption. Here again, the current housing bubble can be a problem. Your monthly payment may be unaffordable if your equity is too high. For example, if you have $120,000 in nonexempt equity, you would need to pay $2,000 a month for a five-year plan. If you can’t make those payments, which are in addition to other monthly amounts due, you may not be able to keep your home.

If you have too much equity in your home to enter an affordable Chapter 13 plan, you may need to explore other options. An experienced bankruptcy attorney can analyze your situation and help craft creative solutions that might allow you to keep your home. In some circumstances, a mortgage modification may be possible.

The Law Offices of James C. Zimmermann represents clients throughout New Jersey’s Sussex and Passaic counties in debt relief matters. We have offices in Vernon, Wayne, Pompton Lakes, Hackensack and Nutley. Call us at 973-764-1633 or contact us online to arrange a free consultation.