Bankruptcy Basics

• When filing for a Chapter 13, the debtor is allowed to retain all valuable assets and submits a plan for repayment of debts over a period of usually two to five years, at which point the bankruptcy is discharged. In a Chapter 7, the discharge is more immediate, occurring within a few months, and the repayment of debts is handled by a trustee after the debtor's assets are liquidated. Some assets may be kept if they fall under state or federal exemptions.
  
  

Unencumbered Equity

• The amount of unencumbered equity of a debtor's home is determined by subtracting any outstanding liens, home loans, homestead exemptions and remaining mortgage payoff from the fair market value of the home. If there is no equity left after paying off these loans and exemptions, the home will not be sold by the trustee.
  
  

Homestead Exemption

• The Homestead Exemption is the amount of equity that is protected in a Chapter 7 bankruptcy. This varies state to state, with some states, such as Pennsylvania, Maryland, Delaware and New Jersey not offering this exclusion at all. Federal exemptions are available in some states, and others limit the amount for convicted felons and newer mortgages.
  
  

Tenancy by Entirety

• 17 states and the District of Columbia will allow the debtor to remain in their main residence regardless of equity value. These states offer ownership as tenants by the entirety: Delaware, Florida, Hawaii, Illinois, Indiana, Maryland, Massachusetts, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia and Wyoming.