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  1. Bankruptcy Glossary
  2. Equity

What is Equity?

Equity is the amount or value of an item or property after the claims against it, such as liens or mortgages, have been subtracted. Individuals who are filing for Bankruptcy need to consider the amount of equity they have in there home and whether or not they wish to protect their home in the bankruptcy process.

How equity is determined

A general method for determining equity is to analyze the market value (the sale price of the property less the costs of selling the property) and then subtract any mortgages or liens against the property. This number is the total equity in the home the filer will have to consider in their bankruptcy case. Recently, a large part of the United States population has seen a drastic reduction in the equity of their homes which has lead to an increase in bankruptcy filings.

Bankruptcy laws are developed at the federal level, but certain exemptions may also exist at the state level. States may choose to use the federal or state exemptions and the amount of home equity which is protected may vary. In Texas, filers have the choice to use federal exemption statutes or Texas state exemptions, and the amount of the exemption limit is based on the amount of equity the filer has in their property. If you are considering bankruptcy and you have equity in a home, it is important to discuss the state and federal homestead exemptions with a qualified bankruptcy lawyer.