Selling a House and Bankruptcy: Timing Is Everything
The relationship between your house and bankruptcy depends on timing, the chapter you file, and your state's homestead exemption. Getting this right can mean the difference between keeping your equity and losing it to creditors.
State-Specific Guides
Indiana and Kentucky have dramatically different homestead exemptions — this affects whether your home equity is protected in bankruptcy:
Indiana
Homestead Exemption
$22,750 per person
Married (joint filing)
$45,500 protected
Court
Southern District (New Albany)
Kentucky
Homestead Exemption
$5,000 only
Married (joint filing)
$10,000 protected
Court
Western District (Louisville)
Kentucky Homeowners: Critical Warning
Kentucky's homestead exemption is only $5,000 — one of the lowest in the nation. If your home has any significant equity, it is at risk in a Chapter 7 bankruptcy. Selling before filing may allow you to convert home equity to exempt cash (up to $5,000) or use the proceeds to pay priority debts. Consult a bankruptcy attorney before making any moves.