Bankruptcy Exemptions Now Too Low For Indiana
Indiana bankruptcy exemptions are quite low compared to other states. The recent housing value boom has left the residence exemption for bankruptcy in Indiana more lacking than ever. Indiana, like a minority of other states, has a very limited residence protection amount in bankruptcy. Coming in at a meager $19,300 per bankruptcy filer, this amount of equity protection that is allowed during Chapter 7 is making bankruptcy relief hard or out of reach for certain segments of Indiana’s public. It is even causing some bankruptcy filers who only purchased their home a few years ago to now to have too much equity in their homes for that purpose.
How Does Indiana’s Bankruptcy Exemption Work?
In Indiana, you are allowed to keep up to $19,300 worth of the house for your residence when you file for bankruptcy. This amount also doubles to $38,600 if you have a married couple filing who are both on the deed of their residential home. Outside of mobile homes, there are virtually no homes in Indiana that fit into the $19,300 protection when they are paid in full. Therefore, it usually plays out that you must have approximately $19,300 (or less) of equity in your home (due to a large mortgage being on your property) if you want to keep your residence. It does not matter if your residence has been paid off for 20 years or even generationally as your family home. You will lose your house most likely if you need bankruptcy relief if the value significantly exceeds this $19,300 amount in the State of Indiana.
How Does Indiana’s Residence Exemption Stack up Against Neighbor States?
It does not stack up very well. For instance, the State of Ohio has a residence exemption of $145,425. This is 7.5 times larger than Indiana’s exemption. Ohio’s exemption also can actually protect the full value of a modest residence, which is a near impossibility in Indiana. Michigan’s exemption is $38,225 per bankruptcy filer. In Michigan, this amount also increases after you reach the age of 65 or if you become disabled. The increased exemption for Michigan is $57,350 per filer. Flordia and Texas homestead exemptions are very large with Texas being unlimited in value and Flordia reaching the millions.
On the lesser ends, the Federal Exemption for residence (which is available in many states, but not Indiana) is still also larger than Indiana at $25,150. Indiana’s neighbors Kentucky and Illinois have some of the most dismal and low residence exemptions in the entire nation, coming in at only $5,000 for Kentucky and $15,000 for Illinois. However, it is important to point out that federal bankruptcy exemptions are allowed to be taken in Kentucky, effectively raising their $5,000 to $25,150 per person for any person who opts for such protection. Essentially, Indiana stacks up very poorly compared to the national average for residence protection. It also stacks up very poorly to that of Indiana’s immediate neighbors except for Illinois as the only exception.
Why Does This Matter?
Central Indiana has been reported as one of the fastest real estate value growth areas in the nation. Coupling this fact with very restrictive residence exemptions, many home values are increasing too quickly to be clearly protected during bankruptcy filings. Even some mortgage holders who put little or no money down are finding this problem only a few years after their home purchase. These elevated values may only be temporary, but it is currently it could effect the bankruptcy analysis and which Bankruptcy Chapter Indiana residents choose to file under.
A greater wrong hood, however, is more simple and obvious: no person’s paid-in-full home is ever truly “safe” in Indiana. The state legislature must believe that it is okay for a person’s paid-in-full residence to be “up for grabs” in Indiana at all times by creditors. It does not matter if you incurred unexpected hardship or medical debts. It does not matter if your home has been paid-in-full in your family for generations. You will lose your paid-in-full residence if you manage to incur too much debt in Indiana. The circumstances do not matter. It’s currently Indiana law.
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