Tiny House and Filing Bankruptcy

February 23, 2022

Getting a Paid-in-Full Tiny House and Filing for Bankruptcy?

The growing phenomenon of “tiny houses” is even reaching the realm of bankruptcy.  I have been asked more than once the tiny-home question.  Can I get a tiny house and file for bankruptcy in Indiana?   The answer to this question is “yes.”  You can get a tiny house and file for bankruptcy if you follow certain steps.

Tiny Houses and Bankruptcy:  It is About Value

Tiny House Value and BankruptcyValue is the most important consideration when it comes to keeping a tiny house through bankruptcy.  You must watch the total value of the land and tiny house together to see how much it totals.   If you have too much value in the land and house, you may go over the “exemptions” when you file for Chapter 7 bankruptcy.

Although tiny houses are very small, Indiana’s exemption for residences is also very small, only allotting $19,300 per person.   If you are single, this means that the land and the small house can only be worth about $20,000 or less.  If you exceed this amount too much, you risk the Trustee in your Chapter 7 either selling the place or pursuing you until you pay out the difference in the value.

Now, remember, you do not have to count any mortgage or loan on the property.  For instance, pretend your property’s value was $100,000, but you had an $85,000 mortgage on the place.   You would only have to count $15,000 in such a scenario.  That amount would easily fit into the $19,300 exemption.

Also, if you are married and both you and your spouse are on the deed, then you could likely double the exemption to $38,600.  It may be much easier to fit a paid-in-full tiny house into under about $40,000 in value.

In addition, you can always keep your tiny house with you and elect to file under Chapter 13 bankruptcy.  In Chapter 13, you submit a repayment plan where you pay some of your debt back.   Your tiny home would be fully protected if you can afford to do such as case.

You Might Have to Keep it Basic if It is Paid-in-Full

Simple Tiny House in BankruptcyObviously, some land in Indiana can be purchased affordably, ranging even under $5,000 or $10,000 for a 1-2 acre lot.  In addition, tiny houses can be extremely basic.   Many are just sheds and mini-barns with insulation and drywall.

If you are in the early stages of your tiny house or if you keep it extremely small and basic, you might be able to fit the tiny home into the exemption.   Remember, you only have $19,300 (or possibly $38,600 if you are married) to work within during your planning.   If you desperately need to file for bankruptcy, be careful not to exceed this value of what is protected from creditors when you file for bankruptcy.   Otherwise, tiny houses may be the way to go.  They offer an affordable, basic, and enjoyable lifestyle that can help keep you out of debt in the future.



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