Hanson & Payne is known as one of the top bankruptcy firms in the Milwaukee area, but we also represent clients in real estate transactions. Where these two very different areas of law overlap is where our experienced team members shine.
Our firm gets a lot of questions about bankruptcy and real estate because we do work in both areas, so we put together this list of three things to know about bankruptcy and real estate.
1. The Homestead Exemption Can Keep a Roof Over a Filer’s Head
Under both Wisconsin law and federal law, bankruptcy filers can choose to keep certain pieces of property they own or have a mortgage on. The property that a filer is able to protect from creditors is known as exempt property.
The current federal exemption amount is $27,900. Spouses who co-own their home can double this amount and claim a $55,800 homestead exemption. These dollar amounts were just increased in April, and will be adjusted again in April 2025.
If a filer chooses to use the exemptions contained in Wisconsin law instead of federal law, the homestead exemption amount is $75,000 for an individual or $150,000 for a married couple.
Looking at an example is helpful for understanding how this works. Suppose a couple filing for Chapter 7 bankruptcy has a house that is worth $350,000, but has a mortgage balance of $225,000. The filers’ equity in the home is $350,000 – $225,000 = $125,000. If the bankruptcy trustee sold the home, he or she could expect to get $125,000 from the sale, which could then be distributed to creditors. In order to prevent the trustee from selling the home, the filers can rely on Wisconsin’s $150,000 homestead exemption to block the sale and stay in the house since the exemption amount is greater than the couple’s equity in the home.
If the couple’s equity in the home was greater than the homestead exemption amount, the trustee could sell the home and distribute the proceeds of the sale to the couple’s creditors.
Wisconsin is one of a handful of states where filers can choose whether to go with the federal exemptions or state exemptions. It might seem like going with the Wisconsin exemptions is a no-brainer since the homestead exemption is much larger, but filers need to look at the full picture when making this decision. It might work better overall for a family to use federal exemptions if there are other assets they want to exempt, or they have a lot of equity in the home. Hanson & Payne clients can rely on our team to advise them when making this important decision.
2. What Happens to Investment Property & Rentals During a Bankruptcy?
There are a lot of people in the Milwaukee area who own rental properties or other investment properties that they intend to rely on for income when they retire. Should this sort of property owner need to file for bankruptcy, he or she will likely be forced to sell these properties and use the proceeds to pay off creditors.
The homestead exemption can only be used for the primary residence. And exemptions that cover investments and retirement plans do not cover real estate investments.
3. Buying Property Out of Bankruptcy is Growing in Popularity
Real estate buyers who are looking for a deal are often drawn to bankruptcy proceedings because it is sometimes possible to buy properties out of bankruptcy for a price that is below market value.
The key factor to consider in these transactions is whether a clear title will transfer at the time of the sale. Buyers should work with an experienced attorney to make sure they are not buying a property that comes with liens that must be paid or other parties who have a claim against it.
A Milwaukee Area Attorney You Can Trust
These three tidbits are just the tip of the iceberg. If you have questions about bankruptcy, or need an attorney to assist you with a real estate transaction in the Milwaukee area, we hope you will reach out and schedule a meeting with our team.