A debtor owns a residence worth $200,000.The owner has $60,000 of equity in the home.If the debtor files for Chapter 7 bankruptcy,a trustee may use what amount of the proceeds of a home sale to pay off debts? (Assume the federal homestead exemption applies.)

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Assuming the debtor is able to claim the federal homestead exemption of $160,375 (as of 2021), the remaining non-exempt equity in the home would be $39,625 ($200,000 - $160,375 = $39,625). However, the trustee would also need to subtract the cost of sale and any secured liens on the property. If we assume 6% in closing costs and $20,000 in secured liens, the trustee would have $19,800 available to pay off debts. Therefore, the trustee may use $39,800 ($19,800 of equity plus $20,000 in secured liens) from the proceeds of a home sale to pay off debts.

A Debtor Owns a Residence Worth $200,000