What is Equity?

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Written by Andrea Wimmer, Esq.  
Updated June 25, 2019

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Equity is calculated by taking the value of your property and subtracting any outstanding loans you have on it.

If the value of your home is $200,000 and the balance on your (only) mortgage is $175,000, then you have $25,000 in equity in your home, calculated as follows:

Example: Value of house ($200,000) - Balance left on mortgage ($175,000) = Your equity ($ 25,000)

You can even have equity in your car, though that is less common as vehicles usually only go down in value. Still, the calculation remains the same:

Example: Value of Car ($7,000) - Balance left on car loan ($3,100) = Your equity ($3,900)

When you file bankruptcy,exemptions protect the equity you have in anasset. That means your house or car can be 100% protected even though it is worth a lot more than the available exemption, as long as your equity is less than that.

Some examples to illustrate how this works:

Value of house:       $200,000

Your equity:              $  25,000

Available exemption:    $  50,000

Your equity is protected     😁😁😁

Value of car:              $27,000

Your equity:              $5,000

Available exemption:    $6,000

Your equity is protected 😁😁😁

Value of house          $200,000

Your equity:              $25,000  

Available exemption:    $15,000  

Equity not fully protected 😖😖😖      

Value of car:                 $27,000

Your equity:                 $5,000

Available exemption:    $3,000

Equity not fully protected 😖😖😖

If your house or car is worth less than what you owe on your mortgage or car loan, you don't have any equity and the trustee will not be interested in the asset.

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