Whether you can keep your mobile home during bankruptcy depends on your available legal exemptions; whether it is considered personal property or real estate; and whether you own the land it sits on. States vary widely when dealing with mobile home exemptions. For instance, under federal bankruptcy exemptions, a mobile home is protected as a homestead (up to $150,000) regardless whether it is attached to real estate. On the other hand, states that have opted out of the federal bankruptcy exemptions look to state law for exemption amounts. The amount available to protect equity in personal property is generally much less than the amount available to protect a homestead.
Protecting a debtor’s mobile home during bankruptcy can become an interesting conversation. When a mobile home is purchased a title is issued and it is considered personal property, not real property. However, a mobile home can be “converted” from personal property to real property if it is “affixed” to land, which begs the question: is it better if your mobile home is personal property or real property?
The Bankruptcy Code allows personal property to be “crammed down,” but forbids cramming down a home mortgage in a Chapter 13 bankruptcy. A cram down is reducing the secured debt to equal the value of the secured property. For instance, if your mobile home is worth $30,000, but the loan is $40,000, the bankruptcy court can split the loan into two parts: a $30,000 secured loan and a $10,000 unsecured loan. The unsecured loan gets paid or discharged in the same manner as other unsecured debts, like credit cards and medical bills.
Two federal appellate courts have analyzed the Bankruptcy Code’s prohibition, Reinhardt v. Vanderbilt Mortgage and Finance, Inc., 563 F.3d 558 (6th Cir. 2009) and Ennis v. Green Tree Serv., LLC, 558 F.3d 343 (4th Cir. 2009). Both courts noted that the Bankruptcy Code (section 1322(b)(2)) includes two requirements:
(1) the security interest must be in real property; and (2) the real property must be the debtor’s principal residence. Most mobile home loans specifically identify the property as personal property and not real estate. Consequently, most mobile homes qualify for a cram down of the secured interest. This may save you thousands of dollars.
As a general rule, attaching a mobile home to land makes it a permanent part of the property. This may allow you to qualify for additional exemptions, depending upon your state’s laws. Each state has a definition for determining when a mobile home becomes real property. Once the mobile home is converted to real property, the home and the land are considered as a single piece of property. A single homestead (home plus land) has advantages for protecting equity.
Protecting your mobile home may require advanced bankruptcy planning. If you are considering bankruptcy, speak with an experienced bankruptcy attorney early and discuss your options. Your attorney will recommend strategies to protect your property and avoid complications.