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What is home equity?

Home equity is a financial term referring to the difference between what a homeowner owes on their mortgage (or any other liens that may be held against the property) and the home’s current market value. Therefore, a homeowner with an outstanding balance of $100,000 on a mortgage for a home valued at $300,000 would have positive equity of $200,000 in their home. Home equity is important because of the homestead exemption in bankruptcy, which allows homeowners to exempt a certain amount of home equity from liquidation in Chapter 7 bankruptcy. In many cases, this exemption may allow homeowners to keep their homes because the value that creditors could receive through a sale would be too low.

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