Homestead Exemption Could Save Your Home during Bankruptcy

A homestead exemption legally protects your home equity from taxes and creditors if ever you file for a Chapter 7 bankruptcy. Under the law, a home is considered a homestead if it serves as the the debtor's primary residence. You will not be allowed to claim additional exemptions if you have properties located in other states.

The amount of protection will be prescribed by state laws where your home is located. In certain states, a homeowner can get unlimited exemptions, while other states do not grant exemptions at all. Furthermore, there are states where the exemption is automatically given as a result of a person’s bankruptcy, while in most states, a debtor is required to file for bankruptcy first before any exemption is granted. Still, it is important to remember that this type of protection does not mean that a debtor no longer needs to pay his creditors.

Primary Features of Homestead Exemption

  • If the debtor dies, homestead protection will secure shelter of the surviving spouse.
  • Forced sale of the debtor’s home is prevented.
  • The debtor’s home is exempted from any applicable property taxes.

Basis of Exemption for Different States

Before you apply for exemption, you need to be aware of the bankruptcy laws in your state. Here’s how various states process and grant homestead exemptions (as of 2010):

  • Arkansas grants homestead value of up to $2,500. This is equivalent to about 1/4 of an acre if your homestead is located in a city or about 80 acres if you live in a rural area.
  • Alabama offers homestead protection of up to $5,000, which translates to about 160 acres of property.
  • In California, the homestead protection value can reach up to $50,000, or about 160 acres of your property. The first $7,000 of the property value is also exempted from taxes.
  • Colorado provides a maximum exemption value of $45,000, and there is no limitation in terms of property area or acreage.
  • Florida offers exemption based on the assessed taxable value of the property. Area limitations apply; these are about 1/2 acre for properties located in the cities and 160 acres for rural homesteads.
  • Louisiana exempts from property taxes the first $75,000 of the homestead’s assessed value.
  • Oklahoma deducts $1,000 from the assessed homestead value if the application for exemption was filed with the county clerk. This results in annual savings of anywhere from $75 to $125.
  • Texas offers protection in the form of a 20 percent deduction on the assessed home value. Senior citizens and people with disabilities can also claim additional exemptions for county taxes.
  • Alaska and Arizona do not have area limitations on homestead protection, but the maximum exemptions are $64,800 and $100,000, respectively.
  • Delaware, New Jersey, Pennsylvania and South Carolina are some of the states that do not offer homestead exemptions. However, New Jersey offers a $1,000 exemption on personal property taxes, while Pennsylvania provides a $300 general exemption. In South Carolina, a person’s residential property may be included when applying for personal and real property exemptions that can reach up to $10,000 in value.

 

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