Definition of Homestead in Bankruptcy

Understanding the homestead exemption in bankruptcy.

The most significant exemption available to a debtor in bankruptcy is the homestead exemption. Although other exemptions are available to a debtor pursuing a bankruptcy, a primary residence normally affords protection to the largest amount of a debtor's assets. Understanding the extent and nature of a homestead exemption available to you is crucial to pursuing effectively a bankruptcy case.

Function

The function of the homestead exemption in bankruptcy is to protect the primary residence of a debtor. Through the homestead exemption, certain creditors are unable to seek an interest in the equity in a debtor's primary residence to satisfy obligations.

Geography

Although bankruptcy courts are federal judicial bodies, state laws govern exemptions in bankruptcy courts. Consequently, there are significant variations in the homestead exemptions from one state to another. For example, Florida maintains an unlimited homestead exemption. In other words, no matter how valuable the property and no matter how high the equity in the home, a debtor has the right to claim it as homestead.

Most states take a more moderate approach to homestead exemptions. In other words, these state laws limit the amount of equity a debtor claims as exempt under homestead laws in a particular state.

Misconceptions

The most common misconception is that all states in the country offer homestead exemptions for an unlimited amount of money. Indeed, unlimited exemptions represent the exception and not the rule in the United States. Six states offer unlimited exemptions. There are a few states that offer no homestead exemptions whatsoever.

Warning

You must declare a homestead exemption when you file your bankruptcy petition. Along with the petition for bankruptcy you complete a series of schedules in support of your case. One of these schedules pertains to all of the exemptions you claim in your case, including a homestead exemption. The failure to claim a homestead exemption at the time you file your bankruptcy potentially precludes you from being able to exercise that exemption.

Expert Assistance

As you prepare to pursue a bankruptcy case consider retaining the services of a qualified and experienced attorney to represent your legal interests. Local and state bar associations maintain directories of attorneys in different practice areas. Contact information for these organizations is available through the American Bar Association:

American Bar Association
321 N. Clark St.
Chicago, IL 60654-7598
312-988-5000
abanet.org

References

• United States Bankruptcy Attorneys: Homestead Exemption
• Cornell University Law School: U.S. Bankruptcy Code
• "The Glannon Guide to Bankruptcy"; Nathalie Martin; 2006
• Cornell Law School: Bankruptcy Overview

Resources

• American Bar Association: Bankruptcy & Insolvency Litigation Committee
• American Bar Association: Directory of State and Local Bar Associations
• U.S. Bankruptcy Courts: Bankruptcy Basics Videos