How to Define the Homestead Exemption
The homestead exemption is the easiest way to keep creditors from taking the equity that you built up in your home. However, the exemption is not well known amongst homeowners. It can ease the fear that most homeowners have that their home can be taken because of that delinquent credit card or hospital bill. The homestead act, depending on where you live, can ensure that this doesn't happen.
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Instructions
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Contact your lender to asses the amount of equity that you have in your home.
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Find the law in your state. The homestead exemption varies from one state to another. Get a copy of the law and review it for yourself.
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Take action if needed. In some states, you have to apply for the exemption. In others, it is inherent when bankruptcy is filed. Consult your attorney if you have to.
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Tips & Warnings
Although a creditor can take the part of the home left unprotected by the exemption, they usually don't. The law prohibits the creditor from separating the property, so as long as you hold your stake, the creditor simply owns part of the home. Furthermore, The creditor takes on not only part of the equity, but part of the homeowner's expenses. Few collection agency want to bother with replacing a broken water heater.
If a creditor does attach part of your equity, you still might have room to negotiate. Legitimate creditors don't want to own a home--they want their money. Try to make arrangements for paying the debt. This just might get you your home back.
You must have equity in your home to take advantage of the homestead exemption. You must also be using the home as a primary residence.
The creditor protection laws, including the homestead exemption, do not protect your home from foreclosure.
Some say pay off your home as fast as you can, if you anticipate the creditor lien. The risk is still there, in that your biggest asset, your home, is subject to market fluctuations. You might not lose your home to creditors, but if the market tanks, you might lose some of the cash you put in your home.
