When your claim bankruptcy, the homestead exemption can protect the equity in your home from creditors in a Chapter 7 bankruptcy and can help you reduce your monthly mortgage payments in a Chapter 13 bankruptcy. To determine whether or not the homestead exemption would protect the equity you have in your home should you claim bankruptcy, there are a few things you need to understand about how the homestead exemption works.
Determining Homestead Exemption Eligibility
Not all of the people who file for bankruptcy are protected by the bankruptcy homestead exemption. In order to be protected under this exemption, the equity in your home must be less than the homestead exemption allowed in your state.
The first thing you need to do is determine your home’s equity. For example, if your home is worth $250,000 and you owe $150,000, the $100,000 difference is your home’s homestead value. In states with a homestead value of greater than $100,000, your home would be safe. If your homestead value is greater than your state’s homestead exemption amount, then your home will be taken and sold to creditors based on your debt during the bankruptcy process.
Each state has a different exemption amount that is protected under the homestead exemption. To determine whether or not your property’s equity would be protected under the homestead exemption in your state, you should speak with a bankruptcy attorney who handles cases in your state.
Contacting an Attorney
When it comes to matters as significant as your home’s equity, it is always wise to consult an attorney to ensure that you know if your home will be protected under the homestead exemption allowed by the bankruptcy courts. A bankruptcy attorney practicing in the state in which you live can better help you understand your state’s specific exemption amounts and which type of bankruptcy or other option will best serve your individual situation.