The Homestead Exemption – Keeping Your Home When Filing for Bankruptcy

Jan 22, 2014 by

If you have any equity in your home, it will be considered an asset when filing for either Chapter 7 or Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, the equity in your home affects the amount you will be ordered to repay creditors, with a higher amount of equity increasing your amount owed. In a Chapter 7 bankruptcy, your home can be sold, and the equity used to pay back your creditors. A homestead exemption can help you lower your repayment amount, keep your home, or receive some of the equity from your home.

The Basics of Homestead

A homestead exemption is where a portion of the equity in your home will be protected from bankruptcy proceedings. In a Chapter 13 bankruptcy, this means the equity in your home that falls under the exemption will not be considered when determining your assets. In a Chapter 7 bankruptcy, this mean you’re allowed to keep the equity in your home, as long as it falls under the exemption amount, so you won’t have to sell your home to cover your debts. Even if the equity in your home exceeds the exemption amount, and your home is sold to cover debts, the trustee will have to pay you the exemption amount off the top of the sale.

Limitations on Homestead Exemptions

The amounts and limitations of homestead exemptions vary from state to state, and are mandated by federal guidelines as well. The homestead exemption varies from the $20,000 range to the $150,000 range in most states, and some states have an unlimited homestead amount. Some states allow you to choose whether you want to use the state exemption or the federal one, which has a cap of $155,675. Some states limit the homestead exemption to only your primary residence, while others allow you to include rental property, mobile homes, water rights, etc. Federal law says you must have owned the property for at least 40 months to qualify for the homestead exemption.

Utah Homestead Exemptions

If you’re planning on using the homestead exemption in a Utah bankruptcy, there are a few things you need to know. Federal limits are not available to those using the homestead exemption in Utah, so you’ll have to go by the state guidelines. There’s a $30,000 limit for those filing individually, and a $60,000 limit for married, joint filers. The homestead exemption covers secondary property, but the exemption limit is $5,000 for non-primary property.

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