What Are Homestead Protections?

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In order to protect homeowners from losing their primary residence, most states have homestead protection laws in place for economic hardship. It is through understanding these laws that a homeowner may find his or her circumstances less difficult when he or she loses a job or is unable to make mortgage payments.

It is often a small property owner that is unable to meet the demands of high mortgage interest payments and increasing requirements from financial institutions to keep his or her home. In these situations, many states have laws that protect his or her residence when he or she registers the property as a homestead. Even when the credit payments are not given to the bank or other institution, the homeowner is able to retain his or her home through the registration, and this could involve a portion of his or her personal property as a homestead even in light of a declared bankruptcy. This transforms the partial piece of the estate into something creditors are unable to take from him or her. This could preserve a family farm, the only home and even various other assets when a recession arrives.

Bankruptcy Involvement

Homestead laws may affect a person facing mortgages and other loans or liens. However, it is more often found as part of a bankruptcy process. If the person cannot pay his or her creditors for numerous reasons, he or she may file for bankruptcy and lose most assets. Through homestead laws, the estate owner is able to safeguard his or her assets to include a home from these processes. Different states do have certain criteria, and the person may lose other property or items. The exemption applied by the bankruptcy agency may need to take into account the acreage of the property, any equity that still exists or both of these factors.

Using Bankruptcy and Homestead Protections

When a homeowner faces bankruptcy, he or she is often put in a position where most assets will pay off creditors through the sale. When the mortgage payment does not occur, the person may need to file for bankruptcy so that he or she does not go through foreclosure. If he or she is able to claim an exemption on the equity in the house, it is possible to stop the creditor from seizing the property. However, some states may still require the person to sell the property if state taxes are past due. This may present an opportunity to pay off the bank and save enough to start over with a new home.

By invoking homestead laws when filing for bankruptcy, the homeowner may have a place to live while working through his or her debts with a bankruptcy agent. Depending on the process, the individual may need three to five years to end the bankruptcy itself. This method of protection may stave off creditors such as the bank behind the mortgage, but it may not keep the financial institution away for long. The bank may obtain a court order to seize the house if the homestead protection is not in place. Using the Chapter 7, the homeowner may discharge the debt on the house entirely.

State Homestead Exemptions

When needing to protect the assets even in events such as bankruptcy, the amount of the exemption may require the state law to determine. Some are as high as $100,000, but others are as low as $5000. The differences greatly affect the homeowner in what he or she may protect when facing possible foreclosure and imminent threat of losing everything. Some states have higher limits on exemptions on agricultural land, and this could provide an out when the house is taken. However, as with the dollar exemptions, the land limits may vary exceptionally. The types of property may vary as well by the state.

In some states, the exemption may allow up to $6000 in household furniture and appliances, but another has exemptions for tools of any trade in as much as $15,000. There is a vast array of items that may have protections that may include family photos, clothes, musical instruments, plots for burial, homes and water rights. It is important to contact a lawyer to understand the specifics better with the applicable state.

Legal Support for Homestead Protections

No matter if the person is facing bankruptcy or drowning in debt, it is important to hire a lawyer to protect the assets from creditors. By seeking legal representation, the client may improve chances of keeping the home and other assets.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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