The homestead exemption is a provision in law designed to protect an individual’s principal residence from creditors following the declaration of bankruptcy or the homeowner’s death.
The amount of equity the exemption can cover depends on several factors, including whether the homeowner is current on their mortgage, the type of homestead exemption available to them, and the amount of equity they hold in the home.
What is a homestead exemption, and how does it work? Here’s everything you need to know.
How Does Homestead Exemption Work
Right off the bat, it’s important to understand the circumstances in which a homestead exemption would kick in. If you have a mortgage on your home and the value of your property is higher than the outstanding balance or any other liens on it, then you have equity. The value of this equity is deemed an asset in bankruptcy. A Chapter 7 trustee may have the authority to sell your property and use the equity to settle the outstanding monies owed to creditors.
How Much Does a Homestead Exemption Save
The homestead provision lets you exempt a certain portion of that equity and protect it from creditors in a bankruptcy filing. For instance, suppose you own a home valued at $150,000 and have a mortgage worth $100,000. It means you have $50,000 worth of equity in your home.
Depending on the laws in the state you reside in, the homestead exemption may or may not protect your home from a bankruptcy trustee. If you live in a state where the homestead exemption is capped at $70,000, your equity is protected, and a Chapter 7 trustee can’t go after it.
On the other hand, if your state laws cap the homestead exemption amount at $20,000, a bankrupt trustee can go after your home and sell it to pay off your debts. Once the sale goes through, you will only be entitled to $20,000 from the proceeds. The rest of the money will be used to pay off the unpaid balance on your mortgage, amounts due to creditors, and the trustee’s fee.
Who Qualifies for Homestead Exemption
The qualifying criterion for a homestead exemption varies by state. The one requirement that’s the same across the board is that the home in question needs to be your primary residence. To be eligible, you must show that you lived on that property before January 1 to get an exemption that year.
Some states have a homestead exemption available to everyone, while others limit it to individuals that meet specific eligibility requirements. These criteria may include income requirements, age, occupation, or disability.
For instance, in some states, low-income earners, senior citizens aged 62 years and above, former military servicemen, veterans, or people living with a disability may qualify for a homestead exemption.
Additionally, the surviving spouses of deceased or disabled US service members, firefighters, or veterans who have not remarried may also qualify for generous homestead exemptions for the full value of their homes.
Homestead Exemption Exclusions
It is worth noting that if you’re facing foreclosure or behind on your mortgage payments, a Chapter 7 bankruptcy filing won’t help you keep your home the same way a Chapter 13 filing would. As a result, a homestead exemption won’t help you in such a scenario. Here’s why.
When you file a Chapter 7 bankruptcy, all your qualifying debts get discharged, mortgage included. While you won’t be liable for the amount due on it, the lender will still have a lien on your property since Chapter 7 bankruptcy does not remove mortgage-related liens.
As a result, if you stop paying your mortgage and end up being in arrears, the lender is still within the legal confines of the law to put your property in foreclosure. A homestead exemption will not apply in such a scenario.
Keep in mind as well that if you have been convicted of certain crimes such as bankruptcy fraud, federal law caps the amount you would otherwise be entitled to at $189,050. This provision only applies to cases filed between April 1, 2022, and March 31, 2025.
How to File for Homestead Exemption
The filing procedure may vary depending on the state you live in. Most states require you to fill out a homestead exemption application, usually available at the County or State Tax Office. Get in touch with the tax assessor’s or tax commissioner’s office in your jurisdiction for information on the documentation required and the application deadlines.
It’s important to note that the application is free. If you come across a website requesting you to make a payment before you can fill out the application, the site in question is fraudulent.
How Long Does Homestead Exemption Last
You will typically apply for a homestead exemption through the county tax assessor’s office once. Once you go through the process and your application is approved, the exemption automatically rolls over each year, provided that you meet the underlying eligibility requirements.
Some states allow you to vacate your home temporarily as long as you don’t declare a primary residence in a different location.
Homestead Exemptions by State
Below is a list of states with the homestead exemption provision and the maximum amounts in equity homeowners can exempt.
- Arizona – Up to $150,000
- California – Up to $600,000 and $31,950 under System 1 and System 2 homeowners respectively
- Colorado – Up to $75,000 and $105,000 for disabled homeowners or those aged 60 years or older
- Florida – Unlimited exemption for properties no more than 0.5 acres in a municipality and no more than 160 acres elsewhere in the state
- Georgia – Up to $21,500
- Illinois – Up to $15,000
- Kansas – Unlimited
- Louisiana – Up to $35,000
- Michigan – Up to $27,900 under the federal exemption, $40,475 under the state system, and $60,725 for homeowners aged 65 years or older or those with a disability
- Mississippi – Up to $75,000
- New York – Up to $27,900 under the federal exemption, $89,975-$179,950 under the state system
- North Carolina – Up to $35,000 or $60,000 for homeowners aged 65 years or older
- Oklahoma – Unlimited exemption
- Oregon – Up to $27,900 under the federal exemption and $40,000-$50,000 under the state system
- Tennessee – Up to $5,000, $7,500 for spouses filing jointly, $25,000 for homeowners with minor dependents, $12,500 for individuals aged 62 years or older, $20,000 if one spouse is older than 62 while the other is younger than 62, and $25,000 if both spouses are 62 years or older
- Texas – Up to $27,900 under the federal exemption and unlimited exemption under the state system
- Utah – Up to $43,300 and up to $5,000 for any other property that isn’t an individual’s primary residence
- Vermont – Up to $27,900 under the federal exemption and $125,000 under the state system
- Virginia – Up to $25,000
- Washington – Up to $27,900 under the federal exemption and $172,900-$729,600 under the state system
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