The homestead exemption is the primary legal mechanism that protects your home in Chapter 7 bankruptcy.
How It Works
When you file Chapter 7, the trustee looks at your home equity (fair market value minus all mortgages and liens). If your equity is within the homestead exemption, the trustee cannot sell the home. The exemption amount varies by state.
State Exemption Highlights
- Unlimited: Texas, Florida, Kansas, Iowa, South Dakota, Oklahoma
- Very high ($300K+): Massachusetts, Minnesota, Nevada
- High ($100K-$300K): California (system 1), New York, Washington
- Moderate ($50K-$100K): Michigan, Oregon, Colorado
- Lower (under $50K): Alabama, Georgia, Maryland, Ohio
Federal vs. State Exemptions
About 20 states allow you to choose between state and federal exemptions. The federal homestead exemption is approximately $27,900 per person ($55,800 for a married couple filing jointly). In states with low homestead exemptions, the federal option may be better.
Residency Requirements
You must have lived in your current state for at least 730 days (2 years) before filing to use that state's homestead exemption. If you moved recently, you may be required to use the exemption from your previous state. This prevents "exemption shopping" -- moving to Florida or Texas just to protect a high-equity home.
The homestead exemption only applies to your primary residence, not investment properties, vacation homes, or rental properties you do not live in.