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referral attorneys, paralegals and staff continuously review the law
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matter important to you. We give you the facts, the latest information
and the truth, and remain dedicated to continuing education in the area
of homestead, real property and homeowner protection of the individual
homeowner so that they can live the "Great American Dream". We are the
foremost authority on Florida homestead issues. We are
also a referral service for attorney's who specialize in asset
protection and estate planning. If you need help, contact us and we
will help you to find the best of the best.
The origin of state
The federal Homestead Act, which was enacted in
1862, offered free 160-acre parcels of land to anyone willing to settle
on them. After five years, these "homesteaders" would become the owners
of the land, as long as certain conditions were met (such as building a
house and living on the property). Though this act was repealed in
1976, many states have enacted their own homestead laws. If your state
has one, it may protect some or all of the equity in your home against
certain creditor claims.
Caution: A homestead filing will protect your home
from most debts (including judgments) that arise after the homestead
becomes effective. It generally will not protect a home from debts
incurred before the homestead status attaches. While the homestead laws
in some states may substantially protect your residence from unsecured
creditor claims, even through a bankruptcy filing, this is not always
the case. You should consult an attorney about the protection offered
by your state's homestead laws and other asset protection strategies.
homestead laws do
homestead laws vary widely from state to state. Some offer property tax
relief or other specific tax considerations to real estate owners.
Generally speaking, however, most state homestead laws allow you to
exempt a specified amount of the equity in your homestead property from
attachment and seizure efforts by certain unsecured creditors. The
intent of these laws is to ensure that you won't be forced to sell your
home if you're otherwise unable to pay certain debts.
How to obtain homestead law protection
process of acquiring homestead law protection varies from state to
state. Some states require you to live in the state for a certain
length of time before you become eligible for homestead law protection.
In a few states, coverage is automatic. In most states, however,
someone who is named on the deed to the property and who lives there
must file a notarized declaration of homestead form with a local
government office, such as a registry of deeds. Generally, the property
you homestead must be property that you own and occupy as your primary
residence. In most states, property eligible for homestead law
protection includes a single-family or multifamily home (and its lot),
a condominium unit, or a mobile home.
laws exempt from attachment a certain amount of the equity value in the
homestead property. A few states offer unlimited protection; in
Florida, for example, the homestead law completely exempts a
multimillion-dollar mansion's total value from attachment by certain
unsecured creditors. Most states, however, assign a limit to the amount
of protection offered by their homestead laws. These limits vary
widely. For instance, an individual homeowner in California may be
eligible for only $50,000 in exemption protection, while the same
homeowner in Massachusetts would receive $500,000 in protection.
Example: You are a single individual, your home is
valued at $450,000, and it carries a mortgage lien of $200,000 against
it. Your equity is then $250,000 ($450,000 - $200,000). If you live in
California, you may use the homestead law there to protect $50,000 of
that equity, leaving $200,000 unprotected. However, if you live in
Florida or Texas, your state's homestead declaration exempts all
$250,000 of your equity from unsecured creditor attachment.
important to note that the homestead laws do not automatically prevent
a forced sale of your primary residence to satisfy a creditor claim. In
the example above, if you live in California, the sale of your home
could be forced to satisfy such a claim, since the creditor could be
paid from the sale's equity proceeds over and above the amount the
homestead law exempts from attachment. If you live in Massachusetts,
however, the homestead law would exempt up to $500,000 of a sale's
equity proceeds from attachment; in this case, there would be no point
in a creditor forcing a sale of the property to satisfy a claim.
Caution: If the equity value of your property
increases over time (as your mortgage balance decreases and/or property
values rise), it may exceed the exemption protection allowed by your
state's homestead law. In that event, should a forced sale occur to
satisfy a creditor claim, the homestead law would protect some, but not
all, of the equity in your home.
creditors are not subject to homestead law protections
laws do not protect your home from all creditors. Generally, these laws
exempt a portion of the equity in your principal residence from
attachment by creditors to whom you owe unsecured debts (e.g., medical
bills, credit card balances, and personal loans), even if the creditor
has obtained a court judgment against you. Other debts are simply not
subject to the exemption protection homestead laws offer. These include:
Mortgages, second mortgages, home equity loans or lines of
credit secured by the property ·
Mechanic's liens for labor and/or materials provided to
construct, alter, improve, or repair the property
Federal, state, or local income taxes; property taxes; or
Debts owed to government agencies, such as federal student
loans or state Medicaid liens
Court-ordered support of a spouse or minor children
Homestead laws and bankruptcy
State homestead laws can profoundly affect whether or not you
may keep your home in bankruptcy. In bankruptcy, you may not be
required to surrender exempt property to satisfy the claims of
creditors. This federal exemption can vary significantly from what you
may be allowed to keep under your state's exemption laws.
Some states require you to follow their exemption laws when filing for
bankruptcy. In such cases, you'll have no choice about the amount of
your home exemption; you'll be able to keep what your state's homestead
law allows. Other states allow you to choose between the federal and
state exemption laws. In states where you have a choice, your decision
about how to file for bankruptcy may turn in part on which set of rules
allows you to keep the greatest amount of your home's value. In such
cases, if your state homestead law allows a more liberal home exemption
than the one allowed by the federal law, filing for bankruptcy under
the state exemption laws may increase the probability that you'll keep
your home, particularly if you have substantial equity in it.
Example: Jimmy, a single individual, lives in Georgia,
where he owns a modest home valued at $100,000. When he files for
bankruptcy against $97,000 in unsecured debt, he is required to do so
under the Georgia exemption laws, which allow him to keep a homestead
worth only $5,000. Since the value of his home exceeds that amount, he
must sell his home, keep $5,000 of the sale proceeds as allowed by the
state exemption laws, and distribute the remainder to the creditors
named in his bankruptcy petition to partially satisfy their claims.
Meanwhile, George, a single individual, lives in Texas, where he owns a
ranch valued at $750,000. When he files for bankruptcy against $325,000
in unsecured debt, he is allowed to elect either the federal or the
state exemption laws. Since Texas homestead law exempts a residence of
unlimited value, George chooses to file under the state exemption laws.
He is not required to sell his ranch to raise money to satisfy the
creditors named in his bankruptcy petition.
For bankruptcy filings made on or after April 20, 2005, the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (2005
Bankruptcy Act) imposes certain restrictions on state homestead
exemptions, as follows:
Even if your state allows for a larger exemption, you may
only exempt up to $125,000 if you acquired your home within the
1,215-day period (about 3 years, 4 months) prior to filing bankruptcy.
This limit does not apply to equity you rolled over from one home to
another within the same state during this period.
If you made an addition to your home in the 10-year period
prior to filing with the intent to hinder, delay, or defraud creditors,
your allowable exemption is reduced by the value of the addition.
An absolute cap of $125,000 applies if you (a) have been
convicted of a felony that demonstrates that the bankruptcy filing is
"abusive," or (b) owe a debt arising from violations of securities
laws, fiduciary fraud, racketeering, or crimes or intentional torts
that caused death or serious bodily injury in the preceding five years.
This provision, however, will not apply if the homestead is reasonably
necessary for your support and the support of your dependents.
Caution: For bankruptcy filings made on or after
October 17, 2005, there is a two-year residency requirement for using
state homestead exemptions. Specifically, to use a state's exemption,
you must have resided there for 730 days (about 2 years) prior to
filing bankruptcy. If you resided in more than one state during this
730-day period, the governing exemption law will be of the state in
which you resided for the majority of the 180-day period (about 6
months) preceding the 730-day period.
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