Asset Protection

The Homestead Exemption: Proven Protection in Bankruptcy (and Beyond)

Concept art of an article about Bankruptcy Homestead Protection: modest suburban home surrounded by towering stacks for unpaid bills (AI Art)

In 1986, Ronald Reagan said that the nine most terrifying words in the English language were, “I’m from the government and I’m here to help.”

And that’s the case more often than not. But not when it comes to a legal concept called a homestead exemption.

The homestead exemption, also sometimes called homestead protection, can help protect some (or even all) of your home equity in case of bankruptcy or some other catastrophic financial loss.

It’s also free.

In this article, we’ll discuss how it works and provide a list of the relevant laws, protection amounts, and important notes for every state plus Puerto Rico.

What is the Homestead Exemption?

The homestead exemption is designed to protect (“exempt”) equity within the home you live. Almost all states have an exemption you can use to protect the equity in your home in case of bankruptcy or if you experience a judgment.

How much equity a homestead exemption protects depends on the state you live in. Some states offer very little protection and others provide unlimited protection.

Now, if you happen to live in a state that doesn’t offer much (or any) homestead exemption, there’s the potential option to make use of the federal exemption. More about that in a moment.

THE TWO TYPES OF HOMESTEAD EXEMPTIONS

When we talk about homestead exemption, we’re talking about the statutory protections for the equity in your home.

There is another “homestead exemption” some states offer that allows you to take a credit against state or county property taxes. That is not the focus of this article.

Why do Homestead Exemptions exist? And how do you use them?

The idea behind homestead protection is to protect homeowners from becoming destitute if they are forced into bankruptcy and/or have an overwhelming creditor claim.

But there are rules attached. In some states, they can be quite strict. In others, not so much.

But as part of a wealth protection plan, state homestead protections can be useful.

If someone is thinking about suing you, and sees that a state’s homestead protection covers most, if not all of your home equity, that makes you less of a target in the first place. That’s especially true if you don’t have any other assets available to satisfy a judgment.

Homestead exemptions are not a blanket asset protection strategy. They only cover the equity in your home and no other asset. For that reason, they’re best seen as a last line of defense.

But because it’s free, it’s not a bad one to have.

WHAT IF YOU HAVE TOO MUCH EQUITY?

If you’ve owned your home for a while, or enjoyed a big increase in the value of your property, you may be sitting on a lot of equity that goes beyond the homestead protections in your state.

So how do you protect that? There are a number of different ways but one of the simplest is to take out a Home Equity Line of Credit (HELOC) against the value of the property for the difference between the homestead exemption and equity in your home.

You don’t have to actually use it.

But by doing it this way, when lawyers are looking for a target, they will see a lien against the value of your home for the full amount of the HELOC. They usually won’t see that it is a HELOC and they won’t have any insight into how much of the HELOC you’ve used.

Instead, they will just see that you don’t seem to have any equity in the home. And there’s a good chance they will leave you alone.

DON’T FORGET TO REGISTER

To qualify for homestead exemption in some states, you need to register for it. If that’s necessary, you can often find instructions for doing so online. A local lawyer will also be able to help you register.

Federal Homestead Protection

There’s also a federal homestead protection rule that’s part of the Bankruptcy Code. But it only applies in bankruptcy cases, which are processed in federal court.

Federal law provides a homestead exemption of up to $27,900 for individuals and $55,800 for married couples filing jointly.

The federal exemption can be used to protect your home from creditors in both Chapter 7 and Chapter 13 bankruptcy.

In a Chapter 7 bankruptcy, the homestead exemption allows you to keep your home if the value of your equity in the home is less than the exemption amount.

In a Chapter 13 bankruptcy, the homestead exemption allows you to keep your home even if the value of your equity in the home is greater than the exemption amount, as long as you can make regular payments on your mortgage and other debts.

In states where the state homestead exemption is greater than the federal exemption, it makes sense to use the state exemption, not the federal exemption. But not every state gives you that choice. A bankruptcy attorney will be able to help you sort out which exemption you can use.

Federal law also limits the amount of state homestead protection you can use in a bankruptcy case if you’ve owned a home for fewer than 40 months before a bankruptcy filing. In that event, bankruptcy law caps your homestead exemption at $189,050 (2022 limits, updated every three years) regardless of your state exemption amount.

Homestead Protection by State

Alabama

Relevant Law: Ala. Code § 6-10-2
Homestead Exemption / Protection: $15,000
Spouses / Joint Owner: $30,000
Notes: None

Alaska

Relevant Law: Alaska Stat. § 09.38.010
Homestead Exemption / Protection: $54,000
Spouses / Joint Owner: N/A
Notes: None

Arizona

Relevant Law: Ariz. Rev. Stat. § 33-1101
Homestead Exemption / Protection: $250,000
Spouses / Joint Owner: $250,000
Notes: None

Arkansas

Relevant Law: Ark. Code Ann. § 16-66-218, Ark. Const. 1874 Art.9-4
Homestead Exemption / Protection: Unlimited
Spouses / Joint Owner: Unlimited
Notes: None

California

Relevant Law: Cal. Civ. Proc. Code § 704.730
Homestead Exemption / Protection: $300,000/$600,000 (in higher cost areas)
Spouses / Joint Owner: N/A
Notes: None

Colorado

Relevant Law: Colo. Rev. Stat. § 38-41-201
Homestead Exemption / Protection: $250,000
Spouses / Joint Owner: N/A
Notes: The exemption increases to $350,000 if the homestead is occupied as a home by an owner who is elderly or disabled, an owner’s spouse who is elderly or disabled, or an owner’s dependent who is elderly or disabled.

Connecticut

Relevant Law: Conn. Gen. Stat. § 52-352b
Homestead Exemption / Protection: $250,000
Spouses / Joint Owner: N/A
Notes: The exemption is limited to $75,000 in the case of a money judgment arising out of a claim of sexual abuse or exploitation of a minor, sexual assault or other wilful, wanton, or reckless misconduct committed by a natural person.

Delaware

Relevant Law: Del. Code Ann. tit. 10, § 4914
Homestead Exemption / Protection: $125,000
Spouses / Joint Owner: N/A
Notes: None

Florida

Relevant Law: Fla. Stat. § 222.01
Homestead Exemption / Protection: Unlimited.
Spouses / Joint Owner: Unlimited
Notes: None

Georgia

Relevant Law: Ga. Code Ann. § 44-13-100
Homestead Exemption / Protection: $21,500
Spouses / Joint Owner: $43,000
Notes: None

Hawaii

Relevant Law: Haw. Rev. Stat. § 651-94
Homestead Exemption / Protection: $20,000
Spouses / Joint Owner: N/A
Notes: The exemption increases to $30,000 if the owner is 65 years old or older.

Idaho

Relevant Law: Idaho Code Ann. § 55-1004
Homestead Exemption / Protection: Shall not exceed $175,000
Spouses / Joint Owner: N/A
Notes: None

Illinois

Relevant Law: 735 Ill. Comp. Stat. § 5/12-901
Homestead Exemption / Protection: $15,000
Spouses / Joint Owner: $30,000
Notes: None

Indiana

Relevant Law: Ind. Code § 34-55-10-2
Homestead Exemption / Protection: $15,000
Spouses / Joint Owner: $30,000
Notes: None

Iowa

Relevant Law: Iowa Code § 561.16
Homestead Exemption / Protection: Unlimited
Spouses / Joint Owner: Unlimited
Notes: None

Kansas

Relevant Law: Kan. Stat. Ann. § 60-2301
Homestead Exemption / Protection: Unlimited
Spouses / Joint Owner: Unlimited
Notes: None

Kentucky

Relevant Law: Ky. Rev. Stat. Ann. tit. 39 § 427.060
Homestead Exemption / Protection: $5,000
Spouses / Joint Owner: N/A
Notes: None

Louisiana

Relevant Law: La. Rev. Stat. Ann. § 20:1
Homestead Exemption / Protection: $35,000
Spouses / Joint Owner: N/A
Notes: None

Maine

Relevant Law: Me. Rev. Stat. tit. 14, § 4422
Homestead Exemption / Protection: $80,000
Spouses / Joint Owner: N/A
Notes: For minor dependents of the debtor who have their principal place of residence with the debtor, the debtor’s aggregate interest may not exceed $160,000 and except that if the debtor’s interest is held jointly with any other person or persons, the exemption may not exceed in value the lesser of $80,000 or the product of the debtor’s fractional share times $160,000.

Maryland

Relevant Law: Md. Code Ann., Cts. & Jud. Proc. § 11-504
Homestead Exemption / Protection: $27,900
Spouses / Joint Owner: $55,800
Notes: None

Massachusetts

Relevant Law: Mass. Gen. Laws ch. 188, § 1
Homestead Exemption / Protection: $500,000
Spouses / Joint Owner: N/A
Notes: None

Michigan

Relevant Law: Mich. Comp. Laws § 600.5451
Homestead Exemption / Protection: $30,000
Spouses / Joint Owner: N/A
Notes: For debtor or dependent of debtor aged 65 years and older, disabled; $45,000

Minnesota

Relevant Law: Minn. Stat. § 510.02
Homestead Exemption / Protection: $480,000
Spouses / Joint Owner: N/A
Notes: $1,200,000 (if homestead used mainly for agriculture)

Mississippi

Relevant Law: Miss. Code Ann. § 85-3-21
Homestead Exemption / Protection: $75,000
Spouses / Joint Owner: N/A
Notes: None

Missouri

Relevant Law: Mo. Rev. Stat. § 513.475
Homestead Exemption / Protection: $15,000
Spouses / Joint Owner: N/A
Notes: None

Montana

Relevant Law: Mont. Code Ann. § 70-32-104
Homestead Exemption / Protection: $250,000
Spouses / Joint Owner: N/A
Notes: None

Nebraska

Relevant Law: Neb. Rev. Stat. § 40-101
Homestead Exemption / Protection: $60,000
Spouses / Joint Owner: N/A
Notes: None

Nevada

Relevant Law: Nev. Rev. Stat. tit. 10 § 115.010
Homestead Exemption / Protection: $605,000
Spouses / Joint Owner: N/A
Notes: None

New Hampshire

Relevant Law: N.H. Rev. Stat. Ann. § 480:1
Homestead Exemption / Protection: $120,000
Spouses / Joint Owner: $240,000
Notes: None

New Jersey

Relevant Law: N.J. Stat. Ann. § 2A:17-19
Homestead Exemption / Protection: None
Spouses / Joint Owner: N/A
Notes: None

New Mexico

Relevant Law: N.M. Stat. Ann. § 42-10-9
Homestead Exemption / Protection: $60,000
Spouses / Joint Owner: $120,000
Notes: None

New York

Relevant Law: N.Y. CPLR § 5206
Homestead Exemption / Protection: $89,975-$179,975
Spouses / Joint Owner: N/A
Notes: The amount of the exemption depends on the county in which a homestead is located.

North Carolina

Relevant Law: N.C. Gen. Stat. § 1C-1601
Homestead Exemption / Protection: $35,000
Spouses / Joint Owner: $70,000
Notes: $60,000 for those aged 65 years and older.

North Dakota

Relevant Law: N.D. Cent. Code § 47-18-01
Homestead Exemption / Protection: $100,000
Spouses / Joint Owner: N/A
Notes: None

Ohio

Relevant Law: Ohio Rev. Code Ann. § 2329.66
Homestead Exemption / Protection: $136,925
Spouses / Joint Owner: N/A
Notes: None

Oklahoma

Relevant Law: Okla. Stat. Ann. tit. 31 § 1
Homestead Exemption / Protection: Unlimited.
Spouses / Joint Owner: Unlimited.
Notes: The exemption falls to $5,000 if more than 25% of your property is used for business purposes.

Oregon

Relevant Law: Or. Rev. Stat. § 18.395
Homestead Exemption / Protection: $40,000
Spouses / Joint Owner: $50,000
Notes: None

Pennsylvania

Relevant Law: 42 Pa. Cons. Stat. Ann. § 8123
Homestead Exemption / Protection: None
Spouses / Joint Owner: N/A
Notes: None

Rhode Island

Relevant Law: R.I. Gen. Laws § 9-26-4.1
Homestead Exemption / Protection: $500,000
Spouses / Joint Owner: N/A
Notes: None

South Carolina

Relevant Law: S.C. Code Ann. § 15-41-30
Homestead Exemption / Protection: $58,255
Spouses / Joint Owner: $116,510
Notes: None

South Dakota

Relevant Law: S.D. Codified Laws § 43-45-3
Homestead Exemption / Protection: Unlimited
Spouses / Joint Owner: Unlimited
Notes: None

Tennessee

Relevant Law: Tenn. Code Ann. § 26-2-301
Homestead Exemption / Protection: $5,000
Spouses / Joint Owner: $7,500
Notes: For an unmarried person sixty-two (62) years of age or older; $12,500, a married couple, one (1) of whom is 62 years of age or older and the other of whom is younger than 62 years of age, shall be entitled to a homestead exemption not exceeding $20,000, a married couple, both of whom are 62 years old or older, shall be entitled to a homestead exemption not exceeding $25,000.

Texas

Relevant Law: Tex. Prop. Code Ann. § 41.001
Homestead Exemption / Protection: Unlimited
Spouses / Joint Owner: Unlimited
Notes: None

Utah

Relevant Law: Utah Code Ann. § 78B-5-503
Homestead Exemption / Protection: $42,700
Spouses / Joint Owner: $42,700
Notes: None

Vermont

Relevant Law: Vt. Stat. Ann. tit. 27 § 003
Homestead Exemption / Protection: $125,000
Spouses / Joint Owner: N/A
Notes: None

Virginia

Relevant Law: Va. Code Ann. § 34-4
Homestead Exemption / Protection: $25,000
Spouses / Joint Owner: N/A
Notes:

Washington

Relevant Law: Wash. Rev. Code § 6.13.030
Homestead Exemption / Protection: $125,000
Spouses / Joint Owner: N/A
Notes: None

West Virginia

Relevant Law: W. Va. Code § 38-10-4
Homestead Exemption / Protection: $35,000
Spouses / Joint Owner: $70,000
Notes: Physicians practicing in the state who experience a malpractice judgment may be eligible for a $250,000 exemption.

Wisconsin

Relevant Law: Wis. Stat. § 815.20
Homestead Exemption / Protection: $75,000
Spouses / Joint Owner: $150,000
Notes: None

Wyoming

Relevant Law: Wyo. Stat. Ann. § 1-20-101
Homestead Exemption / Protection: $100,000
Spouses / Joint Owner: $200,000
Notes: When two or more persons jointly own and occupy the same residence, each shall be entitled to a $100,000 exemption.

Homestead Protection in Puerto Rico

US territories also offer a homestead protection. Because the vast majority of our clients come from within the 50 states, we don’t normally cover the territories, with one exception.

In the past decade or so, a number of our clients have become residents of Puerto Rico in order to take advantage of the tax benefits there.

In 2011, the governor of Puerto Rico signed into law Act 195, “Ley del Derecho a la Protección del Hogar Principal y el Hogar Familiar.” It establishes an unlimited homestead exemption for residents of the territory. To qualify for this protection, you must file a note that has been certified by a notary public with the Land Registrar that the property has been designated by the owner as a “safe home,” i.e. “hogar seguro.”

Can you lose homestead protection even if you continue to live in the house?

Yes, it is possible to lose homestead protection even if you continue to live in the house. Failure to pay property taxes is one way. Committing fraud doing something illegal that results in a judgment is another.

Certain obligations are also exempt from homestead protection, including mortgage payments and failing to pay property tax (in most states). A federal tax lien is also exempt from homestead protection.

Each state has different rules. To get the most from this protection, you’ll want to understand the benefits and limitations that apply to you.

How do you protect your house if homestead protection is low in your state?

If you find yourself in a state with low homestead exemptions, you will need to protect your home in other ways. One popular choice with our clients is a Home Equity Line of Credit (HELOC) for the difference between the homestead exemption and equity in your home.

You do not have to use it.

But by doing it this way, lawyers trolling for a target will see a lien against the value of your home for the full amount of the HELOC. They usually won’t see that it is a HELOC and they won’t have any insight into how much of the HELOC you’ve used.

Instead, they will see that you don’t seem to have any equity in the home. And there’s a good chance they will simply leave you alone.

On another note, many clients first get to know us by accessing some of our free publications, courses and reports on important topics that affect you.

Like How to Go Offshore in 2024, for example. It tells the story of John and Kathy, a couple we helped from the heartland of America. You’ll learn how we helped them go offshore and protect their nestegg from ambulance chasers, government fiat and the decline of the US Dollar… and access a whole new world of opportunities not available in the US. Simply click the button below to register for this free program.

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