7. Does the available homestead exemption protect your kind of dwelling?
Yes. Go on to Line 8.
No. Enter $0 on Line 11, then continue on to Line 12.
8. Do you have to file a “declaration of homestead” to claim the homestead exemption?
Yes, but I have not filed it yet. (You should. See instructions.) Yes, and I have already filed it.
No
9. Is the homestead exemption based on lot size?
No, it is based on equity alone. Go to Line 10.
No, it is unlimited (true only of the exemptions for Washington, DC).
If you are using the D.C. exemptions, you can stop here. Your home is protected.
Yes. The exemption is limited to property of ___ acres.
If your property is smaller than this limit, you can stop here. Your home is protected. If your property exceeds this limit, see the instructions.
Yes, but there is an equity limit as well. The exemption is limited to property of ___ acres.
If your property is smaller than this limit, go on to Line 10. If your property exceeds this limit, see the instructions.
10. Do you own the property with your spouse in “tenancy by the entirety”?
Yes. See the instructions and talk to a bankruptcy attorney to find out whether your house is fully protected.
No. Go on to Line 11.
11. Is the dollar amount of the homestead exemption limited?
Yes. Enter the dollar limit here: $
No dollar limit. You can stop here. Your home is protected.
12. Can you protect more equity with a wildcard exemption?
Yes. Enter the dollar amount here: $
No.
13. How much of your equity is protected?
Total of Lines 11 and 12: $
If the total exceeds $136,875 and you are subject to the cap on homestead exemptions, write “$136,875” on this line.
See the instructions for more information.
14. Is your home fully protected?
Subtract Line 13 from Line 6: $
If this total is a negative number, your home is protected. If this total is a positive number, you have unprotected equity in your home, and the trustee might choose to sell it (or allow you to keep it in exchange for cash or exempt property roughly equal in value to your unprotected equity).
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important to her, and she would be able to keep more of it using the Maryland state exemptions, she might choose the state exemptions and let the trustee sell her home.
How Appreciation Might Affect the Homestead Cap As explained above, your homestead exemption will be capped at $136,875 if you acquired your home within the 40 months prior to filing for bankruptcy and you did not purchase it with the proceeds from selling another home in the same state. A couple of courts have grappled with the question of whether appreciation—in the value of a home purchase more than 40 months before filing—counts as an “acquisition” that might trigger the $136,875 cap. So far, courts have held that appreciation in a home’s value is not an acquisition, and therefore does not subject the owner to the cap.
(See, for example, In re Rasmussen, 349 B.R. 727 (M.D. Fla. 2006).) If this issue might affect you, talk to a bankruptcy lawyer to find out how courts in your state are handling it.
if you are filing in a state that allows you to choose between the state and federal exemption lists, you are always entitled to use the federal exemptions, regardless of how long you have lived in the state.
the federal homestead exemption allows you to protect about $21,000 in equity, and married couples can double that amount. homeowners filing in states that allow a choice will probably be better off using the federal exemptions, unless the state homestead exemption exceeds $21,000 (or $42,000 for a couple).
The cap also applies to filers who commit certain types of misconduct. No matter how long you have lived in the state where you are filing, your homestead exemption will be capped at $136,875 if you have been convicted of a felony which demonstrates that your bankruptcy filing is abusive, you owe a debt arising from a securities act violation, or you have committed a crime or an intentional, willful, or reckless act that killed or caused serious personal injury to someone in the last five years.
The court may decide to lift the cap if it finds that the
homestead exemption is reasonably necessary for you to support yourself and your dependents.
Homes in Revocable Living Trusts Revocable living trusts have become a popular way to pass valuable property on when you die. The property owner creates a trust document naming him- or herself as the trustee, another person as successor trustee to take over when the owner dies, and typically one or more beneficiaries to receive the property upon the owner’s death. When the original property owner dies, the successor trustee steps in and distributes the property to the beneficiaries. All of this happens without going through court. (It’s called a living trust because it takes effect during the property owner’s life, not when he or she dies; it’s revocable because the property owner can undo it any time.)
Legally, the trustee owns the property in the trust, although it’s common to refer to the trust itself as the legal owner of the property. So, if John Henry creates a revocable living trust and puts his house in it, he will be the initial trustee and own his house as
“trustee of the John Henry Revocable Living Trust.”
If John Henry files for bankruptcy, can he claim a homestead exemption for the house he owns as trustee? Courts have reached different conclusions:
A court in Connecticut found that a trustee cannot claim a homestead exemption (In re Estrellas, 338 B.R. 538 (D. Conn. 2006)), but a Kansas court found the opposite (In re Kester, 339 B.R. 749 (10th Cir.
BAP 2006)).
Given this disagreement, it’s probably safest to either remove property from a living trust (by executing a new deed) or revoke the trust altogether prior to filing for bankruptcy. After your bankruptcy, you can create a new living trust or execute a new deed placing the property back in the trust.
Line 7: Does the available homestead exemption protect your kind of dwelling?
only three states do not have a homestead exemption.
if you are using the exemptions in one of these three states, enter $0 on line 11.
States With No Homestead Exemption Maryland New Jersey Pennsylvania
For all other states, check the table in appendix 1 to see if your type of dwelling is protected. some types of dwellings may not be covered, including:
• Mobile homes. Most states specifically include mobile homes in their homestead exemptions.
other states include any “real or personal property used as a residence.” this would include a trailer, mobile home, or houseboat, as long as you live in it. some states don’t detail the types of property that qualify as a homestead. if your mobile home does not qualify for a homestead exemption, it would be protected only by the exemption for a
“motor vehicle.”
• Co-ops or condominiums. some homestead laws specifically cover co-ops or use language that says the exemption protects “any property used as a dwelling.”
• Apartments. Most homestead statutes do not protect apartments, though a few do.
if your type of dwelling is not covered, enter $0 on line 11.
if it is unclear whether your type of dwelling is covered by the available homestead exemption, you may need to do some legal research. (see Ch. 10 for help getting started.)
Line 8: Do you have to file a “declaration of homestead”
to claim the exemption?
States That May Require a Declaration of Homestead
Alabama Montana Utah
Idaho Nevada Virginia
Massachusetts Texas Washington
to claim a homestead exemption in Virginia, you must have a declaration of homestead on file with the land records office for the county where the property is located when you file for bankruptcy. the other states on this list vary in what they require and when. if you are using exemptions for one of these states, the safest approach is to file a declaration of homestead.
requiring you to record a declaration before you can get the benefit of a homestead exemption may violate the bankruptcy laws. (In re Leicht, 222 B.r. 670 (1st
Cir. BaP 1998).) regardless of the legalities, however, you will be best served by filing your declaration of homestead before you file for bankruptcy.
other states allow (but do not require) you to file a homestead declaration in certain circumstances.
in texas, for example, you may file a homestead declaration to claim protection for property you own but are not currently living in.
ExAMPLE: john and doris live in texas. they have retired and have decided to rent out their spacious country home and live in an apartment closer to town. they can still claim their country home as their homestead by recording a declaration of homestead with the land records office in the county where their country home is.
in some states, a “declared” homestead offers additional protection in situations other than bankruptcy. also, if you own more than one piece of real estate, some states allow a creditor to require you to file a declaration of homestead to clarify which property you are claiming as your homestead.
Line 9: Lot Size: Does the homestead exemption limit the size of the lot you can protect?
Most states place a limit on the value of property you can claim as your homestead exemption, but a few states have no such limits. Find out what kind of homestead exemption system your state uses by looking at the lists below.
Unlimited Homestead Exemption District of Columbia
if you are lucky enough to be using the district of Columbia exemptions, congratulations: you can skip the rest of this chapter. your home is not at risk in a Chapter 7 bankruptcy.
Homestead Exemption Based on Lot Size Only
Arkansas Kansas Texas
Florida Oklahoma
Iowa South Dakota
in these states, you can easily determine whether your home is exempt. the homestead exemption is based simply on acreage. look in appendix 1 for the
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acreage limitation for the state. (in oklahoma, if you use more than 25% of the property as a business, the one-acre urban homestead exemption cannot exceed
$5,000.)
if your property is smaller than the maximum allowable acreage, your home is fully protected. you can skip the rest of this chapter
if your property exceeds the maximum allowable acreage, the trustee will sell the excess acreage if you have any equity in it (unless you are able to buy it back from the trustee for a negotiated amount). enter $0 in line 11 of the worksheet.
Homestead Exemption Based on Lot Size and Equity
Alabama Michigan Nebraska
Hawaii Minnesota Oregon
Louisiana Mississippi
these states use the size of your lot and the amount of your equity to determine whether your home is exempt. First look in appendix 1 for the state acreage limitation; enter it on line 9.
if your property exceeds the maximum allowable acreage, the trustee will want to sell the excess acreage (or get the equivalent in value from you) if you have enough equity in it.
if your lot size is within the allowed acreage, your exemption is determined by the equity amount limit.
Proceed to line 10.
Homestead Exemption Based on Equity Alone Federal exemptions, and Alaska, Arizona, Cali- fornia, Colorado, Connecticut, Georgia, Idaho, Illinois, Indiana, Kentucky, Maine, Massachusetts, Missouri, Montana, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Ohio, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming
if the state homestead exemption is based on equity alone, or if you are using the federal exemptions, go to line 10.
Line 10: Do you own the property with your spouse in
“tenancy by the entirety”?
if you are married and live in the right state, you may be able to exclude your home from your bankruptcy estate—which means you can keep it, no matter how much equity you own or how large your state’s homestead exemption is—if you own it with your spouse in tenancy by the entirety.
tenancy by the entirety (tBe) is a form of property ownership available to married couples in about half of the states, some of which have laws that prohibit tBe property from being sold to pay debts that are owed by only one spouse. this rule has no dollar limit—if this type of law applies, you can keep tBe property, regardless of its value. some state laws also protect personal property owned in tenancy by the entirety, such as checking accounts.
to qualify for this type of property protection, all of the following must be true:
• you are married.
• you are filing for bankruptcy alone, without your spouse. if you file jointly, your tBe property is not protected.
• all of the debts you are trying to discharge are yours alone; none are debts that you owe jointly with your spouse.
• you and your spouse own property in one of these states:
Delaware, District of Columbia, Florida, Hawaii, Illinois, Indiana, Maryland, Massachusetts, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, Wyoming
unlike exemptions, tenancy by the entirety protection generally depends on the law of the state where your property is, not where you live. For example, if you and your spouse live in Minnesota but own a condo in Florida as tenants by the entirety, Florida law protects your condo from being seized to pay debts owed by only one spouse, even though Minnesota law offers no such protection. recently, however, an illinois case reached the opposite conclusion: the court found that debtors filing in illinois could claim tenancy by the entirety protection only for
property in illinois, not for property located in Michigan—even though Michigan is a state that recognizes tenancy by the entirety. (In re Giffone, jr., 343 B.r. 893 (n.d. ill. 2006).) if you own property in another state, you should talk to a lawyer to find out whether you can protect it.
• you and your spouse own the home as tenants by the entirety. in some of these states, the law presumes that married people own their property as tenants by the entirety, unless they specify that they wish to own it in some other way (as joint tenants, for example).
if you meet these five criteria, this protection could be extremely valuable to you. you may want to see a bankruptcy attorney to figure out the best way to take full advantage of it.
Line 11: Is the dollar amount of the homestead exemption limited?
Most states place a dollar limit on the homestead exemption—for example, new york allows you to exempt up to $50,000 in equity, while Massachusetts allows you to exempt up to $500,000. if the state homestead exemption you’re using works this way, write down the amount of equity the exemption protects on line 11. if your state allows you to use the federal exemptions and you plan to do so, write down the federal exemption instead. (see appendix 1 for these figures.)
in some states, if you own your home with your spouse and you file jointly for bankruptcy, you can each claim the full homestead exemption amount (this is called “doubling”). other states limit both spouses to the one exemption. when you look at appendix 1, check carefully to see whether doubling is prohibited.
if the chart doesn’t mention doubling one way or the other, assume that you and your spouse can double.
Your Homestead Exemption May Be Reduced If You Converted Nonexempt
Property in the Last Ten Years
The new bankruptcy law allows the court to look back ten years before you filed for bankruptcy to find out whether you have converted nonexempt property to exempt property in order to defraud, hinder, cheat, or delay your creditors. If you are found to have converted property for one of these reasons, the value of your homestead exemption will be reduced by the value of the property your converted. (11 U.S.C. § 522(o); In re Maronde, 332 B.R. 593 (D. Minn. 2005); In re Lacounte, 342 B.R. 809 (D. Mont. 2005).)
ExAMPLE: In 1999, Peter sold three nonexempt vehicles for a total of $10,000, which he used to pay down the equity on his home, which in turn increased the amount of equity he could claim as exempt. In 2008, Peter files for Chapter 7 bankruptcy. Depending on his reasons for selling the cars and paying down his mortgage, Peter may lose $10,000 worth of homestead protection. If Peter sold his cars so he could keep that money (by putting it into his home) and escape a judgment pending against him, the court might rule that he did so in order to defraud, hinder, cheat, or delay his creditors. If, on the other hand, Peter sold his cars because he legitimately wanted to pay down his mortgage, and he wasn’t facing any creditor collection actions at the time, the court would probably find that the conversion was legitimate and would not reduce his homestead exemption.
Our advice? If you undertook any “asset pro- tection” activities in the last ten years and plan to claim a homestead exemption, talk to a lawyer be- fore you file for bankruptcy.
Line 12: Can you protect more equity with a wildcard exemption?
some states allow you to add a wildcard exemption to the amount of your homestead exemption. although these wildcard amounts are usually small, they might be enough to tip the balance in favor of keeping your home.
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Wildcard Exemptions That Can Be Applied to Real Estate
California, System 2 $1,100
Connecticut 1,000
Georgia 600
Indiana 4,000
Kentucky 1,000
Maine 400
Maryland (This is the only exemption you can use on your home; there is no homestead exemption.) 5,500
Missouri 1,250
New Hampshire 8,000
Ohio 400
Pennsylvania 300
Vermont 400
Virginia (if you’re a disabled veteran) 2,000
West Virginia 800
Federal 1,075
Other states have wildcard exemptions, but they apply only to personal property.
if the state where you’re filing appears on this list, write the wildcard exemption amount on line 12. if your state doesn’t have a wildcard exemption that you can use for real estate, leave this line blank.
Line 13: How much of your equity is protected?
add lines 11 (the state homestead exemption available to you) and 12 (any wildcard exemption you can add to your homestead exemption). this is the amount of home equity you can protect in bankruptcy. if you aren’t subject to the $136,875 cap (which generally applies if you have moved from one state to another in the 40 months before filing for bankruptcy—see the instructions for Part ii, above), write this amount on line 13.
if you are subject to the $136,875 cap, it might limit the amount of equity you can protect. if the total of lines 11 and 12 doesn’t exceed $136,875, it doesn’t matter—the cap won’t affect you, and you can write the total amount on line 13. however, if the total is more than $136,875 and the cap applies, you can protect only $136,875 in equity. even if your state law would otherwise allow you to take a larger exemption, you’ll be limited to $136,875, and this is what you should write on line 13.
Line 14: Is your home fully protected?
subtract line 13 from line 6, and enter the total on line 14. if you generate a negative number, all of your home equity should be protected by the applicable exemptions, if your estimates are correct. the trustee probably won’t have your home sold, because there would be no proceeds left over (after your mortgage holder was paid off and you received your exempt amount of equity) to pay your unsecured creditors.
if, however, you generate a positive number, your equity exceeds the applicable exemption—in other words, you have unprotected equity in your home. if your estimates are right, the trustee can force the sale of your home to pay off your creditors, unless you can pay the trustee the value of your unprotected equity (perhaps by selling property that would otherwise be exempt).
From the proceeds of the sale, your secured creditors will be paid the amounts of their mortgages, liens, and so forth; you will receive the amount of your exemption;
and your unsecured creditors will get the rest.
if you have unprotected equity, you shouldn’t file for Chapter 7 bankruptcy if you want to keep your house. the trustee will almost certainly sell your home, unless you can come up with the cash to keep it.
you’ll probably fare better—and hold on to your home longer—by using your equity to help pay off your debts, either directly or through a reverse mortgage, or to fund a Chapter 13 reorganization plan. some of these strategies are discussed in “ways to Prevent the loss of your house,” below.
This worksheet is for estimate purposes only. If this worksheet shows that your equity is equal to or near the maximum amount of your state’s homestead exemption, take note: The trustee can challenge the value you claim for your home—and may determine that it’s worth more than you think. If this happens, and the trustee concludes that your equity exceeds the amount you can claim as exempt, the trustee may seek to have your home sold. If your estimates show that you might be close to the exemption limit, get some advice from an experienced bankruptcy lawyer.