As the popularity of debtors prison declined, the concept of giving the debtor a fresh start became one of the primary purposes of the bankruptcy process. The property owned by the petitioner does not get the fresh start, the individual does. The fact that bankruptcy is a personal action may shed some light on the effect of a homestead in a bankruptcy proceeding. The bankruptcy code acknowledges the validity of homesteads. A homestead is a personal exemption which, in an effort to preserve a person's home, protects a certain amount of an individual's equity in the homestead property.
State law determines the extent and effect of a homestead.
This principal operates without regard to the Federal Bankruptcy Code. This is called a chapter 7 bankruptcy. A trustee is appointed to represent the petitioners creditors and divvy up the petitioners assets among those creditors. If a states homestead law says that a certain amount of the petitioner's equity in his home cannot be used to satisfy certain debts, the trustee cannot use that equity to pay off creditors. The court is in no better position than the creditors would be.