Homestead Exemptions in Bankruptcy After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)
Released: 2011-08-25T00:00:00

Summary:
When debtors file for bankruptcy protection under Title 11 of the U.S. Code, they may exempt the value of certain property; in many cases, this includes their homestead. In practical terms, to the extent that the property's value does not exceed the allowed exemption amount, the debtor may keep the property rather than its becoming part of the bankruptcy estate and thereby being available to satisfy creditors. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) introduced additional limitations on the extent to which debtors could exempt value in their residences when filing for bankruptcy protection.
This report surveys the homestead exemption laws of the 50 states and the District of Columbia with an emphasis on the amount of the exemptions and the extent to which debtors may choose between federal and state exemptions. It also describes the limitations on state homestead exemptions in 11 U.S.C. § 522(o)-(q) that were imposed by BAPCPA.
The amounts states allow debtors to exempt in bankruptcy run the gamut. A few states (New Jersey, Pennsylvania, and Virginia) have no specific homestead exemption. Several jurisdictions allow debtors to exempt unlimited value in their homestead (the District of Columbia, Florida, Iowa, Kansas, Oklahoma, South Dakota, and Texas), but some states allow an unlimited homestead exemption only in specific circumstances (Kentucky, Louisiana, Nevada, and Washington).
In states with a specific dollar amount that is allowed as a homestead exemption, the majority of states allow an exemption that is more than $10,000, but less than $200,000. However, more than 10% of the states with a limited homestead exemption allow no more than $10,000. Only 10% allow $200,000 or more without imposing restrictions not related to residency.
In some states, the amount of the available exemption is dependent upon age or disability. In others, marital status affects the available exemption. Some allow additional exemption amounts if there are dependent children in the home. In a few states, the exemption is lower for a mobile home than for a residence that is real property. In New York, the maximum available exemption is determined by the county in which the homestead is located. Massachusetts recently changed its laws to create two classes of homestead exemption—an automatic homestead exemption and a declared homestead exemption. The declared homestead exemption requires written formalities and is of greater maximum value than is the automatic exemption.
Some states appear to use their homestead exemptions to address issues not directly related to the home. West Virginia generally allows debtors to exempt up to $25,000. That amount increases to $250,000 if the debtor is a physician with malpractice insurance coverage for at least $1 million per occurrence and the bankruptcy is, at least in part, a response to a medical malpractice verdict or judgment. Washington State generally limits debtors to exempting $125,000 for their homestead; however, if another state has gotten a judgment against the debtor for income taxes due to that other state on retirement benefits that were paid to the debtor while the debtor was a resident of Washington, the homestead exemption is unlimited.
This report will not be routinely updated.

subsections: section_title: Introduction
paragraphs: Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the amount that a debtor in bankruptcy could exempt as equity in a homestead was generally limited by two factors: (1) whether the domiciliary state allowed the debtor to choose between the federal and state exemptions and (2) the amount the domiciliary state allowed as an homestead exemption. A third factor was added by BAPCPA in cases in which a debtor had purchased the property within approximately three years and four months before filing a petition for bankruptcy. Additionally, BAPCPA restricts debtors' options for determining their domiciliary state and, thus, the state exemptions that will apply. Prior to BAPCPA, an individual anticipating filing for bankruptcy protection might, shortly before filing for bankruptcy, move to a state whose exemptions were more favorable than those in the state where the individual was currently living and benefit from the more favorable exemption amounts.
This report discusses the federal homestead exemption, the effect BAPCPA has on a debtor's homestead exemption and, in Table 1 , provides a survey of the current homestead exemptions in the fifty states and the District of Columbia. The table also indicates whether state residents may choose between the state and federal exemptions.
section_title: The Federal Homestead Exemption
paragraphs: Section 522 of the Bankruptcy Code addresses the extent to which an individual debtor may elect to exempt equity in certain property from becoming part of the bankruptcy estate. Property exempted from the bankruptcy estate is not available to satisfy creditors. Among the exemptions explicitly provided in the Bankruptcy Code—the federal exemptions—are a homestead exemption in the amount of $21,625 and a "wildcard" exemption of $1,150 that can also be applied to the homestead if the debtor chooses so long as the federal exemptions are available to the debtor.
To the extent allowed under state law, the Bankruptcy Code allows debtors to choose between using the federal exemptions or those available under applicable state law. This is an "either/or" choice—debtors are not allowed to choose to use some state exemptions and some federal exemptions. When a petition is filed jointly by husband and wife or where the individual cases of a husband and wife are ordered to be jointly administered, each spouse must choose the same set of exemptions. However, debtors in many states have no choice to make because their state law prohibits the use of the federal exemptions. These federal exemptions are available to debtors only to the extent they are not prohibited by the applicable state. Nonetheless, while the homestead exemption in many states is greater than the federal homestead exemption, provisions were introduced in BAPCPA that impose limitations on the extent to which debtors can avail themselves of a state's homestead exemption.
section_title: BAPCPA's Effect on Homestead Exemptions
paragraphs: BAPCPA established a maximum homestead exemption for all debtors in all states unless a minimum period for property ownership was met. Subsection 522(p) of the Bankruptcy Code generally prohibits exempting an equity interest in the property that was acquired by the debtor during the 1215-day period immediately preceding the bankruptcy filing to the extent that the interest exceeds $146,450 in value. This limit may also apply in some cases in which the debtor has been convicted of a felony or has a debt resulting from violations of securities laws, fraud in a fiduciary capacity, or as the result of certain acts that caused serious physical injury or death. Additionally, if any part of the debtor's value in the residence is attributable to property disposed of in the 10-year period preceding the bankruptcy, the debtor's value in the residence must be reduced if all or part of the value in the previously owned property could not have been exempted in bankruptcy if the property were still owned when the debtor filed for bankruptcy.
BAPCPA also restricts debtors' options for determining their domiciliary state, which may effectively place limits on their homestead exemption. Debtors must have lived in their current state for at least two years before they are eligible for that state's exemptions. Debtors who have not lived in the same state for at least two years prior to filing for bankruptcy must look back at where they lived for the 180-day period immediately preceding that two years. If the debtor lived in more than one state during that 180-day period, the domiciliary state is the one in which the debtor lived for the greater part of that 180-day period.
Thus, through the changes made to § 522, BAPCPA limits the extent to which a debtor might plan for bankruptcy and maximize exempt assets. To effectively choose which state's exemptions will apply, a debtor must move to the chosen state approximately two years before filing for bankruptcy. To plan for a homestead exemption of more than $146,450, the debtor must acquire the interest approximately three years and four months before filing a bankruptcy petition.
section_title: Scope of the Survey of Homestead Exemptions
paragraphs: State laws were reviewed on both the Westlaw and LEXIS computer databases. In the table, the entry for each state first provides a brief synopsis of the homestead exemption available to debtors in bankruptcy as well as the extent to which debtors may elect to use federal rather than state exemptions. In some cases, de minimis "wildcard" exemptions that may be used for either real or personal property are noted, but the survey is not comprehensive with respect to them. They are more likely to be noted when a state has an extremely limited homestead exemption. Relevant excerpts of the state's statutory language is provided after the synopsis. Except as it is included in the excerpted statutory language, the survey does not address whether there is an exemption for proceeds after the sale of a homestead, nor does it address exemptions established by case law for homesteads held as tenancies by the entirety. Except as noted, state law provisions that constitute exceptions to the homestead exemption are not included in the survey.