Homestead Exemptions in Bankruptcy After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)

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.