Homestead Exemptions and Protecting Your Home in Bankruptcy

How does a homestead exemption actually work?

When you file, an estate is created that includes essentially everything you own — 11 U.S.C. § 541 describes it as all legal or equitable interests of the debtor in property as of the start of the case. Your house goes into that estate. The exemption is the mechanism that takes some of it back out: under 11 U.S.C. § 522(b), an individual debtor may exempt from property of the estate the property listed in either the federal list or the applicable state and federal non-bankruptcy list.

The exemption is measured in equity, not sale price. If a home is worth less than the mortgage balance and other liens against it, there is little or no equity for a trustee to reach. A homestead exemption covers equity up to the published amount that applies in your case. Value, for this purpose, is defined by § 522(a)(2) as fair market value as of the date the petition was filed.

• Estate first, exemption second — everything comes in, then exempt property comes back out.
• Equity = current value minus mortgage balance and other liens.
• Value is measured as of the petition date, not when you first fell behind.

What changes the answer for one person versus another?

Four things move this more than anything else. First, which state's law applies — 11 U.S.C. § 522(b)(3)(A) points to the law of the place where your domicile was located for the 730 days immediately preceding the filing date, with a fallback rule if you moved during that window. Second, whether your state permits the federal list at all. Third, how much equity you actually have. Fourth, whether the mortgage is current.

That last one surprises people. An exemption addresses equity; it does not address a loan you are behind on. Bankruptcy court guidance in the District of Arizona puts it plainly: under both Chapter 7 and Chapter 13, you must pay debts secured by property if you want to keep the property, and most commonly that means continuing your regular mortgage payments. Chapter 13 is the chapter used to cure defaults on secured debts, including home mortgage arrears.

What does federal law say about the homestead exemption?

The governing provision is 11 U.S.C. § 522. Subsection (b)(1) says that, notwithstanding § 541, an individual debtor may exempt from property of the estate the property listed in either paragraph (2) — the federal list in subsection (d) — or, in the alternative, paragraph (3), the state and other federal exemptions. Spouses filing jointly may not split the choice; if they cannot agree, the statute deems them to elect the federal list where that election is permitted.

Paragraph (3)(A) makes the state-law election subject to subsections (o) and (p), and ties it to the debtor's domicile over the 730 days before filing. Paragraph (3)(B) separately addresses property held as a tenant by the entirety or joint tenant, to the extent that interest is exempt from process under applicable nonbankruptcy law — which matters to married couples in some states.

• § 522(b)(1) — the debtor elects one list, not both.
• § 522(b)(3)(A) — state law applies through the 730-day domicile rule, subject to §§ 522(o) and (p).
• § 522(a)(2) — 'value' means fair market value as of the petition date.
• § 522(m) — the federal amounts are doubled for a married couple filing jointly, per the District of Alaska's published exemption guidance.

Where do state rules differ, and how much?

Enormously, and this is the single biggest variable on this page. Section 522(b)(2) lets a state decline to authorize the federal list, and many have. Alabama provides that in bankruptcy cases only Alabama exemptions and non-§ 522(d) federal exemptions apply (Ala. Code § 6-10-11). Arizona (A.R.S. § 33-1133), California (Cal. Civ. Proc. Code § 703.130), Colorado (Colo. Rev. Stat. § 13-54-107), Illinois (735 ILCS 5/12-1201) and Mississippi (Miss. Code Ann. § 85-3-2) have done the same by statute.

Other states leave the choice open — the District of Alaska's exemption guidance states that debtors filing there may take either state or federal exemptions, but not both. The amounts themselves range from very small to very large. We publish verified figures on the state pages rather than here, because a national number would be wrong for almost everyone reading it.

• Opt-out states: only state exemptions plus non-§ 522(d) federal ones are available.
• Choice states: you elect one list or the other, never a mix of both.
• Some states time the amount to the filing date — Alabama does so expressly (Ala. Code § 6-10-1(b)).

What does this look like in practice?

In a Chapter 7 case, the trustee's job is to look for non-exempt value. Official court guidance for individual filers explains that the trustee may sell your property to pay your debts, subject to your right to exempt the property or a portion of the sale proceeds, and that exemptions may enable you to keep a home, a car, clothing and household items. If the equity in a home sits within the applicable exemption and the mortgage is current, there is generally nothing there for the trustee to administer.

Where the equity exceeds the exemption, the picture changes, and Chapter 13 becomes the more common route — it lets a filer keep the property and pay value into a plan instead of surrendering it. The Arizona court's guidance also notes that if you are filing to save a home from foreclosure, you must do so before the foreclosure sale is completed under state law.

• Equity within the exemption, mortgage current: commonly no trustee action on the home.
• Equity above the exemption: Chapter 13 is often explored as the way to keep the property.
• Behind on the mortgage: Chapter 13 is the chapter that cures secured-debt defaults.
• Foreclosure already scheduled: timing relative to the sale matters.

What documents and information are involved?

The homestead exemption is claimed, not granted automatically. Court guidance for individual filers is explicit: exemptions are not automatic, and to exempt property you must list it on Schedule C, The Property You Claim as Exempt (Official Form 106C). If you do not list the property, the trustee may sell it and pay the proceeds to your creditors. Your home is also described on Schedule A/B, and the mortgage on Schedule D.

Some districts add a local step. In Montana, Mont. LBR 4003-2 requires that if a homestead exemption is claimed, a copy of the recorded homestead declaration be delivered to the trustee. Practically, you will need the paperwork that establishes both halves of the equity calculation.

• Schedule A/B — the home itself and your interest in it.
• Schedule C — the exemption claim, with the statute you are relying on.
• Schedule D — the mortgage and any other liens against the property.
• Current mortgage payoff statement and a supportable value for the home.
• In some districts, a recorded homestead declaration (see Mont. LBR 4003-2).

What should you ask a lawyer about your home?

This is one of the areas where a local attorney earns their fee quickly, because the answer depends on state law, your equity, and how a particular trustee values property. Court guidance across districts repeats that clerk's offices cannot give legal advice and that you should have an attorney review your decision to file and your choice of chapter.

Bring the numbers with you. The questions below get you a usable answer in one meeting rather than three.

• Which state's exemptions apply to me given where I have lived for the past two years?
• Does my state permit the federal list, or is it an opt-out state?
• Based on a realistic value, how much equity would be exposed above the exemption?
• If I am behind on the mortgage, what would curing the arrears look like in Chapter 13?
• Does a recent move, transfer, or refinance affect my exemption claim?
• Are there local rules or filing requirements in my district for a homestead claim?

Frequently asked questions

Can I keep my house if I file Chapter 7?

Many filers do, when the equity falls within the applicable homestead exemption and the mortgage is current. Court guidance for individual filers states that exemptions may enable you to keep a home, a car, clothing and household items. Where equity exceeds the exemption, the trustee may sell the property, subject to your right to exempt a portion of the proceeds.

How is home equity calculated in bankruptcy?

Equity is the home's value minus the mortgage balance and any other liens against it. Under 11 U.S.C. § 522(a)(2), value means fair market value as of the date the petition was filed. That is why a home worth far more than you paid can still have little exposed equity if the loan balance and liens are large.

Do I get to choose the federal homestead exemption?

Only if your state permits it. Section 522(b)(2) lets a state decline to authorize the federal list, and Alabama, Arizona, California, Colorado, Illinois and Mississippi have each done so by statute. Where the choice exists — Alaska, for example — you elect either the state list or the federal list, never a combination of the two.

What happens if I moved to a new state recently?

Section 522(b)(3)(A) applies the exemption law of the place where your domicile was located for the 730 days immediately preceding the filing date. If you were not in a single state for that whole period, the statute looks to where you were domiciled for the 180 days before that 730-day window, or the longer portion of it. A recent move is worth raising with a lawyer.

Does filing stop a foreclosure sale?

Filing generally triggers an automatic stay under 11 U.S.C. § 362, which commonly halts collection actions. The Arizona court's guidance cautions that if you are filing to save a home from foreclosure you must do so before the sale is completed under state law, and that the stay has limits — including shortened protection where a prior case was dismissed within the past year.

Do I have to claim the exemption, or is it automatic?

You have to claim it. Official guidance for individual filers states that exemptions are not automatic and that you must list the property on Schedule C, The Property You Claim as Exempt (Official Form 106C). If the property is not listed, the trustee may sell it and pay the proceeds to creditors. Some districts add local requirements, such as delivering a recorded homestead declaration.

What does it cost to file?

The Chapter 7 filing fee is $245 (28 U.S.C. § 1930(a)(1)(A), (f)(1)), plus a $78 administrative fee and a $15 trustee surcharge. Chapter 13 carries a $235 filing fee (28 U.S.C. § 1930(a)(1)(B)) plus the same $78 administrative fee. Attorney fees are separate and vary. The statute permits installment payment for individuals in some circumstances.

Sources

• 11 U.S.C. § 522 — Exemptions · official source
• 11 U.S.C. § 541 — Property of the estate · official source
• 11 U.S.C. § 362 — Automatic stay · official source
• Ala. Code § 6-10-11 — Exemptions in Federal Bankruptcy
• Ala. Code § 6-10-1 — Law Governing Exemptions and Claims
• A.R.S. § 33-1133 — Other exemption laws
• Cal. Civ. Proc. Code § 703.130
• Colo. Rev. Stat. § 13-54-107 — Exemptions in bankruptcy
• 735 ILCS 5/12-1201 — Bankruptcy exemption
• Miss. Code Ann. § 85-3-2 — Certain federal exemptions prohibited
• U.S. Bankr. Ct. D. Alaska, Exemptions (Schedule C) for Alaska Bankruptcy Cases
• U.S. Bankr. Ct. D. Ariz., Choosing Your Chapter: What can Bankruptcy do for you? What will it do to you?
• U.S. Bankr. Ct. D. Ariz., Instructions for Completing the Bankruptcy Petition, Schedules and Statements
• Bankr. S.D. Iowa official guidance — Instructions - Bankruptcy Forms for Individuals
• Mont. LBR 4003-2 — Homestead Exemptions
• 28 U.S.C. § 1930(a)(1)(A), (f)(1)
• 28 U.S.C. § 1930(a)(1)(B)
• Bankruptcy Court Miscellaneous Fee Schedule, Item 8
• Bankruptcy Court Miscellaneous Fee Schedule, Item 9

Related

• Exemptions: what they protect
• Chapter 7
• Chapter 13
• The automatic stay
• Build your personalised roadmap
• Find your local bankruptcy court