By: Daniel Stone
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What is the bankruptcy homestead exemption and how can it help me?
The bankruptcy homestead exemption is a state exemption that allows bankruptcy filers to protect the equity in their home. Without the exemption, a Chapter 7 trustee can take the debtor’s home and a Chapter 13 Trustee could demand a payment that covered the equity in the house. Up until 2007, South Carolina had one of the worst homestead exemptions in the whole country – $5,000/$10,000 for a joint filer. In 2007, the homestead exemption increased to $50,000/$100,000 for a join filer.
Lets look at the practical ways that the homestead exemption could help you in bankruptcy. Say you own a house jointly with your spouse and you both file Chapter 7 bankruptcy. The balance on your mortgage is $50,000 and a recent appraisal listed the value of your home at $150,000. Without any exemptions, the Chapter 7 Trustee could sale your home and keep the $100,000 equity to pay back your creditors. With the homestead exemption, you could protect the $100,000 equity in your home and keep your house as long as you are current with the mortgage payment. If you file a Chapter 13, you wouldn’t have to increase your Chapter 13 plan payment due to having equity in your home because the homestead exemption protects you.
There are some additional elements to the homestead exemption that you should be aware of. First, since 2007, a cost of living adjustment has been added to the original $50,000/$100,000 figure. We are now close to $56,100/$112,200. Second, a debtor has to be on the deed to claim the exemption. For instance, say you have a married couple who file and they both want to claim the homestead exemption. In order to do so, they must both be on the deed. Third, you cannot both claim both the cash exemption and the homestead exemption it is either or. Finally, just because you file in South Carolina does not mean you get to elect to take the generous South Carolina homestead exemptions. There is a residence test to determine if you have lived in South Carolina long enough to take the exemption. Please make sure you qualify to take the South Carolina homestead exemption because the Federal and most other state exemptions are not as generous.