What Is Homestead Exemption?
Homestead exemption is a legal provision that helps to safeguard a residence from some creditors after the death of a homeowner’s spouse or the filing of a bankruptcy case.
The homestead exemption helps to avoid foreclosure, which occurs when a bank takes possession of a property due to the nonpayment of a mortgage. It is particularly valuable since it provides both physical and financial protection, potentially preventing the forcible sale of a primary residence.
The homestead exemption allows a homeowner to avoid paying property taxes on their house. The exemption also protects the value of residents’ homes from property taxes, creditors, and life events like a spouse’s death. The homestead exemption ensures that a surviving spouse has a place to live. The exemption is only good for a primary residence and cannot be used for the purchase of another property. In some locations, homestead protection is automatic; in others, landowners must file a claim with the state for homestead exemption.
The homestead tax exemption, which is computed on a graded basis to benefit properties with lower assessed values, can also provide surviving spouses with continued property tax savings. Every state and territory, with the exception of New Jersey and Pennsylvania, has a homestead exemption provision. Each state has its own set of laws for how the exemption is used and how much creditor protection it gives.
Homestead Exemption Example
1. Protection from Creditors Under Homestead Exemption
State-by-state exemptions for homestead properties differ. A few states, like Florida and Texas, provide unrestricted financial protection for the residence against unsecured creditors. Albeit acreage restrictions may apply.
2. Bankruptcy Protection
If the owner’s equity does not exceed $25,150 in a bankruptcy case filed after April 1, 2019, federal bankruptcy law protects the house from a sale. The exemption is $23,675.67 for cases filed before that date. Most states compel homeowners to utilize the state limitations, which are frequently more beneficial. Approximately one-third of states, however, allow either the federal or appropriate state limit to be utilized. It’s worth noting, though, that bankruptcy only protects you from unsecured creditors; it won’t stop a bank from foreclosing on your property if you have a mortgage.« Back to Glossary Index