Bankruptcy Experts

Homestead is a legal term used to mean your primary residential place/ property. Note that I said a legal term. Yes, this distinction is important as your English dictionary may give a misleading definition. The word residential is very important in the explanation of the term homestead. This presupposes that commercial and investment properties are not to be classified as homestead.

Homestead exemption law was enacted to preserve a defaulting borrowers’ home from being sold by an aggrieved creditor, provided the home have sufficient home equity tied to it. Let me explain what a home equity is with an example. If you borrow $1,000,000 to buy a house that is worth $1,010,000, you have equity of $10,000 in that home. Note that the worth and not the purchase price are used here. The house can be bought for less than $1,100,000 for any reason; the purchase price is not material but the value of the house as established by certified valuation personnel.

If you owe credit card companies some money and they subsequently obtain judgment against you, all your properties may be gone except your homestead. This is though subject to state legislation. Some states have limits of the amount involved while some do not have. In states where there are limits to the value of homestead, a creditor may force a sale on your homestead and return the balance to you. For example, if a state states that no homestead value should be more than $30,000 and you have equity of $10,000 like we have in the above example, then your creditors cannot force a sale on your home. Homestead is based on the equity and not the debt.

You will get first hand information on the current provisions of the law by contacting a lawyer or an attorney in your state. So, before you jump into the street rejoicing that homestead exemption will protect your home, first have a meeting with your bankruptcy experts/ bankruptcy professionals for specific expert advice.

To the safety of your home after being declared bankrupt!