Think of “homestead” and you might envision a scenic home representing a historical residence or grand family estate. In the legal world, homestead law protects equity in a home from being taken by creditors.
Such protections exist in state law. Nearly every U.S. state has its own homestead statute, designed to protect property owners from losing their family homes in hard times.
Homeowners unable to keep up with the crush of mounting debt still need a place to live if they file bankruptcy. Homestead laws protect a certain amount of equity in the home when filing bankruptcy. Often, depending on the facts, homestead laws save family homes in a consumer Chapter 7 or Chapter 13 bankruptcy.
Some homestead laws give automatic protections. Others require homeowners to take the actual step of signing and recording a document at the registry of deeds. Homestead laws vary from state to state and so let’s compare and contrast the laws of two states.
Massachusetts homeowners enjoy automatic protection up to the amount of $125,000.00. This automatic protection may or may not provide an adequate financial shield. At the same time this exists without having to file anything in a registry of deeds. Over and above the basic amount, Massachusetts homeowners can protect equity in their principal residence up to $500,000.00 per residence, per family.
Massachusetts law requires homeowners seeking the additional amount to complete a document known as a Declaration of Homestead and duly file the form at the registry of deeds for the county or district where the property is located. The formalities of the declaration require reference to the correct book and page where the property deed can be found.
New Hampshire Homestead
New Hampshire law automatically grants homeowners a $120,000 homestead protection on a primary residence. That means New Hampshire homeowners face no requirement of filing a document in a registry of deeds or anywhere else to take advantage of that protection. In fact, there is no such thing as a “homestead declaration” in New Hampshire. There is no additional protection above the $120,000 automatic amount.
The New Hampshire law also extends to owned and occupied manufactured housing, but not to the land upon which the manufactured housing is situated if that land is not also owned by the owner of the manufactured housing.
Bankruptcy Homestead Exemption
Chapter 7 bankruptcy is actually called liquidation. That’s because the old school idea was that after the bankrupt person’s property was liquidated, the money was divided up among creditors, and then debts were discharged. Present day U.S. bankruptcy law provides various exemptions which, if claimed properly, protect exempt property from being taken away.
So the homestead saves homes with equity of up to $125,000 equity in New Hampshire and up to $500,000 in Massachusetts, if the Massachusetts debtor files a declaration at the registry of deeds.
Federal Bankruptcy Exemption
Even though bankruptcy is federal law, bankruptcy filers face a choice between state exemptions or federal exemptions. Until now we’ve looked at state laws. The federal exemption provides protection up to $23,675. Married couples filing jointly can double that federal bankruptcy exemption to $47,350.
Why would anyone select the lower federal exemption? Because some of the other federal exemptions tend to be more generous than other state exemptions and you can’t pick and choose. Those who file bankruptcy must select one set of exemptions or the other, state or federal, and then stick with that group of exemptions. You can’t mix and match as though you were at the buffet table.
Another note: The New Hampshire amount can be doubled where married couples file bankruptcy together or jointly. The Massachusetts protection is not subject to doubling.
Protecting Property in Bankruptcy
The exemptions we’ve summarized above cover only a person’s principal place of residence. The owner or owners of a home who occupy or intend to occupy the home as a principal residence receive benefit of the law. When it comes to vacation homes, second homes and investment property, such protections for the most part don’t apply.
Your best bet, if you have bills piling up or bill collectors making threatening calls, is to consult with an experienced attorney handling consumer debt and bankruptcy. My office has handled such issues for over 20 years and we stand ready to offer a free initial consultation.
More on bankruptcy exemptions here.
Massachusetts Homestead Act, MGL c. 188.
New Hampshire Homestead Act, RSA 480:1.
Federal Homestead Exemption, 11 U.S.C. § 522.