Homestead Exemption
Kansas, Florida, Iowa, South Dakota and Texas

Homestead Exemption
Texas, Florida, Iowa, South Dakota and Kansas

In many states, the most important asset exemption legally protects the homestead a personal residence from the claims of almost all creditors.

Homestead Exemptions vary from State to State

Homestead Exemptions vary widely from state to state. The homestead exemption provides a good example of this variation and how it impacts asset exemption planning.

The states of Texas, Florida, Iowa, South Dakota and Kansas provide an unlimited dollar amount homestead exemption. Florida and Texas, in fact, are well known as debtor friendly states because of their homestead exemptions. The Florida homestead exemption is especially valuable because a U.S. Court of Appeals recently held that the exemption will apply even when the owner acquired or enlarged it with the intent of defrauding creditors.

States with no dollar cap on their homestead exemption do limit the exemption to a certain area of land, which is much larger in rural areas. In Florida the exemption is limited to half an acre in a city and 160 acres elsewhere. In practice, this area limitation will only rarely be a factor.

On the opposite side, Delaware, Maryland, New Jersey and Pennsylvania provide no specific homestead exemption.

Most states offer exemptions between these extremes. Even here, however, the exemption can be anywhere along the spectrum. For example, the exemption is $5,000 in Ohio, $80,000 in North Dakota, and $125,000 in Nevada.

The federal bankruptcy homestead exemption is $17,425. Where a state's homestead exemption is lower than $17,425, a debtor contemplating a bankruptcy filing should consider using the federal exemptions, all other things being equal.

The homestead exemption is considered such a basic and important right in some states,including Florida and Texas, that it is mandated by the state's constitution. This prevents the state's legislature from modifying or repealing the exemption by statute.

Generally, consensual liens, such as mortgages, cannot be eliminated inside or outside of bankruptcy, even when they are attached to property subject to an exemption. Therefore, the homestead exemption can actually be worth nothing to the debtor if the home is very heavily mortgaged.

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