Macco Law Group, LLP

Understanding the bankruptcy homestead exemption

Understanding the bankruptcy homestead exemption

A common misconception about bankruptcy is that it offers some sort of escape. In reality, it is a sacrifice whose decision many people in Long Island agonize for long hours over. Those who seek personal bankruptcy protection do so understanding that they will likely lose many personal assets.

The question that most people considering bankruptcy typically have is whether or not they will be able to keep their homes. Answering this question requires an explanation of bankruptcy homestead exemptions.

Exempting equity in a property

A homestead exemption allows one to exempt a certain portion of their assets from debtor actions. In the case of bankruptcy, a homeowner can exempt the amount of equity they have in their home. Provided their equity does not exceed the exemption amount, they can protect their home from liquidation as part of a bankruptcy case.

For example, if one owns a home worth $350,000 and they owe $275,000 on their mortgage, they can keep the home if the homestead exemption is $100,000. However, if it is $50,000, then a bankruptcy trustee might sell their home and then pay them for the $50,000 in equity they can exempt.

Per New York’s Civil Practice Law and Rules, the homestead exemption is $150,000 for Kings, Queens, New York, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester, and Putnam counties. It is $125,000 for Dutchess, Albany, Columbia, Orange, Saratoga, and Ulster counties, and $75,000 for all the state’s remaining counties.

Choosing between state and federal exemptions

New York law allows bankruptcy filers to choose between the state and federal exemptions. According to the National Consumer Law Center, the federal homestead exemption is $25,150.