I am sure that many of you contemplating the filing of a bankruptcy have heard reference made to the Massachusetts Homestead Exemption. As it is currently written, it can be a godsend to those contemplating bankruptcy (and even to those not considering the filing of a bankruptcy). What is the Homestead Exemption? How does it affect your interest in real estate? How does one take advantage of the Homestead Exemption? All excellent question, that shall be answered by what follows.
In the Commonwealth of Massachusetts, the equity in homeowner’s principal place of residence can be protected up to $500,000.00. Under the Massachusetts Homestead exemption as currently written, a homeowner now has an automatic exemption of $125,000.00 in equity. A homeowner can protect equity up to $500,000.00 by recorded a Declaration of Homestead with the appropriate Registry of Deeds.
In order to qualify, you must own a home in Massachusetts. The home can be a:
What types of homesteads are available?
There are three (3) types of homesteads under the current law:
What are the benefits?
The Homestead protects your home from being subject to the results of a civil lawsuit instituted by a creditor up to $500,000.00. While the Homestead Exemption protects up to $500,000.00 from general creditors, it does not protect your house from mortgage debt or liens on the property, and does not prevent foreclosure. It also does not provide protection from the recorded tax liens of the Internal Revenue Service or MA/DOR.
The amount of homestead protection is:
The protection applies to all debts, including pre-existing debts, except:
N.B. Homestead protection does not protect your home if you go into a nursing facility paid for by Medicaid. The Medicaid lien is a government lien and is exempt from protection.
How do I obtain Homestead protection?
To get the automatic homestead protection up to $125,000, you do not have to do anything.
To get the $500,000 protection for Section 2 or Section 3 homesteads, you must file a Declaration of Homestead with the Registry of Deeds in your county or district.
When filing a bankruptcy, a debtor may elect between taking either the federal exemption or the state exemptions. By taking the state exemptions in a bankruptcy, debtors can avail themselves of the Massachusetts Homestead Exemption and protect up to $500,000.00 in equity in their primary residences. In most case, this exemption will cover most if not all of the equity in a debtor’s primary residence. In such instances, the equity in your primary residence is immune from the reach of the chapter 7 trustee and your creditors. Of course, as in so many things bankruptcy matters, there is an exception to this rule. Under certain circumstances, the available state homestead exemption regardless of the amount of equity can be limited to $155,675.00 in instances where the debtor acquired the property within the 1,215 day period prior to the filing or if the debtor has been convicted of a felony.
As you can see, the use of the Massachusetts Homestead Exemption is an excellent planning tool whether in bankruptcy or not.