Kaylan Sanders

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The federal and state districts have different procedures, different norms, and different officials. The initial goal of federal bankruptcy laws is to alleviate both individual and corporate debtors. Under Section 522(d)(1) of the U.S. Bankruptcy Code, homeowners can exempt a portion of the ownership interest (equity) in their primary residences from unsecured creditors whose loans are not secured by borrowers’ property. The dollar value exempt property interest at a set capped value. Some states have homestead exemptions, the amounts of these exemptions can be higher or lower than the amount of the federal exemption. Homeowners are usually permitted by state law to choose between the state or federal exemption. In the states where the state exemption is greater than the federal, it makes sense for homeowners facing bankruptcy to use it. If a potential debtor is not knowledgeable of the variances in their specific homestead exemption it can lead to economic miscalculations of their finances.

The different approaches of the homestead exemption is controversial. The question arises of which one balances the interest of debtors and creditors. Debtors are obligated to pay the debt back with interest and creditors expect their principal plus interest amount from the debtor. I believe that federal exemption only would assess the discrepancy that lies in the variations. The federal exemption would be a set universal amount that would meet the competing interest.

The purpose of the homestead exemption is to minimize the property taxes for homeowners who have experienced a death of a spouse or bankruptcy. This is meant to serve as a form of debt relief in reference to the debtor’s primary residence. I believe that it would be inadequate to qualify real estate owned and occupied by the debtor under the exemption. I think this would be a misuse of the exemption and a violation of the economy. I do think that the homestead exemption should be extended to real property owned by the debtor, even if the debtor is not presently occupied. This would ensure coverage of the property in their possession. The present approach of the homestead exemption should be modified in the best interest of the whole. That is best achieved through the federal approach only with the addition of the coverage of all real property owned. The addition of a special provision of the Bankruptcy Code that would allow a Debtor to be given a choice as to which Homestead Exemption they could use, regardless of the law of the State they reside in, would fulfill the idea of individual liberty. I believe that this would be the right step in the direction of a universal law compared to the implication in place now.

This issue is relevant and prominent to our society because of the current economic condition in the United States. The Covid-19 pandemic created instability in our economy. This instability due to a decrease productivity has left a lasting mark on the United States. To restore the economy inflation has had hit Americans hard. There has been a rise in housing loss and increase rent across the country. This shows a direct correlation with the topic at hand. It is important that both the state and federal government work together in the best interests of individuals with respect to them. The inter-relationship of federal and state laws in reference to the homestead exemption poses a controversial issue of violation of the states’ rights. This is a conversation that needs to be had in the climate of the current economy.

References

Carlson, R. E. “Economic Implications of Homestead Tax Exemption.” The Journal of Land & Public Utility Economics, vol. 13, no. 4, 1937, pp. 343–49. JSTOR, https://doi.org/10.2307/3158219. Accessed 30 Nov. 2022.

“Homestead Exemptions by State and Territory.” Homestead Exemptions by State and Territory, 2022,

https://www.assetprotectionplanners.com/planning/homestead-exemptions-by-state/

Wimmer, Attorney Andrea. “Federal Bankruptcy Exemptions Explained.” Upsolve, 31 Mar. 2022,

https://upsolve.org/learn/federal-chapter-7-bankruptcy-exemptions/