This essay focuses on the Homestead Exemption under Federal Bankruptcy Law which incorporates both the Federal Homestead Exemption and each state’s separate and distinct laws as to the Homestead Exemption. The amount of the Homestead Exemption differs greatly among the states and what also differs is the legal approach to the exemption: whether states only use their own State Law Homestead Exemption, or only use the Homestead Exemption provided under Federal Law, or give Debtors a choice between the the two laws, and allow Debtors to pick between the State and the Federal Homestead Exemption. We ask contestants to compare, contrast and comment upon the various state approaches to the Homestead Exemption, which in their opinion are better, and why, and whether there should be different state by state approaches or one common federal approach in the entire country.
The United States Bankruptcy Code, as Federal Law, is operative in all fifty (50) States of the United States of America. However, the Bankruptcy Code, in deference to the rights of each state to be their own sovereigns, with the ability to enact laws for the Citizens of their respective State, contains certain provisions reflective of this principle. One of those sections is found in 11 U.S.C. Section 522(b), which allows the debtor to claim the Federal Bankruptcy Exemptions (found under Section 522(d)) or those exemptions found under Federal Non-Bankruptcy Law (such as Social Security benefits under 42 USC 407) and Local and State Law exemptions which are applicable as of the date of the filing of the Bankruptcy Petition.
Individual Debtors who file Bankruptcy Petitions in States like New York, New Jersey and Kentucky (along with the states listed below)
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are able to claim both the Federal Bankruptcy Exemptions under 11 U.S.C. Section 522(d) and those exemptions under Applicable State and Local Law and other Federal Non-Bankruptcy Exemptions. Other states can either just utilize the Federal Bankruptcy Exemptions or those exemptions under applicable State and Local Law and other Federal Non-Bankruptcy Exemptions, but not both.
One of the most important exemptions that the Debtor can claim is what is called a “Homestead Exemption”. The Homestead Exemption protects the equity in one’s principal residence for the person(s) who files a bankruptcy case. In the State of New York, the Homestead Exemption applies to a house, shares of stock in a cooperative apartment, condominium or mobile home which is owned AND occupied by the Debtor(s) as his or her (or their) principal residence. It does not apply to other real property that the Debtor owns that is not occupied as the Debtor’s principal residence. This distinction is quite important, in that failure to comply with these conditions (ownership AND occupancy) may lead to disallowance of the Homestead Exemption and possible forfeiture of that asset in a Chapter 7 bankruptcy case (or having the value of that asset determined for the purpose of the amount of monthly trustee payments in a Chapter 13 plan).
Presently, the Federal Bankruptcy Exemption under 11 U.S.C. Section 522(d)(1) is $27,900.00. If you live in the State of Minnesota (which allows a choice of Federal or State Exemptions), the State Homestead Exemption is $390,000.00. In that case, it would be advantageous for a Debtor seeking to protect their homes equity in a bankruptcy case, to utilize the Minnesota State Exemption. A very different Homestead Exemption is given in the State of Kentucky (which also allows a choice of Federal or State Exemptions), where the State Homestead Exemption is only $5,000.00. In Kentucky, it would be more beneficial for the Debtor, seeking to protect their home’s equity in a bankruptcy case, to utilize the Federal Homestead Exemption under 11 U.S.C. Section 522(d)(1) in the sum of $27,900.00., than the smaller exemption under Kentucky State Law.
Some states, like Texas, Florida, Arkansas, Iowa, Kansas, Oklahoma and South Dakota, under their state’s exemption laws, have an unlimited State Homestead Exemption. In sharp contrast, some other states, like New Jersey and Pennsylvania, have no State Homestead Exemption. The State of New York (NYS) has different Homestead Exemptions throughout the state depending on which county of the state you live in, i.e.- In Nassau County, Suffolk County, Westchester County, Rockland County, Putnam County, and New York City, the NYS Homestead Exemption is $179,975.00 per person owning and occupying the claimed residence; whereas in Albany, Dutchess, Columbia, Orange, Saratoga, or Ulster Counties, the NYS Homestead Exemption is $149,975.00, and in any other county throughout the State of New York it is $89,975.00. per person owning and occupying the claimed residence.