Homestead bankruptcy
What is Homestead?
What is homestead? This question needs to be answered first before we proceed to discuss our topic further. Homestead basically comprises the house where one lives and the land that surrounds it. Thus, homestead can easily be understood as the dwelling place of a person as well as the moving place around it. Homestead is applicable to the mobile homes also. It is to be noted here that in the United States as well as the United Kingdom, many a people live in the mobile homes. In case of mobile homes, the homestead comprises the mobile home and the area immediately surrounding it.
The next question that arises in front of us is what are homestead exemptions and why are they needed? Let us discuss about it in our next part of discussion.
Homestead Exemptions:
In many countries like the United States etc., when a person files an application for the bankruptcy under the certain provisions, his all assets are attached by the bankruptcy court or any other court of law. In such circumstances, the bankrupt debtor is allowed to retain certain assets. This means, despite that the bankruptcy has been filed, the person can easily keep some assets with him. These are known as the exempt items and the homestead is essentially one of them. It is to be noted here that it is also not like that the person can keep the exempt items in full. Rather, there is a value up to which the person can easily keep the assets. In case of homestead also, there is an upper limit of exemption and up to this limit only, the homestead is exempted from attachment. After this limit, all the remaining land is easily attachable and the court can easily attach this. This exemption in the upper limit in the case of homestead is known as the homestead exemption. The homestead exemptions are very much required because a person needs a house to live. It is of course one of his basic requirement and the court cannot do anything in this regard even if the person has been declared bankrupt. But if a person has land more than required for his living, the court can easily attach it. That is the reason why the homestead exemptions are found in each country.
In different countries, there are different laws related to bankruptcy and the exemptions allowed as per these laws. So, it is not possible here to describe the value of homestead exemptions in each of the country. Also, in the same country, the homestead exemptions are different owing to many factors like the difference in the value of land at the different places. But for understanding the topic, we would be discussing the homestead exemptions in a generalized manner as applicable in the United States. Let us discuss these in our next part of discussion.
Various Homestead Exemptions:
In the U.S also, the value of the homestead in dollars differ in the various states also. Also, there are state homestead exemptions as well as the federal homestead exemptions. Let us discuss the federal homestead exemptions.
First of all, let us see what the upper ceiling in the case of homestead is. In the United States, the homestead exemption is limited to $125,000 only. This means that is a person has a house and the surrounding that worth more than $125,000, the exemption allowed is only up to the amount mentioned. This means all the property i.e. lands that exceeds this value is easily attachable by the court. Also, this is applicable only in the cases where the said property was purchased by the bankrupt debtor within the previous 1215 days. This means that all the property acquired by a person 3.3 years before filing for the bankruptcy protection is applicable for the exemption and not the property bought before that period.
Also, the value of the homestead exemption mentioned above is not in absolute terms. This value is of course reduced by the value to of the non-exempt property disposed off by the bankrupt debtor during the 10 years previous to the bankruptcy filing. Thus, the value depends upon the various disposes off made by the bankrupt debtor.
The absolute homestead cap of $125, 0000 is applicable only in the either or two cases that are mentioned below:
1- If the court, where the bankruptcy has been filed, is sure that the bankrupt debtor has filed the application for the bankruptcy that has led to the abuse of the various provisions of the U.S bankruptcy code.
2- In case the bankrupt debtor owes a debt that has arisen out of the violation of the various federal or state securities laws or there is a fiduciary fraud or crimes that have caused serious injuries or death in the preceding 5 years. However, this limitation is not applicable if the homestead is very much necessary for the debtor or any of his dependants.
Since there are different states in the U.S and each state is having its own homestead exemptions, it is very important to first understand about the state. The state that is considered for the exemption is the state where the bankrupt debtor has been living for the past 730 days or 2 years of filing the application for the bankruptcy protection. However, if a person has not lived continuously for 2 years in a state, the state of his living would be recognized as the one where a person has lived for the majority of 180 days period preceding the 2-year period. If all the above norms are not applicable, a person is given the federal homestead exemptions rather than the state homestead exemptions.
So, the U.S bankruptcy law has clear notification for each type of circumstances. All the states of the U.S have its own homestead exemption and if these are applicable to a person that has filed for the bankruptcy protection, the federal homestead exemptions has nothing to do with this.
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