The Homestead Act Can Help Massachusetts Residents Save Their Homes
On March 16, 2011, the updated version of the Massachusetts Homestead Act went into effect. The law offers Massachusetts homeowners a way to protect their homes from creditors. People should be aware of how the Homestead Act could help them save their homes when considering filing bankruptcy.
Homestead Act Protections
For Massachusetts homeowners, the Homestead Act automatically protects $125,000 of equity in a primary residence from creditors without the homeowner needing to file anything. People who choose to file a homestead declaration under the Homestead Act can protect up to $500,000 worth of home equity above the mortgage on the home.
Limitations of the Homestead Act
A homestead declaration does not protect a home’s equity in all circumstances. A person may only declare his or her primary residence as a homestead, so it cannot be used to protect vacation homes or second homes. Additionally, a homestead declaration will not protect a home from:
- Tax liens
- Mortgages used to purchase the residence
- Child or spousal support back payments
- Debt incurred before the homestead declaration
Saving a Home Through the Homestead Act
Using a homestead declaration can be beneficial for those filing bankruptcy. If a filer chooses to use the Massachusetts homestead declaration, he or she will be using state bankruptcy exemptions. Doing so can protect much more of the equity in the home than federal exemptions allow — currently only $20,200. This would reduce the likelihood that a person filing Chapter 7 liquidation bankruptcy would lose his or her home as part of the liquidation of the bankruptcy estate to pay off unsecured creditors.
Filing a homestead declaration can also help a person filing Chapter 13 wage-earner bankruptcy using Massachusetts exemptions. Under Chapter 13, the filer must repay a percentage of his or her unsecured debt equal to the amount the creditors would have received had the filer used Chapter 7. By protecting more of the equity in the filer’s home, a homestead declaration can also reduce the amount of money that a filer will have to repay under Chapter 13.
Consult an Attorney
Deciding whether to file bankruptcy using state or federal exemptions can be complicated. A multitude of factors can affect how advantageous using one or the other would be, based on an individual’s circumstances. If you are considering filing bankruptcy, talk to an experienced bankruptcy lawyer who can discuss your situation with you and advise you of your options.