28 Feb Ten Reasons to Delay Filing Bankruptcy! Reason No. 3: Homestead Exemptions
One of the areas of the Bankruptcy Code that was significantly changed by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was the placement of a dollar cap on the amount of a homestead exemption that a debtor could claim based upon the length of time that the debtor owned the home.
In Louisiana, where I practice bankruptcy law, the homestead exemption is only $35,000.00. This is better than someStates, not as good as others). This means that if a debtor has less than $35,000.00 in equity in a house, then the house cannot be sold to pay the unsecured creditors. This also means that if the house has substantially more equity than $35,000.00 and the house is sold by the bankruptcy trustee to pay unsecured creditors, that the debtor in Louisiana keeps the first $35,000.00 of the amount received at the sale after any debt secured by the home is paid.
However, some states have very large or unlimited homestead exemptions, and there was some evidence to suggest that some wealthy individuals, attempting to protect their financial assets, would purchase property in a large homestead exemption or unlimited homestead exemption state to protect otherwise non-exempt assets from their unsecured creditors by making those assets exempt.
In an effort to prevent this practice, BAPCPA limited the homestead exemption to $125,000.00 for property purchased within 1215 days before the filing of a bankruptcy. (Roughly speaking, 3 years and 3 months).
Funds that were received from the sale of another property and used to purchase the new property are not included when determining the exemption.
Louisiana residents are not affected by this change in the Bankruptcy Code since the Louisiana homestead exemption is so low. However, if you are in a situation where your homestead exemption could be limited under this amendment, it would be wise to contact an experienced bankruptcy attorney to discuss your options
But, if possible, it would be best to allow the 1215 day time period to run before filing.
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