H is for Homestead Exemption

Losing your home is one of the great fears for those going through bankruptcy.  At least it used to be.  Before the Great Recession hit home prices in Arizona were skyrocketing.  Do you remember lining up on Saturday mornings in hopes of getting a ticket so that you could enter a lottery to win the privilege of buying your McMansion?  I do.

It was not a matter of ‘do you have equity’ in your home, but how much did the value of your house increase this week?  During those times the homestead exemption was vital to protecting your home.

What is the Homestead Exemption?

Arizona’s homestead exemption protects up to $150,000 in equity in your home.  The exemption applies to a single family home, condo, mobile home, etc.  These days it is rare that I see anyone with anything near $150,000 in equity, but if you do happen to own your home or owe very little it is generally protected.

Homestead and Bankruptcy

The homestead exemption is applicable even while you are in bankruptcy.  This means if you own your home or have significant equity, so long as it is less than $150,000 your home will be protected while go through the bankruptcy process.

Also, Arizona’s homestead exemption not only exempts equity in your home but also the proceeds from the sale of your home.  The key here is that the money you receive from the sale of your home must be identifiable.  This means if youare selling your house you should put any proceeds you receive in a separate bank account.  The problem arises when the money is comingled with other money that didn’t come from the house.

If you are needing to file bankruptcy in most cases you will not have to worry about losing your home as long as you keep making the monthly mortgage payment.