If you're struggling with overwhelming debt, filing bankruptcy can offer you a fresh financial start. Chapter 7 bankruptcy allows you to eliminate your debts entirely in exchange for surrendering certain assets. State bankruptcy laws permit you to exclude certain property from seizure, including your home. In Tennessee, homestead exemptions are covered under state law.
Function of the Homestead Exemption
The primary purpose of the homestead exemption is to protect your home from creditors who may seek to place a lien on your property in order to recover a debt. When you file bankruptcy, the court issues an automatic stay that prevents further collection actions on the part of your creditors. If you file Chapter 7, the bankruptcy court will liquidate your nonexempt assets and distribute the proceeds to your creditors. Claiming the homestead exemption allows you to exempt your equity value and prevent the forced sale of your home to repay your debts.
Homestead Exemption Limits
Homestead exemption limits are updated periodically to adjust for inflation. As of 2018, the homestead exemption limit for a single debtor in Tennessee was $5,000. Married couples who file bankruptcy jointly can exempt up to $7,500. If you and your spouse own your home in joint tenancy by the entirety you can exempt the full value of the home for the debts of one spouse only. Joint tenancy by the entirety means you each own the home equally. If you are age 62 or older, the exemption limit is $12,500 for single debtors and up to $25,000 for married couples as long as both parties are 62 or older. If you have minor children, the exemption limit increases to $25,000 for single debtors and $50,000 for married couples.
Wild Card Exemption
Under Tennessee state law, bankruptcy filers may also claim a wild card exemption for personal property. At the time of publication, the maximum wild card exemption was $10,000. If your home's equity value exceeds the amount of homestead exemption you can claim, you may apply the wild card exemption to the difference if you have no other personal property you wish to exempt. If the equity value exceeds the combined total of the homestead and wild card exemptions, you may negotiate with the trustee to pay the difference if you wish to keep your home.
Under federal law, to claim the homestead exemption, you must have purchased the home a minimum of 40 months before filing your bankruptcy petition. If you have owned the house for less than 40 months, you will have to use the homestead exemption for your previous state of residence. The property you claim must be your primary residence.
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- The Bankruptcy Site: What is a Homestead Exemption in Bankruptcy and How Do You Qualify?
- Legal Consumer: Tennessee Bankruptcy Exemption Laws
- FindLaw: Tennessee Homestead Laws
- TN.gov: Tennessee Homestead Exemptions
- FindLaw: Tennessee Code Title 26. Execution § 26-2-103
- Nolo: The Homestead Exemption in Bankruptcy
- Comstock/Comstock/Getty Images