A homestead exemption is a legal provision that helps shield a home from some creditors following the death of a homeowner spouse or the declaration of bankruptcy. A homestead exemption can block the forced sale of a primary residence and provide tax relief for surviving spouses. Homestead exemptions are only for one primary residence and no other exemption can be claimed on any other property anywhere.
Homestead exemption is a great option for those facing financial hardship, such as people filing for bankruptcy or widow or widower facing higher bills than he or she can no longer afford to pay due to the passing of a spouse.
Homestead exemptions can protect a home up to a certain value of the homeowner’s equity in it. If the homestead’s equity exceeds the limit of the exemption in that state, creditors may force the debtors to sell. In this case, the debtors would receive the monetary amount of the bankruptcy exemption.
Tax reductions under homestead exemptions are usually a fixed discount on taxes. For example, a home valued at $150,000 using a $50,000 homestead exemption will be taxed on $100,000 of assessed value.
Homestead exemptions vary by state, including how it is applied and how much protection it offers against creditors. The exemption is an automatic benefit in some states and a claim must be filed in others. New Jersey and Pennsylvania have no homestead exemptions.
The current federal bankruptcy exemption amount as of 2019 is $25,510. While most states require homeowners to use the state’s limit, some will allow the homeowner to use either the federal or the state.