A homestead exemption allows an individual or married couple filing for bankruptcy to protect some or their entire home. As of 2013, the federal government allows a homestead exemption of $22,975 for an individual and $45,950 for a married couple. In Pennsylvania, the homestead exemption is $300 for married couples who own property jointly. For senior citizens, there is a sliding scale in place that could result in an exemption of up to $15,000.
The purpose of these bankruptcy exemptions is to allow those filing to hold onto equity in their properties. However, an individual or couple may be able to keep their home depending on how much equity is in the home and whether the property is exempt from creditors during the bankruptcy process. The homestead exemption is generally available whether the person is filing for Chapter 7 or Chapter 13 bankruptcy.
Federal law states that an individual or couple filing for the exemption must have lived in the property for 40 months prior to the bankruptcy. However, there may be an exception for those who have owned property in the state previously. If a property located in the state is sold and the proceeds were used to buy the current property, time spent in the previous property counts toward the 40-month requirement.
A bankruptcy attorney may be able to help those who are looking to keep their home while resolving other debt issues. Using the state or federal homestead exemption may make it possible for those going through bankruptcy to keep their equity in the event that they lose their property. An attorney may be able to advise a client about this exemption and provide information of the different ways that Chapter 7 and Chapter 13 bankruptcy can benefit his or her case.
Source: FindLaw, "Pennsylvania Homestead Laws", September 06, 2014