In our previous bankruptcy post, we started discussing how those in financial distress are often reluctant to consider the fresh start offered by Chapter 7 bankruptcy due to the understandable fear that they could potentially lose their home.
We also discussed how there are homestead exemptions at both the state and federal level designed to protect the equity in a home, meaning that if the amount remaining after subtracting the current mortgage amount from the current home value is below a designated monetary limit, the home cannot be taken by the bankruptcy trustee.
Here in Arkansas, homeowners filing for Chapter 7 can chose between the federal homestead exemption or the state homestead exemption. It’s important to understand, however, that any exemptions used must either be all state or all federal, meaning that if the filer chooses the state homestead exemption, they must also use all state exemptions and vice versa.
State homestead exemption
Arkansas actually gives Chapter 7 filers two different homestead exemptions from which to choose:
The first option dictates that single people can exempt $800 in their home, while married people can exempt $1,250.
The second option is a bit more complex and breaks down as follows:
- Married people or heads of family can exempt an unlimited amount in their home provided the property is a quarter acre or less in a village, town or city, or 80 acres or less in any other location
- Married people or heads of family can exempt $2,500 in their home provided the property is between a quarter acre and one acre in a village, town or city, or between 80 acres and 160 acres in any other location
Federal homestead exemption
The federal homestead exemption dictates that single people can exempt $22,975 in their home, while married people can exempt double this amount.
As you can see, the issue of bankruptcy exemptions is extremely complex. As such, those with reservations should resist the temptation to refuse Chapter 7 as an option, and consider sitting down with a skilled legal professional who can explain the law and answer all of their questions.