Consumer Bankruptcy:

Home Equity

In the Bankruptcy Code exemption scheme, as well as most state exemption schemes, the debtor is permitted to exempt some quantity of the equity (value above mortgages and liens) of his or her primary residence. 
 
The homestead exemption for any interests that are acquired within 1215 days (about 40 months) or filing for bankruptcy is limited to $125,000. However, there are also situations in which The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) reduces or entirely eliminates homestead exemptions.
 
According to BAPCPA, the worth of a home is reduced to the degree that it is the consequence of a transfer made within a ten year period preceding the bankruptcy filing if 1) the assets that were transferred would not have been exempt if they had been held on the date of the filing and 2) the purpose of the transfer was to hinder, delay, or defraud any creditor. When this BAPCPA condition applies, because exemptions can only be claimed to the extent of the value of an asset, it considerably reduces the potential homestead exemption.
 
A homestead exemption is limited to 125,000 if the debtor committed certain violations of securities laws, felonies, or civil RICO violations, within the prior 5 years. Furthermore, the exemption is limited to 125,000 in the event that the debtor owes any debts that are the result of criminal actions, intentional tort, or willful/reckless misconduct that resulted in serious injury or death, within the prior 5 year period. 
 
These conditions are all the result of BAPCPA, and consequently apply to cases filed after 20 April 2005.

 

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