Detailing the Homestead Exemption

On behalf of The Berger Firm Jan. 4, 2019

The most common question asked by those contemplating filing for personal bankruptcy in Covington is whether or not they will be able to keep their homes. People need personal assets when attempting to rebuild their financial lives following bankruptcy, and a home is typically one’s most valued asset. Thus, the fear of losing it may keep many for whom bankruptcy might be a valid option from investigating it until it is too late to enjoy the protections it affords. For this reason, both the federal and individual state governments have created homestead exemptions.

A bankruptcy homestead exemption allows one to exempt their interest in a property or asset in order to avoid said asset from being liquidated as part of a bankruptcy case. It works as follows: if one has $25,000 in equity in their home, and their state’s homestead exemption is above that amount, then the home cannot be sold by a bankruptcy trustee to help pay their debts. However, if the state’s exemption amount is less than $25,000, then the trustee would sell the house, pay off the mortgage, and then give the debtor an amount equal to that of the state’s homestead exemption. Any remaining balance from the sale would be used to pay back creditors.

According to Section 427.060 of Kentucky’s Revised Statutes, the state’s homestead exemption is $5,000. If one is married and filing for bankruptcy jointly with their spouse, then the two can combine their individual exemption amounts, raising that number to $10,000.

Kentucky law also allows people to choose whether they will apply the state’s exemptions to their case, or follow federal guidelines instead. Per Section 11.522.d(1) of the U.S. Bankruptcy Code, the federal homestead exemption is $15,000. If one chooses to follow the federal homestead exemption, they must also follow all other federal exemption guidelines as well.