Most states have homestead exemption laws that prevent homeowners from losing their homes in bankruptcy by protecting all or some of the equity in their primary residences. Unfortunately, New Jersey has no such laws. Instead, residents of The Garden State who want to avoid destitution in tough financial times must turn to the federal government exemptions.
According to FindLaw, the bankruptcy courts generally consider the equity in a home an asset which they can use to repay creditors. Equity, in this case, refers to the overall dollar value of a home less the remaining mortgage balance. The federal homestead exemption, which the government last adjusted in 2016, protects up to $23,675 in equity for single filers and up to $47,350 for married individuals or those who file jointly.
What this means for you is that if you have less than $23,675 in equity, or $47,350 if you plan to file for bankruptcy jointly, your bankruptcy trustee cannot sell your home and use the profits to pay off creditors. However, if the equity in your home is worth more than the federal threshold, it is fair game. In this case, you are likely to lose your home. However, if you do lose your home, and if you claim the federal homestead exemption, you may keep the amount exempt by law. For this reason, you should claim the exemption even if your home has far more equity in it than the exemption allows.
This content should not be used as legal advice. It is for your educational purposes only.