Owning a home is something that most people take pride in – most homeowners have to work hard in order to afford the home in the first place, as well as maintain it over the years. In fact, the effort that goes into buying a home is one of the things that can make the idea of filing for bankruptcy and losing one’s home so scary.
However, homestead exemptions and protections–which are set in place at both the federal and the state level–are designed to protect equity in your home from certain types of creditors. The following provides an overview of Maryland’s homestead laws, and important things you need to know if you are a homeowner who is filing for bankruptcy.
The Federal Homestead Exemption
Filing for bankruptcy is something that no one ever wants to think about doing. However, for those who are struggling to stay afloat under mountains of debt, filing Chapter 7 or Chapter 13 bankruptcy may be the only option.
If you are filing for bankruptcy and have equity in your home (which means that your home is valued at an amount that is greater than what you owe on it), federal homestead laws may allow you to keep that equity. The federal homestead exemption amount is $23,675 in equity for 2017.
How It Works
If you own your home and have equity, you can protect that equity up to the federal amount (note: the federal limit doubles for married couples). Consider an example in which you are filing for Chapter 7 bankruptcy, and have $100,000 worth of equity in your home. The federal exemption amount is $23,675, which means that the trustee can sell your home and use the profits to pay creditors. However, the trustee would still have to pay you the amount you were able to exempt ($23,675).
Maryland Homestead Laws
In Maryland, the homestead exemption amount is the same as the federal amount – $23,675. However, the state of Maryland unfortunately does not allow couples who are filing bankruptcy together to double their homestead exemption.
It is also important to note that in Maryland, the homestead exemptions only applies when:
- The property is realproperty, which could mean a home, a condo, or a co-op; and
- You are occupying the property – if you do not own the property or do not live within it, you cannot protect the equity in it.
You can also only claim the homestead exemption during bankruptcy once every eight years.
Maryland Homestead Protection – Property Held as Tenancy
The federal homestead protection is no doubt a boon for homeowners with equity who are in a position where they need to file for bankruptcy. However, in Maryland, there may be an even more advantageous way of keeping equity in one’s home. Indeed, when property is held as tenancy in Maryland (which means that you and your spouse own it as a married couple rather than as two separate individuals), creditors cannot take it in order to pay any debt that is owned by just one of you. For example, if your spouse has a huge amount of credit card debt that is only in their name and that you are not individually liable for, a creditor could not take your home in order to settle the debt.
Maryland Homestead Tax Credit
In addition to the Maryland homestead exemption for debtors filing for bankruptcy, the state also has a homestead tax credit. As explained by the Maryland Department of Assessments and Taxation, the homestead tax credit limits the increase in taxable assessments each year to a fixed percentage. In order to establish eligibility for this credit, a homeowner must submit a one-time application.
Contact an Experienced Attorney to Learn More About Homestead Laws in Maryland
If you find yourself in a position where the equity in your home is in jeopardy, you should not hesitate to contact an experienced Maryland homestead law attorney. You can reach our law offices for your initial consultation by sending us a message, or calling us directly at 410-626-6009. We look forward to working with you.