Can I protect the equity in my house in Nebraska if I file bankruptcy?
Normally, the answer is yes, up to $60,000. But, not everyone qualifies for this exemption. The bankruptcy homestead exemption law in Nebraska is geared toward protecting families and people 65 years of age or older. Thus, if you are married and live in the house you are purchasing (or already own) with your spouse, or if you are 65 years of age or more, then you automatically are protected by the Nebraska bankruptcy homestead protection laws.
Additionally, once the right to a bankruptcy homestead exemption is obtained in Nebraska, it is never lost. For example, if a husband and wife lived in a house together, then they would have become entitled to protect up to $60,000 from their creditors. If either the husband or the wife dies or moves out of the home (perhaps from divorce), the homestead protection remains in place for the person who still lives there.
A single person raising children (or providing for other qualifying dependants) in the home is also entitled to the Nebraska bankruptcy homestead exemption.
The Nebraska homestead protection against creditors and bankruptcy trustees also extends to single people who are currently (or have previously) raised blood related or adopted children in the home. In other words, a marriage is not necessary to trigger the homestead exemption. Moreover, the protection extends to an individual who is determined to be the head of family. In short, this extends protection to Nebraska homeowners who have been determined to be the head of the family. Who qualifies as the Head of family is defined as follows:
Neb. Rev. Stat. § 40-115. Head of family, defined:
The phrase head of a family, as used in sections 40-101 to 40-116, includes within its meanings every person who has residing on the premises with him or her and under his or her care and maintenance:
- His or her minor child or the minor child of his or her deceased wife or husband;
- A minor brother or sister or the minor child of a deceased brother or sister;
- A father, mother, grandfather, or grandmother;
- The father, mother, grandfather, or grandmother of a deceased husband or wife;
- An unmarried sister, brother, or any other of the relatives mentioned in this section who have attained the age of majority and are unable to take care of or support themselves; or
- A surviving spouse who resides in property which would have qualified for a homestead exemption if the deceased spouse were still alive and married to the surviving spouse.
- How does the homestead exemption from creditors work in a bankruptcy?
The homestead exemption applies only to real estate (but mobile homes are covered too if occupied). By qualifying for this exemption, a person could file bankruptcy and protect up to $60,000 of equity that may exist in their home. For example, suppose a married couple needs to file a Chapter 7 bankruptcy to deal with a huge credit card problem. The couple also own a house that they live in worth $130,000 and they still have a mortgage of $80,000. On paper, therefore, there is $50,000 of equity in the house. Assuming that the couple qualifies for a Chapter 7 bankruptcy in all other respects (income is not too high, etc), then they could safely file a Chapter 7 bankruptcy, wipe out the credit cards, and still keep their house because there is $60,000 or less of equity in the home.
It is important to know that even if you have more than $60,000 of equity in your home, you can still protect the first $60,000 no matter what. Using the above example again, suppose that the house is worth $160,000 and the couple still has an $80,000 mortgage. In this scenario, there would be $80,000 of equity, of which $60,000 would be safe. The remaining $20,000 of equity (minus hypothetical costs of sale) would be vulnerable in a Chapter 7 bankruptcy, i.e., the Chapter 7 Trustee would either sell the house or want the cash equivalent. However, using a Chapter 13 bankruptcy, the couple could simply pay back the $20,000 of equity over a 5 year period and still keep the house.
Understanding the ins and outs of the Nebraska homestead exemption law is very important when there is equity in a potential debtor’s home. Not everyone qualifies and there certainly are danger zones to avoid. However, a proper understanding of the law and implementing it correctly can be of an enormous relief to a significant number of people.