Homestead Exemption Basics
February 15, 2010 by Oliveros & O'Brien, P.C.
The "homestead exemption" is one of the most common and important concepts in bankruptcy law. But what does it really mean? How do you qualify for it? What kinds of homeownership does it apply to or not apply?
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The purpose of the "homestead exemption" is to protect your home from creditors. But the exemption may protect all or only part of your home, and protects it from some but not all creditors. For anyone who owns a home and has creditor problems, the homestead exemption is one of your most important tools. But it has conditions and limitations that you need to understand if you want to use it to your advantage.
What is the "homestead exemption"?
The idea is that homeowners should be able to protect their homes, at least to a certain extent, from their creditors. How to qualify for this protection, how much value in your home you can protect, and many other questions about homestead exemptions are determined by the laws of each state. Different states have wildly different rules about homestead exemptions, especially about how much value or equity the exemption protects. For example, in Texas the homestead is unlimited in value, being based instead on acreage: a maximum of either 10 urban acres or 100 rural ones, even if the land and home are worth hundreds of thousands or even millions of dollars. In contrast, in Alabama the exemption is only $5,000. This blog is about the homestead exemption laws of Oregon.
Amount & Applicability of the Exemption
In the summer of 2009 Oregon increased its homestead exemption amount to $40,000 for a single person, and $50,000 for a married couple. This means that homeowners now can protect the first $40,000/$50,000 in equity in the property from their creditors. These amounts apply not just to conventional houses attached to land, but also to condominiums, manufactured homes and house boats, and to the land on which such homes are attached. The homestead exemption also applies to a residential lease, so that if you paid in advance on a residential lease (for example, rent for the upcoming year, or more commonly, the future “last month's rent”), that prepaid "leasehold interest" is also protected from seizure by other creditors or by a bankruptcy trustee.
It’s an Automatic Exemption
In Oregon, unlike some other states, the homestead exemption is automatic: to benefit from it you do not first need to file any document with the state declaring your homestead. You just need to meet certain conditions. These are usually easy to meet, but can get troublesome in some situations.
Conditions to Meet
The simple starting point is that your homestead exemption applies to your interest in the residence where you actually live. As the Oregon statute states, your homestead “must be the actual abode of and occupied by the owner.”
But life being the way it is, situations come up which complicate this. Here are some common scenarios, and how Oregon homestead exemption law applies to them:
a. If you are separated from your spouse because of marital difficulties, living at a brother's house across town, and you hope to reconcile with your spouse but simply don't know if you will: the house where you were living with your spouse continues as your homestead, as long as he or she continues to live there, and continues to be your spouse.
b. If you are single, live in a house in Oregon, but need to leave to work at a job in another state, and so you rent out your house while you are away: as long as you NEVER lose the intent to return to your Oregon house, it continues in your absence as your homestead. It is critical that you consistently ACT in ways that makes it clear your intent to return to the house.
c. If you own a house that you do not live in and never have lived in, but your adult child or your parent lives there: that house is covered by your homestead exemption as long as you do not establish another homestead elsewhere.
d. If your mother gave her house through her will to you and your two brothers, each with a 1/3rd interest, and the three of you all live there together: your homestead exemption applies to your 1/3rd share in the house, although that percentage share may change over time if the brothers do not split the costs of the property evenly, such as any mortgage payments, property taxes, home maintenance and improvements.
e. If you sell the homestead property, and have the money that you received from that sale in a bank account: that money, up to the amount of the $40,000/$50,000 exemption, is exempt under the homestead exemption, but ONLY if your intent is to put the money into another homestead AND in fact that happens within one year of the sale of the original homestead.
f. If you own a duplex but live in only one of the duplex units while you rent out the other one: the entire real estate is your homestead, although a creditor or bankruptcy trustee may well have a claim on the rental income from the other unit.
g. You own a house that you live in and also own a rental house that you have never lived in, but decide you can't afford to keep where you are living so you move into the rental house: as long as you move into the rental before you file a bankruptcy case, your homestead exemption applies to it instead of the home you just moved out of.
h. Same situation but instead of a rental house you own some bare land and you move out of your home and move onto the bare land: as long as you are living on the land at the time your bankruptcy case is filed, for example in a camper or small motor home, and can show that you have the legal and practical capacity to live there, your homestead can apply to the land along with whatever vehicle or structure in which you are living.
Conclusion
Let us explain how these rules would work for YOU to help you keep your home through the power of the homestead exemption. Michael O’Brien is one of just three attorneys in all of Oregon who is Board Certified as a Consumer Bankruptcy Specialist by the American Board of Certification. To set up a free consultation to discuss your homestead with him or one of our other attorneys, call us at 503-786-3800, or by clicking on the “Contact Us” tab above. Also, please visit this website next week to read how the homestead exemption protects your home from some creditors but not others, and how to deal effectively with both sets of creditors.