Each state provides for a homestead exemption for debtors filing for bankruptcy. A homestead exemption allows for a debtor to protect the equity in his or her homestead, up to certain limits.
The law as it had been written left some questions unanswered, and two weeks ago an amended Homestead Law was signed (which will take effect in March, 2011) in Massachusetts that attempts to provide some guidance.
In figuring out what this means to you, it is important to know the nature of your ownership interest in your homestead. All individuals owning real estate used as their home shall have a homestead exemption in the amount of $125,000. If there are multiple owners of the real estate as joint tenants (a form of ownership where the real estate passes automatically to the surviving owner or owners upon the death of another owner) or as tenants by the entirety (joint tenants for married couples), each owner has a homestead exemption of $125,000, but the aggregate may not exceed $125,000. If the real estate is owned as tenants in common (the most common form of real estate holding, pun intended), the owners are allowed a homestead exemption in accordance with their percentage interest. For example, a twenty percent owner as a tenant in common would be entitled to a $25,000 homestead exemption (20% x $125,000).
The prior law left some ambiguity as to whether multiple owners filing a Declaration of Homestead would interfere with the homestead exemption. A Declaration of Homestead is what you need to file in order to claim a homestead exemption. Basically, it prevents a creditor of less than the amount of equity in your house from foreclosing on your house. The new law makes clear that multiple owners may claim a homestead in the same home. Additionally, trust beneficiaries may claim a homestead estate.
The new homestead law clarifies that two-to-four family homes, condominiums, co-operative housing and manufactured homes may be covered by a homestead declaration as well.
If you would like more information about how to prepare a Declaration of Homestead, contact Attorney Matthew Trask or call 508.655.5980 to schedule a one-hour consultation.