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Looking at the homestead exemption in Chapter 7 bankruptcy, P.1

In recent posts, we've been discussing the topic of property loss in bankruptcy, looking particularly at the issue of asset exemptions in Chapter 7 bankruptcy. As we noted last time, every state has different laws when it comes to Chapter 7 exemptions, and Wisconsin gives debtors the option of whether to choose state or federal exemptions.

One important exemption debtors should be aware of is the homestead exemption, which pertains to a debtor's equity in his or her. In Wisconsin, homeowners are allowed to exempt up to $75,000 of the value of their home. Married couples may exempt up to $150,000 of their homestead.  

Under state law, homeowners who leave their homestead to put it up for sale may still use the homestead exemption if they use the proceeds to secure another home to serve as their homestead. In such cases, the exemption is available for two years. The exemption applies to the dwelling, including between .25 acre and 40 acres surrounding land, however much is reasonably necessary for the dwelling's use as a home. Rental income from the rented portion of a homestead would also qualify for the homestead exemption.

There is also a homestead exemption under federal law, and Wisconsin debtors may take advantage of that, though the current federal homestead exemption is less than Wisconsin's homestead exemption. It is possible that there may be cases where choosing the federal package of exemptions makes more sense for certain debtors, despite the fact that the federal homestead exemption is smaller. That is an issue that would have to be explored with an experienced bankruptcy attorney, though.

In our next post, we'll look a bit more at the homestead exemption and whether it is ever possible for a debtor to save his or her home in Chapter 7 bankruptcy.

Sources:

Wisconsin Statutes, Chapter 815.20

11 U.S.C. 522(d)(1)

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