Wednesday, July 31, 2013

Don't Let Creditors Leave You Homeless

Protecting Your Home from Creditors both Present and Future

by Frances Rahaim, Ph.D.
aka "The Money Doctor"

Any homeowner in danger of becoming delinquent on credit cards or other loans, knows the added stress and worry of losing their home in the process.  While I am not an attorney, I do feel there are some highlights which may be of benefit, and warrant further research, and so I will attempt to point them out here in layman’s terms.

Although the Homestead Act, which underwent many changes in 2011 may be well-known by attorneys, it seems the general public is often unaware of the protection this act may offer from creditors when filing a bankruptcy, or in a judgment or lien status.

The revised Homestead Act provides for automatic protection of $125,000 of equity in your home. For greater protection, the homeowner must file a “Declaration of Homestead” with the Registry of Deeds in the area the home is located, and may benefit from the full $500,000 of equity homestead protection. This applies to principal residences only. Homeowners age 62 and older, or who are disabled may be eligible for additional protection of up to $1 million.

It may be important to note that the declaration will not protect against liens imposed by the Massachusetts Department of Transitional Assistance (formerly known as Public Welfare) as a result of Medicaid benefits. Therefore this act may not protect the equity in your home in the event you enter a nursing home for which Medicaid is paying. However, it may be possible for a surviving spouse to remain in the home until death, at which time Medicaid may seek reimbursement from the estate for the benefits paid.

One area that the Homestead Act may be particularly helpful is in a bankruptcy, where it may allow the homeowner to retain a much greater portion of the proceeds from a liquidation sale than they would be allowed under federal bankruptcy law exemptions. This could decrease or even in eliminate the possibility that the homeowner would be required to sell their home due to a Chapter 7 filing.  In a Chapter 13 bankruptcy, it may even reduce the percentage of unsecured debt that the homeowner would be required to repay.

Perhaps the most important revision in the act, is that the Declaration now protects   against pre-existing debt without the need to file for bankruptcy.

But bankruptcy or delinquencies are not the only reason to file under the Homestead act.  There are other instances where filing a declaration of Homestead on your principal residence may be prudent. For instance, protection against future law suits or other liabilities. In short, this act is designed protect some or all of the equity in your home against present and future financial risk.

The Declaration form is simple to complete, and should be recorded the Registry of Deeds in the County where the property is located. The cost to file is a mere $35.00.

As always, when considering this type of decision, it is advisable to seek legal counsel.  A good resource to begin your research is Secretary of the Commonwealth William Francis Galvin’s website at

For more information about dealing with creditors and managing debt properly, visit

For questions or comments, please email
or call 413-774-5555.

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