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How Does the Bankruptcy Homestead Exemption Work in Virginia?

For homeowners who file bankruptcy, the question of what will happen to their home is one of the most important considerations in the entire bankruptcy process. Virginia’s homestead exemption allows bankruptcy filers to protect a small amount of equity in their home. Unfortunately, our state’s exemption is not particularly generous.

Under Virginia’s rules, a homeowner who files bankruptcy may exempt up to $5,000 of equity in their house or certain other property (such as a condo or mobile home). Virginia’s homestead exemption is the lowest in the country but it increases by $500 for every dependent you have. Also, if you are over the age of 65 at the time of filing, you are allowed a homestead exemption of $10,000. Veterans who have a service-related disability of at least 40 percent are also able to take a $10,000 homestead exemption.

Importantly, married couples who file jointly for bankruptcy can double their homestead exemption. Each spouse may claim $5,000, leading to a total exemption of $10,000. Additionally, there is one critical advantage that some married couples may be able to use. Under Virginia’s “tenancy by entirety” system, real estate that is owned jointly by a married couple cannot be taken to pay a debt belonging to just one spouse. In other words, if you are married and your house is held as a tenancy by entirety, the whole value of your house is exempt against debts owed by one spouse only. Your bankruptcy lawyer will be able to tell you if this rule applies to your situation.

Federal law has a more generous homestead exemption of $25,000. Unfortunately, however, Virginia does not allow residents to utilize federal bankruptcy exemptions. If you reside in Virginia and file bankruptcy here, you must use the Virginia exemptions only.

When you file for Chapter 7 bankruptcy, the trustee is authorized by law to take your home, sell it, give you the exemption amount ($5,000 or $10,000) and use the rest of the proceeds from the sale to pay your creditors.

If you are a wage earner and have enough income to pay back at least a portion of your debts, then Chapter 13 may be a viable option. Under Chapter 13, it is easier to protect your home because you may be able to make arrangements to catch up on overdue mortgage payments.

Protecting your precious home in bankruptcy is best done with help from a skilled Virginia bankruptcy lawyer. That’s what you’ll find at Miller Law Group, P.C., in Charlottesville. Call 434-218-3987 or contact us online to arrange a free appointment to discuss your financial situation with one of our attorneys.