New Jersey Homestead Laws - Article Banner

Homestead laws are the legal protections offered to homeowners that protect them from being evicted in case of bankruptcy and outstanding debt claims. 

Homestead exemption prevents the house from being seized by the creditor and stops the creditor from pressurizing the homeowner for clearing their debts. These laws are implemented by many states across the United States. Under this law, the existing property tax may also be reduced or exempted.

How Does Homestead Exemption Work?

As mentioned above, homestead exemption allows homeowners to protect their equity from being seized by the bankruptcy trustee due to non-fulfillment of debts. Some states, including Oklahoma, Florida, Kansas, and South Dakota allow 100% equity protection, while others allow lesser protection, like Pennsylvania.

It is important to note that homestead analysis is unrelated to the total cost of the property. The primary parameter of concern is the home equity. For instance, if a house is valued at $400,000 and you have a mortgage of $380,000, your home equity is $20,000.

This $20,000 would now be considered for exemption under federal homestead exemption law and you can file for bankruptcy, provided you prove that you can maintain your monthly mortgage payments for some time.

Homestead Laws and Exemption in New Jersey

The state of New Jersey does not offer homestead protection. However, debtors can avail federal exemptions in such a scenario.

As per federal homestead exemption, if the individual has equity less than $22,975 (the amount is adjusted in intervals of every three years), then the homeowner can protect the property from being sold to the creditor. However, if the homeowner has equity of more than $22, 975 then the home is not subject to protection under the homestead exemption laws.

Some Common Points to Know Regarding Homestead Laws

  • You need to maintain normal monthly mortgage payments
    To be eligible for federal homestead exemption in New Jersey and file for bankruptcy under Chapter 7, you need to be sure that you can pay the monthly mortgage amount for the next few months at least. If you are unable to pay the mortgage, your house may still be subject to foreclosure after bankruptcy.
  • Homestead exemption is applicable for your primary residence only
    You can apply for homestead exemption for the house where you live for the maximum duration during the year and which is owned by you. You cannot claim exemption for an investment property.
  • Taking legal advice to figure out home equity and bankruptcy advice is a good idea
    If your home equity is only slightly greater than the federal exemption, the trustee is unlikely to sell your home, as the cost of selling the house, with brokerage and carrying costs, would probably exceed the dividend they would receive. Alternatively, if the home equity is huge, you should talk to a bankruptcy attorney to discuss your options.

lawsAlthough the Homestead exemption laws differ from state to state in the U.S, their essence lies in delivering justice to homeowners by protecting them from being homeless due to financial issues and bankruptcy. 

For any assistance regarding the practice of homestead laws in New Jersey, reach out to us at Robert A. Gleaner, P.C. We are a law firm based in New Jersey, established in 1994, with extensive experience in handling property and real estate law, providing personalized counsel and dedicated support.