Massachusetts Homestead Protection

Massachusetts Homestead law is important for anyone contemplating bankruptcy in Massachusetts.  Do not file for bankruptcy protection without consulting with a Massachusetts bankruptcy lawyer because it can be complicated.  The Homestead is just as important for folks who are facing lawsuits.  If you lose a lawsuit in the United States and own property in Massachusetts, the creditor can attach and sell your property; even if you don’t lose, if a Court determines that you are likely to lose, you could face an attachment.  This would prevent you from refinancing or moving, and cloud your credit.  A Homestead can help.What is a Homestead?  Originally signed into law by President Lincoln in 1862, the law required that an individual, including a freed slave, 1. File an application, 2. Improve the land and 3. File for title.  Once you lived on the land for five years, it was then yours.  This ended in 1976, 1986 in Alaska, when all federal land was, essentially, owned.

Homestead Law Limits of Protection

The law has evolved, and, in Massachusetts, there is a new law that provides Homestead protection to all homes up to $125,000.  A homeowner, whose principal place of residence is his or her home, does not need to do anything to get this level of homestead protection.

What if you want more protection?  File a Declaration of Homestead under Massachusetts General Laws, Chapter 188, Section 1.  It’s simple.  You get the form, complete it properly, and file it with a nominal fee at the Registry of Deeds where the deed to your home is filed.  This will give you up to $500,000 in protection from creditors.

Who Can File A Homestead?

Who can file for Homestead protection?  Anyone who owns AND occupies a home in Massachusetts can file for Homestead protection.  This includes individuals, married couples, people who own their home with an unrelated person (tenants in common), and even other forms of ownership.  For example, if three or more people own a home, you are eligible for an additional $250,000 in protection!

Homestead Law and Houses in Trust

What about homes held in trust?  Beginning March 16, 2011, homes held in trust can be protected by the Massachusetts Homestead law.  It is somewhat more complicated because the trustee must file the Declaration of Homestead on behalf of the beneficiary.  The trustee must clearly identify who is protected, even if they are not the beneficiary of the trust.   For example, a trust may name Mrs. Smith as the beneficiary, but her spouse, who may have no rights to the trust, may still have Homestead protection if properly identified as living on the land.

Are elderly people offered additional protection?  Yes.  Once both homeowners are over 62 (or are legally disabled under US Social Security Administration law), the Homestead, once properly filed, shall double to $500,000 each, or $1,000,000 protected from creditors.  This can be tricky because if one homeowner is under 62, he or she should file a separate Homestead.

Homestead Law and Protection From Nursing Home Bills

How does this affect folks from home seizures by nursing homes?  As of this writing, if you own the home individually, Massachusetts Department of Transitional Assistance, which administers Medicaid supersedes your Homestead. That is, your home is not protected.  However, their lien is not exercised until after death.  Furthermore, the state will not go after your spouse while alive and living in the home.

What else does a Homestead not protect?  Claims by taxing authorities, such town or city property tax, the Massachusetts Department of Revenue, and the federal Internal Revenue Service.  Mortgages, properly filed, supersede the Homestead.  Support judgments, following a divorce or order for child support supersede the Homestead.  Judgments following complaints for fraud and similar lawsuits can also nullify a homestead.  Folks who do not use their “home” as a principal residence are not protected; for example, folks who live on the Cape or in Florida for six months or more each year cannot protect their home in Greater Boston.

Homestead and Bankruptcy

How does this work in Massachusetts bankruptcy?  If you have nominal equity in your home, you may want to use the federal exemptions, as they give you more protection generally.  See 11 United States Code, Section 522 (d)(1).  However, the Massachusetts Homestead gives you vast protection, as outlined above.  In a Chapter 7 bankruptcy, you have up to $500,000 exempt from the Trustee.  In a Chapter 13 bankruptcy, you will only have to pay a percentage of the unsecured debt.

Do I Really Need A Bankruptcy Lawyer to File A Homestead?

No.  However, in conjunction with filing bankruptcy, and protecting your home, we recommend retaining an experienced bankruptcy lawyer.  Many people do not fully understand the homestead law – it doesn’t protect your summer house, even if you rent your main residence and the protections involving trusts are new and complicated. Also, in conjunction with drafting and executing an estate plan, you should retain a lawyer to be sure that the homestead is filed properly and that the estate papers are in order and, most significantly, if there is a trust, that the correct assets, including the home, are actually put into the trust.