Virginia's homestead exemptions protect some of the equity in your home from creditors and bankruptcy. If you are doing well, you might not even think of this. However, circumstances could change quickly – all it takes is someone getting sick or in an accident and not being able to work, or someone losing a job. The consequences of being out of work are devastating for most people, as most do not have enough savings to support the family for more than a month or two.
Saving Your Home
In most cases, should something happen that prevents you from paying the mortgage, you'll be able to take that homestead exemption. However, you often have to file prior to the life-changing event. In the event of a bankruptcy, you should file the homestead declaration at least five days before you file bankruptcy. However, Virginia Code §34-17 allows you up to five days after the meeting of creditors, or the 341 meeting, to file the homestead exemption.
To play it safe, if you are filing a voluntary petition for bankruptcy, file the homestead exemption before you file the petition for bankruptcy. In some cases, creditors of a person or business might petition the court to ask that you file for bankruptcy. This is called an involuntary petition. You might not get a chance to file for the homestead exemption prior to the filling of the bankruptcy petition. Virginia Code §34-17 allows you the extra time to file for the exemption.
Virginia Law vs. Federal Law
When you file bankruptcy, some states allow you to choose whether to file your exemptions based on state law or federal law. Virginia does not allow this. You must file the exemptions as allowed by the state.
The homestead exemption for Virginia is $5,000 for real estate plus $500 for each dependent. You may also use the exemption for personal property, including mobile homes, bank accounts and other personal property. If you are at least 65 years old, you can exempt up to $10,000. Married couples also get a $10,000 exemption – $5,000 for each spouse.
There is a catch to the homestead exemption. If you file Chapter 7 liquidation, and the equity in your property is over the amount of the exemption, the bankruptcy trustee can sell your property to use it as payment on your outstanding debts. While Chapter 13 reorganization takes longer, and you have to have enough income to file for reorganization, it is better that you do if you want to keep your home and some of your personal property.
Because of the consequences of filing the different types of bankruptcy, you should consult with an attorney to discuss your situation. If you do file Chapter 13, you must be able to pay your mortgage on time every month. In most cases, since your mortgage is a secured debt, you don’t get to pay dimes on the dollar for what you owe. You can, however, include the arrearages in your Chapter 13 plan to make payments on it, instead of trying to pay the entire amount at one time.