Photo by Melinda Gimpel on Unsplash
People who own homes but fall on hard times have a chance to keep their homes. West Virginia has a homestead exemption of $5,000 for equity in the house. The homestead exemption does not work for the lender for the loan, but it does keep other creditors from taking $5,000 in equity. However, West Virginia does have exceptions to the homestead laws.
How the Homestead Exemption Works
If you own a house, but you lose your job and are forced to take a lower-paying job, you might not have the ability to pay all of your bills and might have to file for bankruptcy. If you have equity in your home, the court could force you to sell your house so that it can use the equity to pay down your debt. However, if you have the exemption, you can protect $5,000 of the equity in your home.
For example, your home is worth $100,000. You owe $80,000. That means you have $20,000 in equity. Of that $20,000, creditors can only attach to $15,000 because of the homestead laws. If you were to sell your home and had medical bills of $30,000, the medical creditors who put a lien on your home would be entitled to just $15,000 of the $20,000 in equity, but only if you don’t owe back taxes.
If you owe back taxes in the amount of $21,000, the state, county or municipality where you owe the taxes has the right to all $20,000 in equity because they are an exception to the homestead exemption laws. West Virginia does not allow debtors to use the higher federal exemption.
Homestead Exemption and Bankruptcy
If you do have to file bankruptcy, and you have $20,000 in equity, and the trustee forces the sale of your home to pay down your debts, the bankruptcy court must return $5,000 to you if you choose to use West Virginia’s homestead exemption.
Exceptions to the Homestead Laws
When you file bankruptcy, if all you have is $5,000 in equity, the court cannot use that equity to pay bills. However, the exemption does not protect your home from all creditors. West Virginia has four major exceptions to the homestead laws:
If someone filed a lien on the property before you established the homestead exemption, that lien still stands and that creditor ignores the homestead exemption.
The mortgage lender is exempt.
West Virginia and any county or municipality are exempt for purposes of collecting past due taxes.
Contractors, builders and mechanics who repaired your property are also exempt from the homestead protection laws.
The federal government may also have an exception to the state’s homestead laws if you owe back taxes to the federal government. If you owe back taxes to the state and the IRS, the IRS takes precedence, as it is federal.
Personal Possessions
Some states give you an exemption that you can use for your home or personal possessions. West Virginia gives you a separate $1,000 exemption for personal property, such as furniture, clothing and other household goods.