Should The Homestead Exemption Be Capped?
April 4, 2002
Texas and Florida allow debtors to hold onto the full value of their primary residence if they are forced into bankruptcy -- even when that home is a multi-million dollar mansion.
The collapse of Enron has focused attention of some bankruptcy law specialists and lawmakers on such loopholes, and they want Congress to close them. Enron's top executives still own expensive residential property in Houston -- just as the company's shareholders and employees are launching suits against them.
- Some analysts have long considered the unlimited exemption in Texas and Florida to be unfair and abusive because it allows debtors to shift money into their primary residence in the weeks or months before declaring bankruptcy -- thus shielding it from creditors.
- Most other states allow debtors to protect only a small fraction of the value of their homes if they file for bankruptcy.
- In New York, a bankrupt homeowner can shield only $20,000 in home value for each family.
- In California, the maximum exemption is $75,000 for each family.
Sen. Herb Kohl (D-Wis.) has authored legislation that would end the unlimited exemption in Texas and Florida. The Senate has already approved a cap of $125,000. But the House version of the bankruptcy overhaul bill has no cap, and it has been bottled up for months in a House-Senate conference committee.
Source: Philip Shenon, "Home as Shield from Creditors Is Under Fire," New York Times, April 4, 2002.
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