Is Your Massachusetts Home Protected From Creditors with a Homestead?
Your home is important for lots of reasons. More than just a roof over your head, it’s your family’s own personal space, and it’s worth protecting for that reason alone. Financially, though, your home is also your most valuable asset. It’s therefore crucial to know what a Declaration of Homestead is, and to ensure that you have one.
What is a Homestead?
A homestead protects the equity in your home from most creditors, excluding mortgage lenders, tax liens, and support orders. Thankfully, Massachusetts has generous homestead laws.
You automatically have a protection of $125,000 in your home without needing to do anything. But if you file a Declaration of Homestead at the Registry of Deeds you will receive an increased protection of $500,000. There are also additional protections for elderly and disabled homeowners.
Do I need a Homestead?
While it’s always a good idea to have a Declaration of Homestead recorded, there are two scenarios where it’s especially important: (1) when you have a creditor suing you, or (2) before you file bankruptcy.
First, if you have a creditor or debt collector suing you, then it’s best to ensure that your home is protected. For consumer debts, some creditors may rely on you not responding to a lawsuit so that they can obtain a default judgment. Typically, creditors and debt collectors will attempt to collect that judgment by placing a lien on your home.
By having a Declaration of Homestead recorded in this scenario, you have assurance that a creditor with a judgment lien won’t be able to foreclose on your home unless you have over $500,000 in equity. Of course, unless you file for bankruptcy and have the lien removed,, it will still need to be paid off when you sell or refinance.
Note, however, that the Massachusetts legislature amended the homestead laws in 2011 and clarified that a Declaration of Homestead is effective even against prior recorded liens. Therefore, even if you already have a judgment lien on your home, it’s not too late to record a Declaration of Homestead.
Alternatively, a Declaration of Homestead may be even more important to have prior to filing a bankruptcy. A bankruptcy filing is, for the most part, treated as a line in the sand. The bankruptcy petition is a snapshot of your personal circumstances as they exist on the date of filing, and those circumstances will control the course of your case. A Declaration of Homestead must therefore be recorded before you file bankruptcy. If you record one after you file, it will have no impact on your case.
A Declaration of Homestead is especially important in a Chapter 7 bankruptcy. Unlike Chapter 13 filings, you have no automatic right to dismiss your case in a Chapter 7. While most Chapter 7 cases are “no asset” cases where no property is liquidated or lost, a Chapter 7 Trustee would certainly be interested in selling a home that has significant equity in it that’s unprotected by a Declaration of Homestead.
How do I get a Declaration of Homestead?
It’s really simple. You may have signed and recorded one at your last closing. If you aren’t sure whether you have one, find your Registry of Deeds online and search your records.
The Registry will charge you a $35 fee to record a Declaration of Homestead, which is an amazing bargain for a protection of $500,000 and peace of mind.