Homestead protection laws are designed to help struggling homeowners who seek bankruptcy protection avoid losing their residence by giving them the option to declare a portion of their property a “homestead.”

These laws are in place to prevent homes from being forced into a sale to satisfy debt when the homeowner files bankruptcy, as long as the exemption is for one’s primary residence. However, you must choose either state or federal homestead protection, but not both.

How Do Bankruptcy Exemptions Work?

Bankruptcy exemptions work differently depending on whether a debtor files for Chapter 7 or Chapter 13 bankruptcy. Exemptions were created to allow debtors to keep a portion of their property while obtaining relief from the overwhelming debts that cause financial distress.

Chapter 7 Exemptions

Also known as a “liquidation.” Bankruptcy trustees are supposed to sell a debtor’s non-exempt property to pay off their debts. Exemptions in a Chapter 7 bankruptcy protect property from being sold in this fashion.

Chapter 13 Exemptions

Since Chapter 13 does not involve liquidating assets, Exemptions work a little differently. Under Chapter 13, debtors develop a repayment plan lasting from three to five years. The amount that the debtor repays under the repayment plan depends on the property’s value. Exempt property is not taken into consideration in making that determination.

State vs. Federal Bankruptcy Exemptions

As we mentioned earlier, the Bankruptcy Code lets states decide what exemptions are available to their residents. In Arkansas, debtors have the option to choose either Arkansas’ state exemptions or the Bankruptcy Code’s federal exemptions. Contrary to Oklahoma, where the state doesn’t permit its residents to use the federal bankruptcy exemptions, they must use Oklahoma’s state exemptions.

Although Arkansas and other states give their residents the freedom to choose the state or the federal exemption, debtors can choose to use state exemptions or the federal exemptions, but not both. Additionally, they cannot mix and match from the two exemption options. They must choose either all-federal or all-state exemptions.

The Arkansas Homestead Exemption

Arkansas law provides two distinct homestead exemptions. Although a debtor may qualify for both, they can only use one. The two homestead exemptions are:

Anyone can exempt personal or real property that they or a dependent uses as a residence.  Unmarried debtors’ exemption is limited to $800 in value, and married debtors exemptions are limited to $1,250.

Debtors who are married or the head of a family can instead exempt urban or rural homesteads, subject to the following limits:

  • Rural homestead: located outside any city, town, or village, and up to 160 acres can be exempted to a value of $2,500. Rural homesteads of no more than 80 acres can be exempted regardless of value.
  • Urban homestead: up to one acre may be exempted up to $2,500. Urban homesteads no larger than ¼ acre are exempt regardless of value.

How An Arkansas Bankruptcy Lawyer Can Help

Filing for bankruptcy in Arkansas can be a complicated process with numerous traps for the unwary. If you or a loved one are contemplating filing for bankruptcy and would like more information about how bankruptcy works, contact us today at (800) 889-6944 for a free case evaluation.

Our qualified bankruptcy lawyers will help you know what exemptions are available, which best fit your case, and how to best use them. The experienced and compassionate Arkansas Bankruptcy Attorneys at Caddell Reynolds can help you figure out your best options and move forward.