A Practical Guide to the Massachusetts Homestead Act and How to Use it.

In 2012, the State of Massachusetts changed and clarified the rights of its homeowners to protect their financial interests in their homes from the reach of common unsecured creditors. What follows is a basic guide for understanding your legal rights in your home if you living in Massachusetts.

What is a “Homestead Exemption” anyway?

A “Homestead Exemption” is best thought of a statutory “set aside” for the benefit of a homeowner. In some states, like Texas, the “size” of the homestead exemption is measured in acres or square feet. In Massachusetts, the homestead exemption is measured in dollars of “equity”. “Equity” in this case is the dollar amount remaining after all mortgages and municipal charges (like real estate taxes and water and sewer liens) are deducted from the fair market value of the real estate. For example, If a home’s fair market value is $300,000 with a mortgage balance of $150,000 and outstanding municipal charges of $25,000, the homeowner’s “equity” in the home would amount to $125,000 (i.e. $300,000 less $150,000 less $25,000 equals $125,000). In that event the homeowner would have $125,000 of equity that he would seek to protect from the reach of his creditors should he or she become delinquent on his or her otherwise unsecured debts, like credit card companies and banks and finance companies that make unsecured personal loans.

Although no one likes to think about it, when you become delinquent on a personal loan or credit card debt, creditors will ordinarily seek to secure repayment by obtaining an attachment or other judicial lien against a person’s home as part of their attempt to collect on the debt in a court of law. Only a court can grant a judicial lien or attachment prior to the entry of a judgment. However, once an Execution of Judgment is issued by a Court, the creditor can have a deputy sheriff record a levy (that also creates a judicial lien) against a debtor’s home.

The Massachusetts homestead exemption under Mass. General Laws Chapter 188, Section 1, et al. allows a Massachusetts homeowner to defend their equity in their home either in a Massachusetts State Court or (more effectively) in a U.S. Bankruptcy Court

What Kinds of Homestead Exemptions are there in Massachusetts?

There are really three (3) types of homestead exemptions available to homeowners in Massachusetts and they are as follows:

1. The “Automatic Homestead”. Under Mass. Gen. Laws Ch. 188, Section 4, there is an “automatic” exemption of $125,000. There is no need to file anything to lay claim to this exemption.

2. The “Declared Homestead Exemption”. Under Mass. Gen. Laws Ch. 188, Section 3, a homeowner (or group of homeowners) may claim up to $500,000 of equity in their home as exempt. However, to claim this exemption the homeowner must file a “Declaration of Homestead” with the County Register of Deeds in the county where the home is located. The declaration must be signed before a Notary Public and the present cost filing of the declaration is $35.

3. The “Elderly or Disabled Person’s Homestead”. Like the “Declared Homestead”, under Mass. Gen. Laws Chapter 188, Section 2, a homeowner (or group of homeowners) may *each* claim up to $500,000 of equity in their home as exempt. This type of homestead exemption also requires the filing of a “Declaration of Homestead” with the County Register of Deeds in the county where the home is located, plus proof of disability or a certification that the homeowner(s) are at least 62 years old. The most important benefit of the Elderly of Disabled Persons’ Homestead Exemption is the ability to “stack” the exemption so that an elderly (over 62) married couple that owns their home jointly may claim an aggregate homestead of *two (2) times* the basic $500,000 homestead amount, PLUS another $250,000 in equity, for a total aggregate exemption of $1,250,000.

For whose benefit may a homestead exemption be claimed?

The homestead exemption may be “declared” by one homeowner, but its protection is intended for the benefit of AND covers the legal interests of the Declarant homeowner’s family members living with him or her at the time of the filing of the Declaration of Homestead with the Registry of Deeds. The homeowner “declaring” the homestead must actually reside at the home as their principal place of residence or intend to reside at the the home as their principal place of residence in order for the Declaration of Homestead to be effective.

Geographically, what comprises my “home” for homestead purposes?

Even if your “home” is situated on more than one lot of land (say, in a subdivision), the entire undivided (or unsubdivided) property will be covered by the exemption, even if some adjacent lots consist of vacant land, SO LONG AS the lots are actually “used” as part of the homestead property even for such things as recreation, storage, gardening, etc. So long as there is proof of “use” as part of your home, it will be covered by the Massachusetts homestead exemption.

Are their any exceptions to the kind of debts that can “pierce through” a homestead exemption?

Yes. Under Mass.General Laws Chapter 188, ? 3(b), certain types of debts can “pierce” a homestead exemption claim. These include:

(1) debts for federal, state and local taxes;

(2) debts for a judicial lien on the home recorded BEFORE to the creation of the estate of homestead;

(3) debts secured by a mortgage on the home;

(4) debts for non-payment of an order by a court for the support of a spouse, former spouse or minor children;

(5) where buildings owned by the homeowner is situated on land NOT owned by the homeowner; and

(6) upon an execution of judgment issued from a court of competent jurisdiction to enforce its judgment based upon fraud, mistake, duress, undue influence or lack of capacity.

These “exception” to the Massachusetts homestead exemption apply only in the case where the homeowner has NOT sought protection under Chapter 7, 11 or 13 of the Bankruptcy Code. The protections provide by the Bankruptcy Code “amplify” and expand the protections already provided under Massachusetts State law.

How does a Bankruptcy filing add additional protections to a Mass. Homestead Exemption claim?

Under Section 522(c) of the U.S. Bankruptcy Code, “Unless the case is dismissed, property exempted under this section is not liable DURING OR AFTER THE CASE for any debt of the debtor that arose . . . before the commencement of the case, except–”

1. debts for State or Federal taxes or a debt for child support, alimony or the like;
2.debts secured by a lien that is not “avoidable” (i.e. capable of being extinguished) under the Bankruptcy Code;
3. debts secured by a tax lien;
4. debts owed by a debtor that is an “affiliated” (i.e. president, officer or director) with an “insured depositary institution” (i.e. a Bank, Savings and Loan, or an insured Credit Union) on account of fraud or willful and malicious injury and that is owed to the federal Receiver of the defunct bank;
5. a debt for fraud in the obtaining or providing of any scholarship, grant, loan, tuition, discount, award, or other financial assistance for purposes of financing an education at an institution of higher education.

Because most of the “exceptions” to allowed exemptions under Section 522(c) are MUCH more narrow than the exceptions found in the state exemption statute, only the exceptions found under Section 522(c) will apply to a homeowner that files for bankruptcy protection. Therefore, many of the exceptions found in Mass. Gen. Laws Ch. 188, Section 3(b) (see above) DO NOT APPLY with respect to past creditors included in the bankruptcy case to the extent that they conflict with the narrower exceptions under the Bankruptcy Code under a legal doctrine called “federal supremacy” or federal pre-emption”.

Can I “lose” homestead protection?

A homestead can only be terminated by deeding it to someone else, abandoning the home (except that family members that remain still have homestead protections), establishing a new homestead somewhere else. (Remember: You can only have ONE Principal residence so there can only be one homestead exemption to which it applies!)

What if I sell my house? Are the proceeds of sale protected?

If you sell your house, the net proceeds of sale, so long as they are less than the applicable homestead amount, remain exempt for at least one (1) year after the sale. But some court have held that time restrictions such as this one MAY not apply if the homeowner seeks bankruptcy protection as well because of the protections under Section 522(c) of the Bankruptcy Code.

Additional resources provided by the author

When Should You Consider Filing a Bankruptcy Petition (or Why People File for Bankruptcy)?

Besides practicing bankruptcy law for more than 35 years, I have taught this area of law at 2 different law schools (including my own “alma mater”) for 13 years. Each time I teach the course, the very first question I ask the class is “why do people file for bankruptcy?” Here we go!

     1. The Financial Dimension

Many of my law students give the answer that, “well, people file for bankruptcy when the amount of their debts exceed the value of their assets”. While this answer is rational, it is actually a very simplistic notion. In our current “consumer economy”, where consumer debt both secured (for example, home mortgages and car loans) and unsecured debts (credit cards, personal loans, student loans, overdraft and unsecured lines of credit, et al.) is available to virtually every one and where banks and credit card issuers literally compete for business on the basis of such, funds and blandishments as (a) where people went to college, (b) free airline tickets, and (c) “cash back” incentives, consumer debt has become in the United States as common as clouds in the sky. It is not uncommon that financially stable people can maintain substantial credit balances equal to more than 30% (or MUCH more) of their annual income, without placing them at immediate financial risk of default.

So it is not simply a matter of one’s “debt to asset ratio” that determines whether a person ought to file a bankruptcy case. The more immediate question rather is the ability of the borrower to be able to successfully “service” or “manage” their total debt load at any given point in time based upon the availability of liquid assets (for example, cash in the bank, savings, securities, and the like). In the world of accounting, this might be referred to as a business’ “current ratio”; that is, the ratio of “current assets” (cash current accounts receivables and liquid securities [stocks and bonds]) to “current liabilities” (the amount of any expenses do on debts that ***must*** be paid immediately). The lower this “current ratio” is in any given point in time, the greater the likelihood that external “financial pressure” will force a person to consider filing a bankruptcy case.

     2. Events of External Financial Distress

By “events of external financial distress”, I’m referring to events, either foreseen (and previously ignored) or wholly unforeseen, that because the borrower to suffer a sense of such great concern that they no longer “feel” financially secure. The longer this “external financial distress” exists or increases, the greater the likelihood that bankruptcy becomes a substantial option. What form can these “events of external financial distress” take? They include, but are not limited to:

(a) “collections activities” such as default notices, demands for payment from collection agencies and collection attorneys , the initiation of one or more lawsuits in the local courts;

(b) loss of “overtime” pay or the loss of employment;

(c) the death or long-term illness of a family member that previously provided substantial financial support for the household;

(d) the Notice of Tax Assessment by the IRS or state taxing authority; and

(e) the break-up, separation or divorce of the family unit which previously provided financial support of the borrower.

     3.   The Psychological Dimension of Debt

Even if one is facing one or more of the “events of external financial distress” and has a low or faces a decreasing financial “current ratio”, this does not necessarily mean that a person would be prepared to file a bankruptcy petition to eliminate their debts and get a “fresh start”. In my experience, what drives most borrowers to seriously consider the bankruptcy filing as more to do with their own sense of “psychological resilience” to financial distress that almost anything else.

We live in a country that treats as a “moral virtue” the ability to manage their financial affairs regardless of external circumstances and stigmatizes those people that, for one reason or another, seek to take positive action to finally eliminate their financial distress. In the United States, it is altogether too common to view “credit scores”, “creditworthiness” or the aggregate of the their credit cards’ “credit limits” as a standard by which to evaluate a person’s “self-worth”. We lionize those that many times by circumstance or by birth, have given them great wealth while diminishing those persons not so blessed.

The reality is that, for most of us, the extent of a person’s “emotional support system” and “emotional endurance” or the lack thereof, is a substantial determining factor towards the likelihood of a bankruptcy filing in the face of financial distress. It is essentially a dynamic tension between the ever-present anxiety generated by financial distress against the speculative perception of one’s self-worth based of how others might view them.

If this sounds squishy and irrational to you, that’s okay. Because it is. In short, there are rational reasons to file for bankruptcy protection that people will refuse to even consider because of great emotional resilience in the face of events of external financial distress. Concomitantly, there are irrational reasons that a person may choose to file a bankruptcy petition based upon their misperception of their financial status because of their lack of “emotional resilience” in the face of events of external financial distress.

     4. How then SHOULD One Go About Deciding Whether to Consider a Bankruptcy Filing?

In my experience this is really a “factor-based” analysis that includes both financial and psychological aspects. These factors include, in no particular order, the following:

(a) the level of debt presently being carried versus the available net income (that is, after expenses) to service that debt;

(b) both the number of and the severity of the events of external financial distress the borrower is facing and the likelihood that those events will persist for the foreseeable future;

(c) whether the events of external financial distress are “acute” in nature (for example, the immediate threat of a garnishment of wages or foreclosure or repossession of an important asset) or “chronic” (for example, using credit cards to pay daily expenses of living);

(d) the nature of the “debt structure” of the borrower (that is, the composition by type of the debts carried) and the likelihood of being able to eliminate those debts without having to resort to the “legal tools” available under the Bankruptcy Code (simply stated, there are some things that you can do under the bankruptcy code that you could ***never*** be able, as a practical matter, to accomplish in any state court);

(e) the extent to which the borrower’s assets would be protected from the reach of creditors, both outside the bankruptcy process as compared to within the bankruptcy process;

(f) the extent of the borrower’s personal sense of financial distress and whether it is causing or is likely to cause future physical or mental illness (for example, anxiety, depression, insomnia, upset stomach or gastritis, etc.); and

(g) the extent of the borrower’s emotional and financial “support structure” to assist the borrower in confronting and combating the source or sources of his or her financial distress.

     5. The Need For Specialized Legal Knowledge

If you are suffering from a stomach ailment, you would not go to an eye doctor. Similarly, if you knew that you were suffering from a specific type of eye illness, you would likely seek out the help of that very same eye doctor, as opposed to a general practitioner. The very same logic applies with respect to business and consumer bankruptcy law. A lawyer that knows how to do a divorce or defend a criminal action or prosecute a personal injury case, does not make him well-qualified necessarily to be a bankruptcy attorney. Bankruptcy law, perhaps like few other areas of legal practice, is a defined legal specialty that requires literally years of practice to do effectively and well. The reason for this is that most lawyers are taught to deal with mostly “bilateral” legal processes in matters such as contract law, civil litigation, real estate practice and the like. Bankruptcy law by comparison is a “multilateral” process involving multiple stakeholders, each of which with their own particular (and sometimes peculiar) points of view. Moreover, bankruptcy law can oftentimes be an area that combines different aspects of legal practice requiring disparate skills involved in civil litigation, administrative proceedings, and even ono-on-one negotiation, all being used together within one, single unified process. bankruptcy cases necessarily involve aspects of state law, federal law, and administrative law, all of which must be executed according to rules that have short and rigid timelines. In short, bankruptcy is no place for a layperson or a general practitioner to “dabble” in. He would know or try and do your own bankruptcy filing than you would try to do your own prefrontal lobotomy: the outcomes necessarily will be bad!

It is therefore important when evaluating whether bankruptcy is a good alternative to speak with a knowledgeable and competent bankruptcy attorney in your particular jurisdiction. How then to evaluate the competence and expertise of a bankruptcy lawyer:

(a) how many years of specialized bankruptcy practice has the lawyer had;

(b) how many cases as the bankruptcy attorney handled in the last 5 years;

(c) what notable cases as the bankruptcy attorney been involved in an what were the outcomes;

(d) what reviews has the bankruptcy lawyer received and how apparently “organic” are those reviews;

(e) has the bankruptcy lawyer represented clients with the same kinds of problems that you are currently facing;

(f) what is the bankruptcy attorney’s personality like, how “approachable” is he or she, and is the bankruptcy lawyer willing to take the time to explain the bankruptcy process to you?

These are just some of the qualities that you should use in evaluating the advice being given by a specialized business or consumer bankruptcy lawyer. Naturally, other factors will necessarily come into play.

     6. Final Thoughts

As with much in life, timing is everything. The biggest problem that I have faced in my many years as a bankruptcy lawyer is that people wait to long before coming to me with their problems. In many cases, having come to see me sooner, I would have been able to have avoided much of the distress that they were forced to endure and prevent some of the negative legal consequences that came to pass only because they waited so long.

It is better to swallow one’s pride, and seek out legal advice before a “crisis” becomes a genuine catastrophe. However this requires perhaps the hardest thing that one can ask of oneself, namely, the capacity to see things as they actually and really are rather than as we would like them to be. This is very very hard for most people because it is all but impossible to be “objective” about oneself and the reality of one’s actual circumstances. This is the real reason (and it is a very good one) why people retain lawyers in the first place: lawyers are trained to engage in “critical” thinking and to view a client circumstances in the most objective way possible, and then based upon that objective reality provide clear and cogent advice as to how the client ought to proceed.

But in order to be able to do this, the client must first engage in an exercise of self-awareness and confront himself or herself and be honest with himself or herself about their legal and financial circumstances. Until that event comes to pass, the borrower will not pick up the phone and reach for the assistance that he or she likely needs.

Additional resources provided by the author

There are literally thousands of of answers to questions posed by people facing financial distress on the “Q and A” section of Avvo.com. But in most cases, unless you can provide substantial detailed information, it will be very hard for any of the attorneys that provide answers to give you a cogent answer to your particular question. The best thing that you can do is to seek out the advice and assistance of a competent bankruptcy attorney in ***your*** state to answer the questions that you have in a one-on-one session.

Boston Bankruptcy Update: A Debtor seeking to discharge Student Loans under the “Undue Hardship” Test must Exhaust Income-Based and Income-Contingent Repayment Plan Options First

In general, student loans are considered long-term non-dischargeable debts.  This means, even after your Chapter 7 or Chapter 13 Bankruptcy, you still owe and will have to repay your student loans.  However, there is an exception, and it is usually used for medical and chronic illnesses, called the “Undue Hardship” test.  If a Debtor can show that repayment of student loans would prove to be an “undue hardship” then the Judge can order student loans dischargeable and no longer owing.  However, this test is difficult to meet, and first and foremost, a Debtor must exhaust his or her repayment options with the student loan holder (whether it be U.S. Dept. of Education, Sallie Mae, or a private bank or institution).  Most notably are the two repayment plan options offered for Federal student loans: (1) Income-Based Repayment; and (2) Income-Contingent Repayment.

Under a recent bankruptcy case where the judge DENIED the debtors request to declare his student loans dischargeable, the Judge determined that the debtor did not meet his burden under the “undue hardship” test because he didn’t try or exhaust these two programs for repayment first.

Where a plaintiff Chapter 7 debtor has filed a complaint for a declaration that his student loan debt to the defendant is dischargeable, the debtor has not met his burden of establishing that it would be an undue hardship for him to repay his student loan.

“To establish undue hardship under §523(a)(8), the Debtor relies primarily on his series of illnesses and chronic health challenges…. . As a matter of proof, it would be the rare case in which a Debtor’s claim of medical disability as a basis for such a discharge could be met without the testimony of a medical professional. … The Debtor merely recounted his history of illnesses and health challenges and offered medical records corroborating that history and identifying past and present treatments. There was no evidence concerning the likely impact of these conditions on the Debtor’s ability to earn income in the future. In fact, the evidence supports the opposite conclusion. The Debtor’s work history has been marked by job loss and unemployment, but in recent years the Debtor has demonstrated an ability to increase his earnings, all during times when he was suffering from the health challenges and disabilities upon which he relies as a basis for his undue hardship case. The Debtor plainly has issues with anxiety and depression, as well as joint pain. But even with these problems, the Debtor succeeded in increasing his income by the time of the trial, which was two years from the time of the filing of his bankruptcy petition. …

“The Debtor’s other basis for seeking discharge of his student loans is a rather non‐specific argument that he has not been able to find continuous and reliable work. This, he suggests, is attributable to the market for his services, to a series of unfortunate job placements, and ultimately to an extended period of unemployment. This history does not come close to establishing that he will not be able to repay his student loans without undue hardship. … By the time of the trial, the Debtor had succeeded in locating a well‐paying, full‐time job with considerable employee benefits. His family income and benefit package had risen to a level at which the Debtor should be able to survive without exposing himself and his family to undue hardship by virtue of repaying his student loans. Therefore, the Debtor’s second basis for suggesting that his student loan should be discharged is equally unavailing.

“ECMC argues that the Debtor should not prevail for another reason: he has not explained how it is an undue hardship for him to repay the loan in light of the income‐based repayment programs available to him, namely the Ford Program, including the Income Contingent Repayment Plan and the Income‐Based Repayment Plan that are available as part of the Ford Program. … Given the availability of these programs, it appears that nondischarge of the loan debt likely would not impose on the Debtor a payment obligation that is greater than his ability to pay during periods of continuing disability or recurring unemployment.”

In Re: Nargassans, Timothy Charles (Bailey, J.) (USBC) (Chapter 7 Case No. 10-12766-FJB; Adversary Proceeding No. 10-1170) (July 11, 2013).

United States Census Results Raise Median Income Level for Chapter 7 Bankruptcy Filers

As of November 1, 2012, the United States Census Borough has released updated and new median income statistics


for each state separated by number of family members.   This is important to note because if you are considering a debt relief strategy of filing for bankruptcy, in order to qualify for the highly desirable chapter 7 case, where you receive a discharge of unsecured debt without the need to make a payment plan back to your creditors, your household income must fall below the median income for your state and family size.  This is called the Means Test.  In Massachusetts to qualify your income must be below the following:

  • Single person:             $54,475
  • Family of two:             $66,076
  • Family of Three:          $80,822
  • Family of Four:           $101,523
  • Family of Five:            $109,023


If you have questions about your income level, and what qualifies as income for the purposes of a bankruptcy, please feel free to call our office at (617) 742-4491.