Keeping the Creditors Away from Your Home

In the current climate of home foreclosures and worries of plummeting home prices, the last thing a homeowner needs is a bill collector threatening to seize the property. This happens more often than you think. A homeowner, struggling with a mortgage payment, falls even further behind on that on large medical bills or defaulted credit card bills. Overzealous collections agents are introduced into the equation, and suddenly the homeowner has to defend his home from foreclosure and seizure. The fight gets more intense if there as a substantial amount of equity in the home.

Fortunately, there are ways to protect your property, each depend on the laws in your state. These options range from an age-old state statute to an expensive estate planning loophole. Review them all, you might find an option that can defend your home from creditors.

The first is the Homestead Exemption. It is included in the statutes of all fifty states. The Homestead Exemption protects a specified amount of home equity from creditor seizure and liens. The amount of protection varies from one state to another. In Florida, for example, the exemption is unlimited. In other states, as little as $2,500 is exempt from bill collector's attachments. They cannot lay claim to the property to recover a debt.

Next is Tenancy by Entirety. It is also empowered b y a state statute that allows for creditor protection, however, not every state has this law. Tenancy by entirety laws operate under the premise that a home owned by a married couple does not belong to one spouse or the other. Instead, the home is owned by the marriage union itself. Therefore, creditors can't size a home to cover the debt of one spouse. For example, a collections agent cannot put a lien on a home to collect the husband's delinquent hospital debt, because the wife still has interest in the property. It is owned by the marriage.

Recent court decisions have made it possible for a creditor to attach half of a property to collect a debt. However, this small victory for bill collectors is bittersweet. The courts stipulated that the home can't be divided, and the creditor must assume half of the household expenses. This has left the court challenges to tenancy by entirety an unappealing solution.

The last option is a living trust. Creative estate planning can also protect your home from overenthusiastic bill collectors. Various living trusts allow you to will your assets to your spouse and/or children while you are still alive. Until your death, the home goes into a trust. It is, in effect, no longer yours, but property of your estate, which isn't in force until your death. The home is tied up until then.

Living trusts also have their limitations. First, you must have beneficiaries that you trust to keep your property--and allow you to still live there. Second, the property in trust off limits. You can't alter, sell, or trade the property. Last, there are some intricate and very expensive estate planning and tax implications involved. This is not a method for those on an already overwrought budget.

Keep in mind one important detail: none of these methods protect against a mortgage foreclosure. They only safeguard your home from a lien, attachment, and/or seizure by collections agents and other creditors. And, although it is always best to avoid the need for creditor protection methods; it is great to know that they exist.