Iowa's Tricky Homestead Exemption in Bankruptcy - Thompson Law Office, P.C. (2024)

Unlike many states that have a dollar cap on their homestead exemptions, Iowa has an unlimited homestead exemption, meaning that you could protect a homestead of unlimited value from the debt collection of creditors, including a bankruptcy trustee (but not the lender to which you’ve given a mortgage). These homestead exemptions, just like exemptions for other property like vehicles, household goods and retirement accounts, are critical to preventing creditors from taking a debtor’s property in satisfaction of debts not repaid. The purpose of exemption laws is to make sure debtors are able to protect at least some property from being seized by creditors.

While Iowa’s unlimited homestead exemption sounds generous and often is, it has some limitations that can trip up a debtor filing bankruptcy. For instance, Iowa’s homestead exemption is limited to one-half acre if the homestead is located in a platted city or town or to forty acres if located in the country. This usually isn’t a problem but it can be an issue for larger parcels of land. Another problem is that Iowa’s homestead exemption only applies to debts obtained or incurred AFTER the property became the debtor’s homestead. In other words, a debtor can’t exempt a homestead against debts owed prior to or at the time the homestead was obtained. This can be a significant issue in bankruptcy if the debtor has significant equity in the homestead and owed debts at the time the homestead was acquired. If there’s no or very little equity in the homestead when the bankruptcy is filed there’s nothing that needs exempted. But if the homestead has significant equity and there’s a debt that was owed before acquiring the homestead there may have to be some adjustments made. This problem is most frequently seen where there’s a student loan incurred long before the debtor purchased a home. To work around this problem we may have to file separate bankruptcies for spouses, refinance student loans prior to filing the bankruptcy or file a Chapter 13 bankruptcy. It’s important that these homestead issues get identified and addressed prior to filing bankruptcy and one of the reasons Nancy Thompson Law Office PC requests detailed information from clients about their property and debts.