Connecticut Homestead Exemption

Man writing Homestead Exemption in a note pad. Visual concept for Connecticut Homestead Exemption Update

A bankruptcy does not mean you have to lose your house. In fact, filing for bankruptcy may help you save it. In the last few years, changes to the Connecticut homestead exemption have helped borrowers protect more of the equity in their homes, vehicles, and life insurance policies. This means that you don’t have to “lose it all” to get relief from excessive debt.

What is the Connecticut Homestead Exemption?

Bankruptcy is a federal legal process, but each state has its own set of bankruptcy exemptions designed to protect residents’ livelihoods and make sure the process doesn’t leave them destitute. A Chapter 7 bankruptcy liquidates any non-exempt property the borrower has to help pay off their unsecured debts before discharging the rest. Similarly, a Chapter 13 bankruptcy requires debtors to pay off as much of their debt balance as possible over a set repayment plan using their disposable assets.

However, the Connecticut homestead exemption and other bankruptcy exemptions create an exception to those rules. The exemptions allow debtors to set aside certain types of property, up to a specific value, and protect those assets from being used to pay off their debts.

Connecticut’s Homestead Exemption Expands for Homes and Vehicles

Historically, Connecticut’s homestead exemption was very low. Since 1993, Connecticut residents could only claim bankruptcy exemptions for up to $75,000 in equity in their primary residence. That original law included a special carve-out of debts that existed prior to October 1, 1993, meaning that homeowners with older mortgages couldn’t even claim that limited amount of equity.

But Connecticut home prices have spiked considerably since then. Car values have also spiked. For most folks, those two assets accounted for most of their wealth. When it was time to file for bankruptcy, having most of their wealth locked up in their homes or vehicles didn’t help to resolve unsecured debts like credit cards, medical debts, or personal loans. If they had built up equity beyond the 1993 caps, the bankruptcy trustee could force them to sell their homes or vehicles to pay off their debts. So many who would otherwise benefit from bankruptcy chose to avoid it…somehow.

On July 12th, 2021 Governor Ned Lamont signed into law An Act Concerning Property That Is Exempt From A Judgment Creditor, HB 6466. The law increased the Connecticut homestead exemption to $250,000, per person, or up to $500,000 for couples filing a joint bankruptcy. It also allows bankruptcy petitioners to claim motor vehicle exemption to $7,000 each, or $14,000 for a married couple split between two vehicles. It also allows petitioners to exempt the entire cash surrender value of any life insurance policies they hold. Previously, this bankruptcy exemption was capped at $1,000 maximum.

Connecticut Courts Approve Updated Connecticut Homestead Exemption

The Connecticut Homestead Exemption update was set to go into effect in October 2021, but there was a question about whether it applied to debts incurred before the law passed. In the case In re Cole, the United States District Court for the District of Connecticut said that the 2021 law didn’t have the same carve-out the earlier 1993 law had. The Bankruptcy Court said, without that language, the new law could apply retroactively to older debts in a Chapter 7 bankruptcy. Another case, In re Faherty, reached the same conclusion in a Chapter 13 case.

The Cole case was appealed to the Connecticut Supreme Court. On July 18, 2023, the state’s highest court found that the Connecticut legislature’s choice not to include the carve-out for preexisting debts must mean that the omission was intentional and the carve-out did not apply. The Court said it was not applying the law retroactively, since it only applied to bankruptcies filed after the 2021 law went into effect. Essentially, it was the debtors’ rights to claim bankruptcy exemptions that were affected, and not the creditors’ rights to collect on their debts.

What Connecticut’s Homestead Exemption Means for Your Family

For individuals and families who might not have seriously considered a bankruptcy solution, the updated Connecticut Homestead Exemption offers an enormous potential for a fresh start. I can't overemphasize this. It's the biggest, most favorable development I have seen in over thirty years of bankruptcy practice. By raising the caps on home equity, vehicles, and life insurance cash values, the Connecticut legislature has ensured that you can get the relief you need without losing your most important assets.

In most situations the equity in your home, even if it's substantial, will not get in the way of your fresh start in bankruptcy. You may still be able to discharge credit card and other debt and keep your home. If you are a married couple, the new vehicle exemptions mean you can each keep your vehicle, ensuring transportation to work and school. The life insurance exemption is brand new and ensures that you can make plans to protect your family without putting your other assets in jeopardy. The new law creates a whole new world of opportunities for preserving wealth while eliminating debt.

At Lawrence & Jurkiewicz, we can help you sort through your family’s assets to apply all the available bankruptcy exemptions and protect what matters most. We will meet with you to review your financial circumstances and help you understand how the Connecticut homestead exemption applies to your assets. We’ll help you decide whether to file a Chapter 7 bankruptcy, or whether another solution will be more appropriate to your situation. We want to help you make the right decisions for you and your family. Please call (860) 264-1551 or contact us for a consultation.