Despite what you might believe, bankruptcy is not a punishment for financial decisions that have gone wrong. For individuals and families, bankruptcy is a legal process that helps relieve the burden of overwhelming debt and gives them the chance at a “fresh start”. As part of this goal, South Dakota law protects various types of property from liquidation or seizure through bankruptcy exemptions. For example, even if other assets are sold to pay debts, filers are permitted to keep their clothes and important household possessions, including the family Bible. 

Perhaps the most important exemption is the one that protects equity in a debtor’s primary residence. Known as the homestead exemption, this provision allows individuals facing financial difficulties to safeguard some or all of the value in their home. Under South Dakota law, the homestead exemption protects up to $60,000 ($170,000 if 70 years of age or over) of equity in a debtor’s primary residence. If the home is located on an agricultural property, the exemption is capped at one acre within a municipality or up to 160 acres outside of one.

The amount of equity in your home is calculated by taking its market value and subtracting the amount owed for any loans secured by the property. Accordingly, a $300,000 home with $250,000 that remains to be paid on the mortgage amounts to $50,000 in equity. In a Chapter 7 bankruptcy, this home could not be sold as part of any asset liquidation because the equity is below the $60,000 threshold. If the equity were $100,000, the trustee could sell the home, but only $40,000 would go to pay off unsecured creditors, while the homeowner would retain the exemption amount.

In a Chapter 13 bankruptcy, the homestead exemption can be crucial in reducing the amount of money a debtor must submit through a repayment plan. Since the home’s equity is protected, creditors cannot claim it to satisfy outstanding debts.

Consulting with a bankruptcy attorney is the best way to take advantage of the legal exemptions available to you, including the homestead exemption. Anker Law Group in Rapid City represents individuals and businesses in all types of bankruptcies, including proceedings under Chapters 7, 11, 12 and 13. To schedule a meeting, please call 605-519-5967 or contact us online.