The very hot topic in Nebraska bankruptcy courts these days center around how courts apply changes to the homestead exemption law enacted in 2014.

The exemption protects up to $60,000 of equity in a debtor’s home, but the question is whether the exemption is limited the home or to the debtor. In the case of married debtors, do they receive a $60,000 exemption or $120,000?

In a recent court case handled by our firm (In re Hudson BK 23-80949), the Nebraska bankruptcy court clarified the limits of the exemption.

First, some background on the homestead exemption:

Neb. Rev. Stat. §40-101:  A homestead not exceeding sixty thousand dollars in value shall consist of the dwelling house in which the claimant resides, its appurtenances, and the land on which the same is situated, not exceeding one hundred and sixty acres of land.

  • The original homestead law in territorial Nebraska did not contain a dollar limitation. The dollar limitation ($2,000) was added in 1875, and that amount was sufficient to exempt the entire value of an average home.
  • To put that in perspective, the average cost of a home in Nebraska in 2024 is $282,000. 
  • The value of 160 acres of land in Nebraska can easily exceed two million dollars.
  • Over time the Nebraska legislature has watered down the homestead protection by failing to index it to inflation.

Nebraska Legislative Bill 964

In 2014 LB 964 extended the homestead exemption to protect single debtors without children.  No longer was the homestead limited to families.

LB 964 modified both sentences of Nebraska Statute § 40-102

  1. If the claimant is married, the homestead may be selected from the separate property of the husband claimant or, with the consent of the wife from her separate property. claimant’s spouse, from the separate property of the claimant’s spouse.
  2. When If the claimant is not married, but is the head of a family within the meaning of section 40–115 or is age sixty-five or older, the homestead may be selected from any of his or her property.

What is the homestead?

Reviewing the long court case history of the exemption law, the bankruptcy court first addressed the nature of the homestead: “What is a “homestead”? Is it the present worth of the exemption or is it the family home?”  Answer: The homestead is the home, not the exemption.

If the homestead is the exemption each debtor could claim the exemption, but if the homestead is the actual home, there is only one. The court pointed out that “the claimant does not claim the exemption. The claimant selects the homestead.” Since there is only one actual home the protection is limited to $60,000.

The bankruptcy court relied on past decisions:

  • LB 964 did not change well-established and longstanding caselaw holding a parcel of property cannot sustain two homesteads, which change must have occurred to sustain the debtors’ two exemptions.
  • It is true that a homestead cannot be occupied jointly by two families so that both will have homesteads therein. Also, it is true that if a tenant in common claims a homestead, he must occupy the property to the exclusion of his cotenants.  Luenenborg v. Luenenborg, 259 N.W. 649, 652 (Neb. 1935)
  • The Nebraska Supreme Court affirmed the nature of a homestead in 1989: Analogizing to the rule that “[a] person cannot have two homesteads, nor can he have two places either of which at his election he may claim as a homestead,” Travelers Indemnity Co. v. Heim, 218 Neb. 326, 330, 352 N.W.2d 921, 924 (1984), we note that two separate homesteads cannot exist in the same parcel of land.  Landon, 438 N.W.2d at 760

In rejecting the debtor’s contention that each married debtor was entitled to a $60,000 exemption, the court made the following observation:

  • LB 964 did not go as far as the debtor contends. The head of a family requirement was only in subsection (2) of § 40-102, which subsection never applied to a married couple.  Removal of the head of a family from subsection (2) did not change the law applicable to married couples who are, and were, governed only by subsection (1).
  • The homestead continues to be in property, not in an “interest” in property. Finally, and perhaps most importantly, the LB 964 did not change long-standing Nebraska law holding one parcel of property cannot sustain two homesteads. Section 40-102 continues to differentiate between an individual claimant and a married claimant. The debtors’ construction impermissibly ignores the differentiation.
  • Consent: The statute also retains the “consent” and “separate property” language. Under the debtors’ construction, consent becomes irrelevant. If both spouses can each separately claim two exemptions in one parcel of property, there is no need to make a claim from the spouse’s separate property. The spouse can claim the exemption on his or her own. The consent language only makes sense if the homestead remains in a singular family home, which might still be owned by one of the two spouses.

For years we bankruptcy attorneys have questioned the effect of the 2014 amendments to the homestead law, and there were rumors that perhaps a married couple could exempt up to $120,000 of their equity. However, unsuccessfully claiming a homestead exemption in a Chapter 7 case can have dire consequences, so attorneys have meekly assumed the exemption was capped at $60,000.

Our firm decided to get a ruling on the issue in a Chapter 13 case because if our challenge proved to be unsuccessful, the debtor’s home would nonetheless be protected. Although the opinion is disappointing to debtors, at least we have a clear decision on how much home equity is protected.

But good news is on the horizon. This case and others have caused our Nebraska legislature to consider an expansion of the homestead exemption, and that will be the topic of our next post.

Image courtesy of Flickr and Matt Turner