Chapter 7 bankruptcy allows a debtor to wipe out many of his debts by erasing, or discharging, his obligations to pay creditors. As part of the bankruptcy case, the debtor's nonexempt assets are sold to pay his debts, but many debtors are able to qualify for exemptions to save some of their assets. Homestead exemptions vary by state. Some states allow debtors to use either federal or state exemptions, while others only allow a debtor to use that state's list of exemptions.
Homestead exemptions protect a certain amount of the debtor's equity in his home, and this can keep it from being sold to pay other debts. Most states impose limits on the amount of home equity that can be protected in bankruptcy, but the limits vary by state. If the debtor has too much equity in his home to qualify for an exemption, the house can be sold by the trustee to help pay his debts. States can impose certain requirements to qualify a property as the debtor's homestead. For example, Florida's homestead exemption protects properties of a half-acre or less if located within city limits or up to 160 acres outside city limits, regardless of value.