Are you concerned about losing your home to creditors? At Caldwell Law, we specialize in helping families protect their most valuable assets through the Nebraska bankruptcy process. Specifically, in December 2025, the Nebraska Bankruptcy Court issued a landmark ruling in In re Michael Watson. This case creates a roadmap for protecting your home during Chapter 7 bankruptcy. Furthermore, it explains how marital interests and the homestead exemption work together to shield your residence.
The Strength of the New Nebraska Homestead Exemption
For those searching for how to file bankruptcy in Nebraska and keep your house, the most powerful tool available is the homestead exemption. Essentially, this legal shield prevents judgment creditors from taking the equity in your home to satisfy debts.
Following its passage by the Nebraska Unicameral, the Nebraska homestead exemption amount jumped to $120,000 for all head-of-household filers. Consequently, this update to Neb. Rev. Stat. § 40-101 offers huge relief. However, as the Watson case shows, the effectiveness of this $120,000 shield depends on exactly how you define ownership in your bankruptcy schedules.
Marital Property vs. Legal Title: Who Really Owns the Equity?
A frequent question our Nebraska bankruptcy attorneys hear is: “Can I protect my home if only one spouse is on the deed?” In fact, under Nebraska law, the answer is often “yes”.” Even so, a spouse who is not listed on the title may still hold a “marital interest” if the home’s value grew during the marriage.
In addition, the court in the Watson decision clarified these key points:
- Equitable Interests: Importantly, any legal or fair interest in a home can support a homestead claim.
- Income as Marital Property: Similarly, equity built by paying a mortgage with marital income belongs to both spouses, regardless of whose name is on the loan.
- Protection from Creditors: Notably, a lien against one spouse does not automatically attach to the other spouse’s share of the home.
The Simple Formula to Wipe Away Liens
To wipe away, or avoid liens in bankruptcy, the court uses a math calculation from 11 U.S.C. § 522(f). To clarify, this determines if a lien eats into your $120,000 exemption.
The bankruptcy court follows these steps:
- Combine the Liens: First, add the judicial lien, all junior liens, and the mortgage balance.
- Add the Exemption: Next, add the $120,000 Nebraska homestead exemption to that total.
- Subtract Your Interest Value: Then, subtract the value of the debtor’s specific ownership percentage.
- Determine Impairment: Finally, if the number is positive, the lien “impairs” your exemption and can be wiped out.
For instance, in In re Watson, the debtor successfully argued he owned only a 50% interest in the home. As a result, he wiped away a massive lien that would have otherwise stayed on the property.
Avoiding “Cakeism” and False Oaths
While the Nebraska homestead law is a powerful ally, the Watson court warned against “pure cakeism”. In other words, you cannot claim a small share in bankruptcy to wipe away liens, then claim 100% in a divorce to keep the money.
Therefore, filing for Chapter 7 bankruptcy requires total honesty. Under 11 U.S.C. § 521(a), you must accurately disclose all property interests. Failure to do so can result in:
- Denial of Discharge: The court may refuse to forgive your debts for making a “false oath.”
- Unavoided Liens: A lien is only removed from what you disclose; hidden equity may still be at risk.
Contact a Nebraska Bankruptcy Lawyer Today
In conclusion, choosing the right legal team can mean the difference between losing your home and a true fresh start. At Caldwell Law, we provide the compassionate legal guidance you need to navigate these complex equity and exemption rules.