I just sold my home. Can you protect the proceeds from the sale of my home in bankruptcy?

Yes, but only for a little while.

I had a client who prepared her bankruptcy paperwork and was ready to file when she got a good offer on her home.  Selling your home while in a bankruptcy is difficult, so we held off on filing her case.  She sold the home, paid off the mortgage, and ended up with about $10,000 from the sale of her home.  home sale proceeds

This money wouldn’t put a dent in her total medical debt, so avoiding bankruptcy wasn’t an option.  We decided to keep it and exempt (protect it) under Utah Law.

Under the Utah Code 78B-5-503. Homestead exemption, you can protect the equity in your home up to $30,000 per person.  Fortunately, you can also protect:

(5)
(a) When a homestead is conveyed by the owner of the property, the conveyance may not subject the property to any lien to which it would not be subject in the hands of the owner.
(b) The proceeds of any sale, to the amount of the exemption existing at the time of sale, is exempt from levy, execution, or other process for one year after the receipt of the proceeds by the person entitled to the exemption.

In other words, we could stick the $10,000 in a bank account, declare it exempt, and actually protect it.

There are some issues though:  you don’t want to spend it before we go bankruptcy, because you might just spend it on something non-exempt, which the trustee could take.  You also don’t want to put the money in an account with your other non-exempt money.  This is called co-mingling, and it makes it hard to identify and protect your homestead money.