For most of us, a home is our most valuable investment; and the possibility of losing it to a creditor in an unforeseen financial catastrophe is terrifying. But there are several ways you can protect your home.

First, let's look at which creditors can threaten your home.

The first type of creditor to consider is the government: If you don't pay your city or county property tax, the government can sell your property to raise the money to pay the tax.

The State of Tennessee and the IRS can also seize your home if you don't pay your personal or business taxes. There could also be a tax obligation attached to a house that is inherited from someone who dies.

The government also has the right to seize property that is used for illegal purposes (such as the sale of drugs).

The second group of creditors to consider are those who obtain a judgment against you. If someone sues you and gets a judgment, that person becomes a creditor. The judgment could be for an unpaid debt, for example, or for injuries received in an accident. If you do not pay the judgment, the judgment creditor can request the court to sell your property to satisfy it.

The third group of creditors includes those who have not sued you but who are nevertheless owed money. If you (or your creditors) file a petition to have the bankruptcy court administer your assets, your home is one of the assets that can be sold to pay those debts. Your creditors can also join together to request that a state court (rather than the bankruptcy court) initiate a similar procedure. Seizure of your home in this situation is subject to the protection of an "exemption," which we will discuss further in a moment.

The fourth type of creditor is the lender who takes a mortgage against your house as collateral for your loan.

Some of these creditors may be able to seize your home outright. Others can take it only subject to the "exemption."

In deciding how to protect your home, you first need to consider which creditors you want to protect yourself against. Some creditors just cannot be avoided.

For example, you have little recourse to prevent the state from selling your property for unpaid property taxes.

You also probably cannot prevent your mortgage holder from selling your house through foreclosure if you have not made your mortgage payments. There are two ways that a mortgage holder is protected. First, the law gives special treatment to the lender who loans the money you use to buy your house or to make improvements to your house. Second, even if your mortgage was created after you bought your house, your lender probably required you to sign a form that said that you could not take any "exemptions" to avoid foreclosure.

If you are concerned about the possibility of someone suing you in your business, you might want to incorporate your business or create something called a "limited liability company" or a "limited partnership." Very specialized rules govern how these businesses are created, and there are also tax consequences to each of them. You need to consult a lawyer (and perhaps an accountant) before taking this step.

In many cases, you can protect your home from loss to a judgment creditor simply by having insurance on your home and car and business. A good insurance policy will pay judgment creditors when the judgment arises from such things as a car accident or an injury occurring on your property.

Sometimes people try to shield their home from creditors by putting title to the property in someone else's name. If you transfer property for the purpose of hindering a creditor, however, the creditor may be able to void the transfer. To prove fraud, the creditor will look at such things as whether the person who obtained title actually paid for it and whether you were insolvent when the transfer was made.

It is also possible for a creditor to void transfers made shortly before you file for relief in bankruptcy.

If you own property with your spouse, and a creditor has a judgment against only one of you, the creditor cannot seize the property outright. However, the creditor can seize the "survivorship" interest of the one who owes the money. What this really means is that you will have a problem selling or borrowing money on your house if either you or your spouse owes a creditor who has obtained a judgment in court.

You can protect at least a portion of the value of your home against seizure by creditors under Tennessee's "exemption" law. A married couple can claim up to $7,500 in their principal residence and an individual (married or single) may claim up to $5,000 in the principal residence used by that person or that person's spouse or dependents. The exemption does not protect you against debts for taxes or most mortgages, but it would protect you against judgment creditors.

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The information available through TBALink LawBytes is basic legal information and is not a substitute for legal advice. LawBytes is provided by the Tennessee Bar Association as a public service and for general information only. It should not be considered legal advice. You should consult your attorney if you have questions concerning any specific situation. If you do not have an attorney, may we suggest that you contact your local bar association's referral service. The topics covered through TBALink LawBytes will provide basic information and should make it easier for someone with a problem to decide whether they need professional help from a lawyer or if another agency could provide them with assistance.