The homestead exemption refers to the amount of equity in one's primary residence that is exempt from liquidation by the bankruptcy court in the context of a bankruptcy action. In Chapter 7 bankruptcies, the U.S. Bankruptcy Trustee will liquidate all of the debtor's non-exempt property and apply its proceeds to outstanding priority debts. If the property is exempt, however, such as by reason of the homestead exemption, then the debtor can keep the property, no matter the amount of the debtor's debts. The amount of the homestead exemption varies according to both state and federal laws. While federal law places some minimum and maximum caps on the homestead exemption, state laws vary dramatically with regard to the amount of the homestead exemption.