California Homestead Protections Increase as of January 1, 2021
The amount of equity you can protect in your home has likely at least tripled as of January 1, 2021. This is good news and rather timely for those considering a bankruptcy filing due to financial hardships caused by the pandemic. This is great news for many Californians that have seen fairly drastic home equity increases due to rising home values.
Here is the language of the new homestead exemption, which is set forth in California Code of Civil Procedure Section 704.730:
(a) The amount of the homestead exemption is the greater of the following:
(1) The countywide median sale price for a single-family home in the calendar year prior to the calendar year in which the judgment debtor claims the exemption, not to exceed six hundred thousand dollars ($600,000).
(2) Three hundred thousand dollars ($300,000).
(b) The amounts specified in this section shall adjust annually for inflation, beginning on January 1, 2022, based on the change in the annual California Consumer Price Index for All Urban Consumers for the prior fiscal year, published by the Department of Industrial Relations.
The homestead exemption in various counties near my office:
San Bernardino County $350,000 (approximately)
Riverside County $400,000 (approximately)
Los Angeles County $600,000
Orange County $600,000
The $300,000 and $600,000 floor and cap, respectively, set forth in Section 704.730 will be adjusted annually for inflation each year. This is a long overdue amendment to homestead exemptions in California.
There are limitations on your ability to claim the full exemption in the Bankruptcy Code. Most of those limitations are set forth in 11 U.S.C. Section 522. It is important that you consult with an experienced bankruptcy attorney like me to discuss those limitations before you decide to file a case so you don't get any surprises. With the increased exemptions, Chapter 7 Trustees will likely be looking at those limitations in Section 522 more carefully to see if they can potentially get value out of high home equity filers.
The homestead exemption also makes it more difficult for a creditor that has a judgment lien on your house to force a sale of your house outside of bankruptcy. The creditor cannot force a sale if the proceeds of the sale are not sufficient to pay all senior liens on the property and your entire homestead exemption.
As an added benefit, with the increased homestead exemption, it is also easier to completely remove or reduce judgment liens in a bankruptcy through a motion in the bankruptcy case, commonly referred to as a Section 522(f) motion. Whenever a judgment lien impairs or reduces an exemption you can claim in the bankruptcy, you have the ability to remove that lien to the extent it causes such an impairment.