New California Law Proposed for Homestead Exemptions
A new law has recently been proposed raising the homestead exemption amount for debtors going through bankruptcy. How exemptions work is that your bankruptcy trustee must decide whether any value for the bankruptcy estate will be left over once your home is sold. First, all of its liabilities must have been paid off, such as mortgage, taxes, any homeowner fees, and the exemption amount owed to you. Under current law, the exemption owed you on any sale of your home is $75,000 per individual, $100,000 per married couples, or $175,000 for the disabled or those over the age of 65.
Because of the high value of Southern California property since these exemption amounts were first passed, they provide little financial relief for most homeowners who file for bankruptcy, especially those who have reduced their mortgages after decades of living in their homes.
The new law, AB1885, which is likely to be signed by California’s Governor, would enact the following increase in the homestead exemption:
- $300,00 or the prior year’s median sales price in the county where you live
- Capped at $600,000 regardless of median sales price
In locations where the median price is above $600,000 like Los Angeles County, San Diego County, and Orange County, the exemption amount would stabilize at $600,000 well above the current exemption limit. In other Southern California counties, like Riverside and San Bernardino, the exemption amount would still be significantly higher than the current amounts, saving homeowners tens or hundreds of thousands of dollars.
Coming on the heels of the economic disaster caused by COVID-19, this is welcome news for debt-ridden homeowners, many of whom have lost businesses and jobs due to the pandemic. According to many resources, bankruptcies across the country are expected to reach a 10-year high due to the pandemic-caused recession. If passed, the new law would likely become effective at the start of 2021.
What is a homestead exemption?
An exemption refers to the assets and property that are not subject to loss when you file for bankruptcy. Most states, including California, provide what is known as a “homestead” exemption which protects a certain value of your home in a liquidation sale in Chapter 7 or from loss to a creditor who has legal authority to enforce a court judgment. This exemption means that a certain equity in your home is free or “exempt” from the bankruptcy process used to satisfy such a debt. That equity will be yours to keep.
If you are facing debt overwhelm that requires a bankruptcy filing and you are a homeowner, it is vital that you understand the exemptions you are allowed under California law as well as all other aspects of the process. At Wadhwani & Shanfeld, you can work with a legal team led by experienced bankruptcy attorneys who have exceeded the normal requirements for a license; these attorneys have reached the highest level of legal training and ability – Board Certification by the California State Bar. That means your case will be overseen by bankruptcy experts at the top of their field.
Need debt relief options in the greater Southern California area? Call us at (800) 996-9932 or contact us online to schedule a free consultation about your situation and available options.