What is the Chapter 7 Homestead Exemption?
The Homestead Exemption in California allows residents to protect the equity in their homes from creditors attempting to collect on a debt. It is also intended to protect the residence from creditors up to a certain amount in value when a debtor files for Chapter 7 bankruptcy.
In September of 2020, California Governor Gavin Newsom signed a bill that increased the homestead exemption to protect a greater amount of equity in residents’ homes. The law went into effect on January 1, 2021. Before the new homestead exemption law went into effect, homeowners had trouble filing for Chapter 7 bankruptcy without the necessity of giving up their homes. And because most debtors couldn’t afford to move to a new home, their options for debt relief were limited, if available at all.
What is the New Law Regarding Homestead Exemptions?
Before the new law was signed and went into effect, the homestead exemption was capped at lower values. The exemption was capped at $75,000 for single homeowners, $100,000 for married homeowners, and $175,00 for seniors and those homeowners with disabilities.
As of January 1, 2021, the California homestead exemption increased to $300,000 for all residents. However, this amount is higher in counties where home values are higher. The law states that the homestead exemption is the greater of $300,000 or the median sale price of a single-family home in the county during the previous year, and the exemption is capped at $600,000. In other words, if the exemption available under the law is greater than the amount of a debtor’s home equity, their home would be fully protected from creditors and a forced sale.
Residents with homes in Monterey County are currently able to claim the highest amount of the exemption as the median sale price of single-family homes during the year 2020 never fell below $600,000.
More About the Homestead Exemption
In California, the homestead exemption is automatic, meaning residents are not required to file a declaration in order to claim the exemption in Chapter 7 bankruptcy proceedings. However, it is always a good idea for homeowners to declare their homesteads if they have equity and experience financial hardship. If a homeowner chooses to sell his home, the homestead exemption will apply to the proceeds generated from the sale for six months while the homeowner looks for another home in which to reinvest those funds.
Do You Have Questions for a California Bankruptcy Attorney?
Bankruptcy can be a complex process, and there are state and federal laws that must be followed. With a change in the law regarding the homestead exemption when filing for Chapter 7 bankruptcy, you may find you have more questions. If you cannot pay your debts and need relief, discuss your situation with the bankruptcy attorneys at Miranda, Magden, & Miranda, LLP to see if filing for Chapter 7 bankruptcy is right for you. Visit our website to schedule a consultation with one of our attorneys today.