SB308, Increasing Homestead Exemption to $300,000, Passes CA Senate, Goes to Assembly

On Friday, May 22, 2015, the California Senate passed SB308 (proposed by Senator Bob Wieckowski), which would make changes to the exemption rules for bankruptcy cases filed in California. The bill now heads to the Assembly.

When a person files a bankruptcy case, the law puts all of that person’s assets into different categories, and then places caps on those categories. Those caps are the “exemption limits.”   If the value of the person’s assets exceed those caps, a trustee in a Chapter 7 case can liquidate that excess, while a trustee in a Chapter 13 case can demand that unsecured creditors receive at least that amount through the Chapter 13 Plan.

California has two sets of exemptions for bankruptcy debtors; one for people with equity in their home, and another for everybody else. Currently, the home equity exemption in the former category is $75,000 for unmarried people, $100,000 for married people, and $175,000 seniors, disabled people or people who are 55 or older with a limited income. SB308, if it becomes law, would increase this “homestead” exemption to $300,000.

This is very big news for Californians considering filing bankruptcy cases. Currently, because of the volatile residential real estate market in the Bay Area, many homeowners are essentially precluded from filing Chapter 7 cases: Even if they’re not clearly over the limit, there’s uncertainty over whether an aggressive Chapter 7 trustee will attempt to pursue the house.  Moreover, Chapter 13 is a less appealing option because the amount they would have to repay their unsecured creditors impairs the “fresh start” a bankruptcy case is meant to provide. Increasing the homestead exemption to $300,000 will go a long way toward improving this state of affairs, and is good policy.

An additional provision of SB308 is that it creates a $5,000 “wild card” exemption for self-employed people. (The home equity exemption scheme currently has no wild card exemption whatsoever.)

If you are a California resident considering filing a bankruptcy case, please contact your Assemblyperson and urge passage of SB308; you may wind up making things easier for yourself.

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