“Exemptions” are the laws you use to protect your property from liquidation by a bankruptcy trustee. In California, as in most other states, there is a specific “Homestead Exemption.”
If you have more than a certain amount of equity in your home, and you if file a Chapter 7 case, the trustee can liquidate your home and distribute that excess equity to your creditors. In a Chapter 13 case, the trustee can’t liquidate your home. However, the Court can’t approve your plan unless you pay your unsecured creditors at least as much as they’d receive in a hypothetical Chapter 7.
For as long as I’ve been doing bankruptcy law, the California Homestead Exemption has been woefully inadequate: $75,000 for unmarried people, $100,000 for married couples, or $175,000 for seniors or disabled people. The amounts are not inflated-adjusted, and are incredibly out of step with home values in California. As a practical matter, that has meant that if you own a home in California, you cant go anywhere near Chapter 7 or you risk losing your home. Or, if you try to file Chapter 13 instead, you’d have to pay so much back to your unsecured creditors as to make it often prohibitively expensive.
On August 31, 2020, the California Assembly passed HR-1885 and joined the State Senate in approving the following:
Section 704.730 of the Code of Civil Procedure is amended to read:
(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, Consumers for the prior fiscal year, published by the Department of Industrial Relations.
The California Homestead Exemption thus becomes the greater of either $300,000, or your county’s median home price, up to $600,000. In all Bay Area counties, where I practice, this effectively makes the homestead exemption $600,000.
This is very good news for Californians. Gone are the days of being unable to invoke the Bankruptcy Court’s protections for fear of losing your home, or of being forced into an unaffordable Chapter 13 Plan. Gone is the single/married/senior or disabled distinction. Gone is the lack of inflation-adjustment.
Of course, nothing is final until the Governor signs it, which he probably will. Upon signing, this update will become effective in cases filed after January 1, 2021.