Chapter 7Bankruptcy NewsCalifornia Homestead Exemption Changes 2021 – Save Your Home

January 31, 2021

California Homestead Exemption 2021 – Save Your Home

The homestead exemption California can help protect a house in a bankruptcy, but it’s not without risks, dangers, and pitfalls.

 

For years, the California homestead exemption was woefully inadequate, especially compared to soaring real estate values in California. This becomes a real issue in Chapter 7 bankruptcy, and particularly in an ‘up’ real estate market.  Recent changes, though, provide a glimmer of hope. Starting this month, we have a new law taking effect for the homestead exemption California.

The California Homestead Exemption – What Is it?

Before we can get into what the California homestead exemption is, we need to get the bigger picture. There are two types of bankruptcy that consumers typically do: a Chapter 7 bankruptcy and Chapter 13 bankruptcy.  Chapter 7 bankruptcy is for people who can’t afford to repay their debts. But, if you have too much stuff, you can lose it and this will be sold to pay some of your debts.

california homestead exemption - an umbrella to protect a house in bankruptcy
The California homestead exemption is an umbrella which can help protect a house in bankruptcy.

This is a very real threat: Chapter 7 bankruptcy can and does take things from you. You can lose assets, money, bank accounts, and tax refunds and more… even your house.

Let me repeat that: you can lose things in bankruptcy,  and are literally betting your house. You want to consult with a Santa Clarita bankruptcy attorney or someone like me if you’re considering this option.  It’s the cheapest insurance you can imagine.

They don’t take the shirt off your back, so each state has different rules about what you can protect. Locally, these protections are called California exemptions.  This is where the homestead exemption in California comes into play.

Homestead Exemption California – the History and Problem

For years.. no really, decades, the homestead exemption California has been a set figure and dollar amount. This number depended whether you were single or married, disabled or over 65 years of age.  And sadly, it never really reflected the astronomical housing prices in Southern California.

For example for years, the amount of home equity someone filing a Chapter 7 bankruptcy can protect was only just $75,000. In 2021, the real estate market is high, and many people have far more than that, often triple or quadruple that.

READ: Chapter 7 Bankruptcy – The Essential Guide (2021)

If these people with equity of two or three hundred thousand dollars file bankruptcy Chapter 7, they’d lose their home. So if they visited with me for a consultation, I’d tell them to avoid bankruptcy, at least in Chapter 7, and help them save their house.

With the protection being so low, many of these people couldn’t really file bankruptcy, and had no relief from their crushing financial debt. This was a problem.

The Homestead Exemption California 2020 Solution

Then, the COVID-19 coronavirus pandemic happened. In a strange way, the homestead exemption California 2020 fix was partly due to the tragic global virus pandemic.

With widespread unemployment, there were moratoriums against foreclosures and evictions. The governor didn’t want increasing homelessness during a time when the deadly virus was being spread. Many bankruptcy attorneys wrote the governor, urging him to sign AB 1885, which was the bill to increase the California homestead exemption.

The result was a homestead exemption California which is no longer a set dollar amount (and one ridiculously low). Instead, we got a bankruptcy protection which is much higher, and is tied to a more specific geographical location where the house is. Both of these factors are major improvements.

Based on County

The homestead exemption California varies based on county. For example, Riverside county median home values are lower than Orange County or Santa Barbara County or Ventura County median home price, and as a result, the homestead exemption is less. This is fair, since it wouldn’t make sense for someone with a home south of Ventura Boulevard in Encino to have their California homestead exemption tied to the value of a farm out in Norco.

Each county gets its own protection amount. But no one knows for sure what the Los Angeles County median home value is. Not yet.

What Does a Median Mean

The figures used for the California homestead exemption are not averages, but medians, which you remember from high school math are not the same thing. One is like the average, and the other is the halfway point in a list, which is not the same thing. You might be able to find out the average price for homes in your county this year, but where do you even find the median? Who even has this list?

Use the Right Time Period

Even if you can find county home value statistics, and even if you can find median not averages, you have to use the median for the county for the last complete year. As this is written, it’s January 2021, and the data for the last complete year is 2020 and not readily available.

There may be some stats for part of 2020 or most of the year, but is December data in the books yet? What if December was slow due to the holidays and real estate sale prices were lower? Again, you’re literally betting your house.

The Trap

One thing a lot of people are going to learn the hard way is that even if you can find out what the applicable protection is for your home, there’s an exception which limits whether you can use it. It has to be almost 4 years since you’ve had the house, or you don’t get the minimum $300,000 exemption amount.

Again, you really want to meet with an attorney, because once you file bankruptcy Chapter 7 and the trustee wants to take your house, at that point it’s too late to back out. Do it right, meet with an experienced bankruptcy attorney now, and let him or her be your guide in this new and potentially treacherous terrain.

Q: What’s my number? A: The California homestead exemption area is new and unsettled

You may be asking, “so what’s the Los Angeles County median home value” in this post? Answer: no one knows for sure… yet. This may all seem rather vague, and frankly, that’s because it is. This article is not to be mean or intentionally obtuse. It’s just that, in January 2021, this is the first month of the new law.

Bankruptcy attorneys right now are wondering what it all means, and none of us knows for sure. I don’t want to post information which could be wrong and end up costing your home. I’m trying to share the good news of the change, but while also letting you know things aren’t really clear yet and we all need to be extremely cautious.

What’s the Los Angeles County Median Home Value?

It would be irresponsible at this early stage to tell you what the median home value of Los Angeles County is (or whichever is your county), because honestly, none of us are sure yet which data source should be used for the homestead exemption California.  This is why, while the change is good, you’ll want a consultation to learn more, and whether your home is safe.

Because this is the first month the changed California homestead exemption is in place, it’s new, it’s unsettled, and there is no agreed upon data source or authority for median real estate prices per county. In other words, there’s not yet a “Kelley Blue Book” for houses which this bankruptcy attorney is confident will hold up with a Chapter 7 trustee or bankruptcy judge.

In time, these things will be litigated and most of us will gather around a particular source which is considered the authority, or at least one of them.  You don’t want to be the first to find out the wrong way, so meet with an attorney who specializes in this field, and get peace of mind that you’re taking ever precaution you can to protect your home.

It’s possible by the time you read this page, which data to use for the California homestead exemption will be much clearer, so if you’re researching the Los Angeles County median home price, let’s have a consult.

READ: Some further thoughts on the Los Angeles County median home price

Bottom line on the homestead exemption California

In short, there is now a lot more ability to protect a residence in Chapter 7 bankruptcy depending on your county, but bankruptcy lawyers aren’t sure yet which will be the agreed-upon data source, there are restrictions and exceptions, and you still might lose your bank accounts.

Contact us for a consultation.

If you’re in Los Angeles County, I’d be honored to meet with you to discuss your unique circumstances, see how much homestead exemption California I think you’ll get, and to discuss your options.

 

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