The idea of filing for bankruptcy can be difficult enough to face, but the possibility of losing your most important possessions can leave you with even more anxiety.
This is especially true if you fear that you may lose your house and the equity you have built. Fortunately, changes in the laws governing California Bankruptcy Homestead Exemption give people filing for bankruptcy a much better chance of protecting their homes.
What is the California Bankruptcy Homestead Exemption?
When you miss payments and owe money to creditors, they can sue you to try to recover what you owe. They can seek a judgment that liquidates many of your assets, like cars and bank accounts, to retrieve this outstanding money. This can include the sale of your house with proceeds going to your creditors.
Thankfully, under California’s Homestead Exemption, you are often able to protect your family home from being involuntarily liquidated to pay off debts. This is a protection for you if you’re in deep debt, but it also provides a safety net if you’ve filed for bankruptcy.
The Protections of the Homestead Exemption
As of 2021, California has increased the protection of the Homestead Exemption. This means you have a better chance of keeping your home while going through Chapter 7 or Chapter 13 Bankruptcy.
The amount of the exemption in California now covers somewhere between $300,000 to $600,000. The amount depends on your county’s prior year’s median sale price for a single-family home. Inflation will also change these figures every few years.
So, as long as your equity in your home falls under the protection limit for your county, your creditors can’t sell your home out from under you. The Homestead Exemption is one relief that Californian’s can enjoy as they wrestle with the other struggles that financial hardships bring.
The Good News for Bankruptcy Filers
This Homestead Exemption protects all debtors, regardless of their bankruptcy status, when a single creditor files a lawsuit against them. However, for those who file bankruptcy, California’s Homestead Exemption can protect against multiple creditors at once.
As long as your state’s exemption amount is greater than the amount of equity you have in your home, you can’t be forced to sell your home in bankruptcy. Creditors can’t touch it.
Filers are able to use their normal bankruptcy exemption granted by California to keep a vehicle, heirlooms, medical equipment, and other personal items and still rest assured that they can stay in their homes while completing a bankruptcy.
Automatic Homestead and Declared Homestead
In most cases, those in financial trouble can rely on the automatic protection of the homestead exemption. The safeguard kicks in for those in debt and for those filing for bankruptcy when creditors try to force them to “involuntarily” sell their home.
Filing for the protection of a “declared homestead” with the county recorder’s office can become necessary in certain situations. This legal document proclaims a particular house as the owner’s principal dwelling.
This declaration protects homeowners who decide to sell their home voluntarily, but still want to protect their equity recovered in the sale. It also carries the same protections against creditors trying to force a home sale that the automatic homestead guarantees.
A declared homestead is usually beneficial when a homeowner needs protection before automatic homestead help would kick in. California’s Homestead Exemption amounts remain the same in either an automatic homestead or a declared homestead situation.
Differences in Federal Law Homestead Exemptions
California’s Homestead Exemption laws vary greatly from federal laws. And unfortunately, federal laws concerning home liquidation take precedence over state laws. The good news is that federal agencies rarely force debtors, including those behind on taxes, to sell their homes.
It’s a good thing that many debtors are only dealing with state statutes. Those in a tough financial situation will find that federal Homestead Exemptions are far less protective than California’s exemptions.
Contact a Bankruptcy Attorney Serving Los Angeles and Southern California
Bankruptcy filings can be stressful enough without the added worry that your family may not have a roof over their heads. Your home is far more than a piece of property. It is where your family lives their lives, creates memories, and finds comfort. This irreplaceable possession should be protected no matter your financial situation.
For expert help in determining how to get the most benefit out of your bankruptcy while keeping those possessions vital to your family’s wellbeing, please contact us today. The attorneys with the Law Offices of Steers & Associates stand by our clients and their families throughout the bankruptcy process. This commitment is especially helpful when creditors begin to target something as precious and important as your home.
Elena Steers is a recognized expert in bankruptcy law and debt negotiation in California and has helped people from all walks of life navigate the confusing bankruptcy process. She makes sure her clients are prepared for each step of the bankruptcy journey. Take a moment and read about her extensive bankruptcy experience.
Elena Steers is a highly experienced bankruptcy attorney, the founder of Law Offices of Steers & Associates, and previously worked as a Bankruptcy Trustee Assistant at the Office of the Chapter 13 Trustee in Los Angeles. Her current affiliations include the State Bar of California, National Association of Consumer Bankruptcy Attorneys, and Central District Consumer Bankruptcy Attorneys Association.