I am currently selling my house and have a declared homestead on the property. I am wondering if the equity of this voluntary sale is protected even though I am not going through a bankruptcy or have judgement on my property? Lastly, after the home sells, if I were to file bankruptcy would the equity that is exempt in a declared homestead still be protected?
Chapter 7 Bankruptcy Attorney
Your equity (up to the proper homestead amount) is protected in a voluntary sale, which is the primary benefit of a declared homestead. Once you turn those proceeds into cash, they must be reinvested in a new residence to remain protected. For example, if you file bankruptcy 2 months after selling your home, you'd have to reinvest the proceeds in a new house within 4 months or the bankruptcy trustee could demand their turnover.
Real Estate Attorney
Your question is confusing. The homestead is to protect you against creditors. If you are selling and have no creditors, there's nothing to protect. And, if you sell the home and then file for bankruptcy, there's no equity to protect. So, I'm really not sure what you're asking.
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3 lawyers agree
You haven't indicated what you're wanting to protect the equity from.
But the proceeds of a sale are only protected by the exemption for six months ... and then only if they are reinvested in another home.
3 lawyers agree
Yes, your proceeds will be protected, up to the amount of the allowable homestead exemption, whether you are filing bankruptcy or not. Further, under California Code of Civil Procedure § 704.720(b), the homestead proceeds will remain protected for 6 months after receipt, even if you file a BK during that time. But if the homestead exemption is applied to other property during that period, then the proceeds are no longer exempt.
Real Estate Attorney
As has been pointed out, a declared California homestead will exempt the net proceeds from a voluntary sale up to 6 months provided the funds are reinvested in a new homestead. See In re Jacobson, 676 F. 3d 1193 (9th Cir. April, 2012). Filing a bankruptcy during that 6 month period before you had reinvested the proceeds would be very risky. If you were unable to buy a new home because of the bankruptcy, and the 6 months expired, the chapter 7 trustee could claim all of the sale proceeds. This is precisely what happened in the Jacobson case.
1 lawyer agrees