A New Jumbo Homestead Exemption for California - Allowing $300,00 up to $600,00
California's new homestead exemption, (amending Section 704.730 of the Code of Civil Procedure-Assembly Bill AB 1885) increases the amount of the homestead exemption to at least $300,000 up to a maximum of $600,000. We presume the effective date of the new law will be January 1, 2021.
The new law fixes an old problem.The new law is incredibly important for homeowners who need to file bankruptcy. It can mean the difference between potentially losing their home, (under the old law) to being virtually assured of keeping their home when filing bankruptcy, (under the new law).
A simple explanation of the old law will let you understand how important this new law is for homeowners who need to file bankruptcy. The old law caused court fights over interpretation of the law's effect and uncertainty over what homeowners were going to be allowed to keep.
California's last previous homestead exemption was a confusing jumble. The old law established a system of tiered exemption amounts allowing a homeowner to protect their residential equity in the amounts of either $75,000, $100,000, or $175,000. Your personal status determined the amount of home equity you could protect.
The tiered amounts were established by factors such as marital status, ($75,000 if single with no dependents). Married persons where at least one spouse resides on the property were allowed $100,000, as were singles who were the head of a household. Persons who were 65 years of age or older were allowed a $175,000 exemption, along with married persons where at least one spouse was is least 65 years old. And, persons of low income who were at least 55 years of age were also allowed the $175,000 exemption. Additionally, persons who were disabled could have been allowed an exemption of up to $175,000.
The Old Law Created Court Fights That Favored the TrusteeThe old homestead exemption caused many court fights to determine which amount of the homestead exemption will apply. Court fights were often times brought on by the bankruptcy trustee who would seek to reduce the amount that would be allowed for the exemption.
For example, a debtor might claim to be disabled and ask for the higher exemption amount, ($175,000). Whereas the trustee might contest the claim of exemption by saying the debtor's health impairment was not truly disabling, and ask the court to limit the exemption to the lowest amount, ($75,000). Other disputes have arisen over issues such as whether the debtor is really a head of household, and whether unmarried adult dependants, (such as a brother or sister) are really unable to care for themselves.
A bankruptcy trustee who objects to a debtor's exemption will typically retain a big law firm for legal representation in court. A debtor with limited means to pay for legal fees and costs is always at a big disadvantage in a court fight with the bankruptcy trustee.
The new law eliminates these different categories and amounts of the allowable homestead exemption.
A Jumbo Homestead Exemption for Californians Will Save HomesThe most glaring problem under the old law was that the amounts for the exemption were inadequate to protect the rapid buildup of home equity for many Californians. It is no secret that California has some of the highest real estate values in the country.
A person who has owned their home for any length of time has probably seen it go way up in value. Often those increases rise to the point where the old homestead amounts did not come close to protecting the property.
The public policy behind having a homestead exemption is that it protects the value of a homeowner’s primary residence in the event of a bankruptcy. Doing so helps avoid homelessness, and home equity is typically the only asset of value that a person has. Even where there is no bankruptcy case, it provides that a specified portion of equity in a homestead is exempt from execution to satisfy an unpaid court judgement debt.
“’The object of all homestead legislation is to provide a place for the family and its surviving members, where they may reside and enjoy the comforts of a home, freed from any anxiety that it may be taken from them against their will, either by reason of their own necessity or improvidence, or from the importunity of their creditors.” Thorsby v. Babcock, 36 Cal.2d 202, 204 (1950), quoting In re Estate of Fath, 132 Cal. 609, 613 (1901). “[T]he homestead law is not designed to protect creditors, but protects the home against creditors . . . thereby preserving the home for the family.” Amin v. Khazindar, 112 Cal.App.4th 582, 588 (2003).
The first homestead exemption in California became law in 1851. The exemption amount has been raised many times in the last 170 years. The last previous adjustments happened in 2009 and 2012.
The New Homestead Protects Up To $600,000 of EquityThe new homestead law says:
"SECTION 1. 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)"
Here's what that means to you. It no longer matters how old you are, your marital status, or any other personal status described under the old law. You are now going to get a homestead exemption of at least $300,000. You may in fact get an exemption as high as $600,000 depending on the average value, (actually the "median value") of single family homes in the county where you live.
If you live in an urban California county like Los Angeles, Orange County, etc. you are virtually guaranteed an exemption of $600,000. In counties that are overwhelmingly rural with much lower average property values, you will get an exemption of at least $300,000 or more depending on the "median" value of a single family home in your county.
The Median Single Home Value in Your CountyIt is easy to find out the median single family home value in your county of California. Generally, the coastal, urban counties have a median price of more than $600,000, and the rural counties will be much less, often less than $300,000. However, if you live in a county with a median value of under $300,000, you are still entitled to the $300,000 minimum exemption. The first link below will easily allow you to find out the median value of a home in your county. I have also given you below the link for my free online bankruptcy book, which explains bankruptcy basics in simple terms. We presume the effective date of the new law will be January 1, 2021, but you should take no action to proceed with a bankruptcy filing until you have consulted with a Certified Bankruptcy Specialist.