California Modifies Homestead Exemption
California Governor Gavin Newsom recently signed into law a bill that significantly modifies the homestead exemption for bankruptcy and creditor protections. The new law is a long-overdue adjustment of the state’s outdated homestead exemption, allowing homeowners to protect their residences in bankruptcy and other debt collection proceedings. The amount of the updated exemption depends on the location of the residence, and there are exceptions. Read on for a discussion of the impact of the new homestead exemption. If you have any questions, call a knowledgeable Ventura bankruptcy and debt relief attorney.
California Significantly Increases Homestead Exemption
The homestead exemption allows for a portion of a debtor’s equity in their principal residence to be exempt from bankruptcy as well as from execution to satisfy a judgment debt. Under pre-existing law, the homestead exemption was capped at $75,000, $100,000, or $175,000 depending on the characteristics of the debtor and other residents of the home (marital status, disability, etc.). Debtors with equity in homes exceeding those amounts were faced with the prospect of losing their homes to debt or bankruptcy. Homeowners and consumer advocates lamented that the existing homestead exemption was woefully inadequate as compared to the rising market value of homes across the state.
On September 19, 2020, Governor Newsome signed into law Assembly Bill 1885, which greatly increases the limit on the homestead exemption. Under AB 1885, the cap on the new homestead exemption is the greater of the following amounts:
- Three-hundred thousand dollars ($300,000)
- The county-wide median sale price for a single-family home in the year prior to the debtor’s claiming the exemption, up to a maximum of $600,000
The updated law calls for the amounts to be adjusted annually for inflation, beginning on January 1, 2022. The new law is a massive boon for homeowners facing debt, allowing them to protect a much more realistic amount of their home equity from attachment by creditors or a bankruptcy trustee.
Effects of AB 1885
As drafted, AB 1885 left ambiguous the effective date for the new homestead exemption. It appeared unclear whether the new exemption would go into effect immediately or would instead go into effect next year. As explained by California State Senator Bob Wieckowski, the bill’s sponsor, AB 1885 is not the sort of budget-related bill or other law that goes into effect immediately upon the Governor’s signing. Instead, it will go into effect on January 1, 2021. Debtors with significant home equity who are considering bankruptcy should, if possible, hold out until next year to file in order to take advantage of the updated exemption.
Not all houses qualify for the homestead exemption, and the amount of the new exemption varies significantly by county of residence. If you are considering bankruptcy in Southern California, it is vital that you secure advice and representation from a knowledgeable, experienced bankruptcy attorney. Our Ventura debt relief attorneys will help you understand the new exemption, protect your home, and work with you to chart a path toward a brighter financial future.
Call a Seasoned Southern California Debt Relief Attorney
If you’re facing crippling debt and want to explore your options for relief, please contact Rounds & Sutter for a free, confidential consultation. With offices in Ventura, Santa Barbara and Westlake Village, we represent clients throughout Southern California, offering seasoned, compassionate legal counsel in the face of life’s challenges.