Homeowners in California have long found the homestead exemption to be much too low for most residents. The purpose of these exemptions is supposed to be protecting family homes from creditors, but the amount of value that it protects is the key to how successful it is. In California, it does not protect enough.
However, there is potentially good news: changes to the California homestead exemption are on the way in 2021. Keep reading to learn what it might mean for you and others who are considering bankruptcy. Then call The Law Offices of Paul Y. Lee at 888-748-0025 to find out what your best options are.
The Current California Homestead Exemption
As of today, the California homestead exemption is $75,000 for a single person. In many states, married couples get double the single person’s exemption. Not in California – married couples are capped at $100,000. Those with disabilities and senior citizens get a larger exemption of up to $175,000. Is this fair?
Consider that in Los Angeles, the median home value is around $650,000 – and this is up from 2010 when it was just $330,500. That might be good news for people who have owned property for decades, but those who find their equity has shot up then find that they cannot file for chapter-7-bankruptcy without fear of losing their home. The good news is that the exemption will increase on January 1, 2021.
What to Expect with the Homestead Exemption Changes
In September, Governor Newsom signed AB 1885 that increases the homestead exemption. It is a little more complicated in order to attempt to be fair for everyone. First of all, everyone who is eligible is now eligible for at least $300,000. In some areas with higher home prices (such as Los Angeles), it could even more, because the exemption is whichever is higher: $300,000 or the countywide median sale price in the previous year. Note that there is a cap of $600,000.
Consider that in 2019, the median sales price for a single-family home in Los Angeles was $635,000. As a result, a resident in that county would likely be able to exempt as much as $600,000 of equity in their home.
Should You Wait to File for Bankruptcy?
Maybe. If you have a lot of equity in your home, then it might make sense to wait. However, many people do not have more than $100,000 in equity. In that instance, you can save on interest you are paying and file now. Note that we expect many people to wait to file after the new year. As a result, the bankruptcy courts might be quite backed up. We urge you to contact The Law Offices of Paul Y. Lee at 888-748-0025 to find out what your best option is.