One of the biggest reasons why people delay bankruptcy is the fear of losing their property. Chapter 7 involves a liquidation process, in which the bankruptcy trustee sells the filer’s nonexempt assets to repay their creditors. A nonexempt asset is any property or level of equity that you cannot protect through state or federal bankruptcy exemptions. In Chapter 13, you generally must pay the value of your nonexempt property through the course of your 3-5-year repayment plan.
Depending on where you live and whether you choose state or federal exemptions, these protections can be quite generous. Most people who file Chapter 7, for example, can protect everything they own from the liquidation process.
But some of these exemptions are outdated—they have failed to account for inflation and don’t reflect today’s property values.
In California, for example, homeowners have only been able to protect the following amounts of equity:
- $75,000 (for single homeowners);
- $100,000 (for homeowners who live with a family member); or
- $175,000 (for homeowners who meet certain qualifications regarding age, disability, and other categories)
Fortunately, the state’s homestead exemption is increasing dramatically on January 1, 2021, making next year’s bankruptcy filers much more likely to keep their homes.
Thanks to Assembly Bill 1885, signed by Governor Newsom on September 18, 2020, the homestead exemption in California for every bankruptcy filer is the greater of the following two amounts:
- $300,000; or
- The median sale price for a single-family home in the homeowner’s county (up to $600,000).
To help homeowners in California understand what this means, the following are projections for a few of California’s major metropolitan areas.
- Los Angeles County: $600,000 (Estimated $664,500 Median)
- Riverside County: $400,500
- San Bernardino County: $370,215
- Orange County: $600,000 (Estimated $765,497 Median)
So, if the median sale price in your county is less than $300,000, your homestead exemption will be $300,000. If the median sale price is greater than $600,000, your exemption will be $600,000. If the median sale price is between these two amounts, your exemption will be the median sale price.
This dramatic increase will give you a much higher likelihood of obtaining a debt discharge without losing your home or any of your equity. To learn more about bankruptcy exemptions, the benefits of bankruptcy, and how bankruptcy may affect your unique situation, retain the services of a seasoned attorney.
Protect Your Home with Help from Our Team
Are you considering bankruptcy? Every year, hundreds of thousands of people use bankruptcy to eliminate their debt, but this process is far from simple. Without experience or in-depth legal knowledge, you may lose your opportunity to protect your property from the liquidation process.
At Nguyen Law Group, our attorney has handled hundreds of bankruptcies. He can help you take full advantage of California’s homestead exemption increase, as well as all other benefits and protections of Chapter 7 or 13 bankruptcy. We can also help you explore any other debt-relief options that you may have at your disposal.