People often avoid filing for bankruptcy because of what they think they will lose. However, in many cases, people have more to gain from filing for bankruptcy than they have to lose. In particular, people often worry about losing their property if they file for bankruptcy.
Filing for Chapter 7 bankruptcy does involve a liquidation process where a bankruptcy trustee sells a debtor’s nonexempt assets in an effort to repay their creditors. Chapter 13 bankruptcy on the other hand requires debtors to make payments that add up to the value of their nonexempt property over the course of a 3-to-5-year repayment plan.
Exempt assets in a bankruptcy are generally protected from the liquidation process. There are different types of exemptions, including state and federal exemptions. Protections can vary depending on where you live and whether you choose federal or state exemptions. The protections afforded exempt assets can be quite generous. For example, many people who file Chapter 7 bankruptcy can protect everything they own from the liquidation process.
Unfortunately, some of the exemptions need to be updated because they don’t take into account the rise in property values due to inflation.
As a result of the outdated exemptions, homeowners in California have only been able to protect the following amounts of equity:
- $75,000 (single homeowners)
- $100,000 (homeowners who live with one other family member)
- $175,000 (homeowners who meet certain criteria involving disability, age, and other categories)
With home values reaching all-time highs, the outdated exemptions are useless when it comes to helping people filing bankruptcy keep their homes. However, that’s where California’s increased homestead exemption comes in. California’s homestead exemption increased dramatically on January 1, 2022. The increase gives bankruptcy filers in 2022 a much better chance to keep their homes than those in the past.
As a result of Assembly Bill 1885, the homestead exemption for every bankruptcy filer in California increased to the higher of the following two amounts:
- The median sale price for a single-family home in the homeowner’s county (up to $600,000)
So, how it works is that 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 $600,000 or more, then your homestead exemption will be $600,000. If the median sale price is between $300,000 and $600,000, then your homestead exemption will be the median sale price.
To put this into perspective, here are a few examples of the homestead exemptions that homeowners can expect to qualify for in various counties in California:
- Los Angeles County: $600,000 (estimated $828,731 median home price)
- Riverside County: $557,000
- Orange County: $600,000 (estimated $925,003 median home price)
- San Bernadino County: $424,000
California’s increased homestead exemption gives homeowners filing for bankruptcy a much better chance of obtaining debt discharge without losing their home or any of its equity. For more information about bankruptcy exemptions and whether bankruptcy could be right for you, you should speak with a bankruptcy attorney.
Let Us Help You Protect Your Home
Filing for bankruptcy is a more beneficial process than many people imagine, but it is also a more complicated process than many people realize. Our experienced legal team at Nguyen Law Group has successfully helped hundreds of clients with bankruptcies. Our bankruptcy attorney’s in-depth knowledge and experience will enable him to help you take full advantage of every aspect of the Chapter 7 or 13 bankruptcy process, including California’s homestead exemption increase. In addition, depending on your financial situation, we may be able to help you pursue debt relief options other than bankruptcy.