Drastically increased homestead exemption in California allows bankruptcy clients to keep $600,000

Drastically increased homestead exemption in California allows bankruptcy clients to keep $600,000

2021 has already brought in a big change — the homestead exemption in California. As of January 2021, big changes have been made to the homestead exemption that have drastically affected a bankruptcy and what assets a client is able to keep.

What are homestead exemptions?

When a person files for bankruptcy, they are allowed exemptions, which means that they can keep certain assets that they own without worrying about them being taken to pay off the creditors. Some of these exempted assets include basic belongings such as clothes and furniture. In some cases, cars and money in the bank may also be exempted.

There are many different kinds of exemptions that a bankruptcy client can claim during a bankruptcy case. One of it includes the homestead exemption, which protects the equity they have in the home that they use as their primary residence.

Prior to January 2021, the old law governing homestead exemptions in California allowed a bankruptcy client to apply a maximum of $150,000 of equity in their home. The passing of AB 1885 has changed the exemption amount under the Code of Civil Procedure, section 704.730.

The New Law on Homestead Exemption in California

Upon passing the new law, effective January 2021, the amount of exemption that a bankruptcy client can claim now has a maximum value of $30,000 or the country-wide medium sales price of a home.

Currently, the median average sales price in Orange County, California is $793,000, more or less. Applying the new law, this means that a bankruptcy client can now exempt a maximum of $600,000 for the median sales price of the home. 

So anyone who files for a Chapter 13 bankruptcy after the new law came into effect will be able to exempt up to $600,000 of equity in their home. As it is exempt, the creditors are banned from taking action to retrieve it.

This also means that the same bankruptcy client can file another bankruptcy and get their other debts discharged.

The new law has created a huge change as to what a bankruptcy client can or cannot do with their assets. And it’s really a good time for people to take advantage of the new homestead exemption and apply for bankruptcy while it is in effect. This will enable them to walk away from bankruptcy with much more assets and value in their pockets.

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