Your home is your castle and the foundation for your family and your life. During economic hardships, you may be facing the decision to file bankruptcy. It is natural that one of your first concerns is whether you might lose your home. In certain circumstances, your home can be protected under California homestead laws. Learning about these homestead laws can help you understand your rights and protect one of your greatest assets.
Overview of California Homestead Law
California allows homeowners and owners of small properties the ability to declare their property their “homestead.” This declaration establishes that equity you have accrued in your home is considered off-limits to any creditors. Essentially, this homestead law protects homeowners from having to sell their home if they have economic challenges or file for bankruptcy in the state of California.
California does not allow bankruptcy filers to use the federal bankruptcy exemption, but rather requires residents to use one of the two available state filing systems. The California Judicial Council revisits these exemption amounts every three years. The California Code of Civil Procedure § § 704.710, 704.720, and 704.730 describe California’s System 1 exemption, and California Code of Civil Procedure § 703.140(b)(1) describes California’s System 2 homestead exemption. The amounts listed below are current as of April 1, 2019.
- System 1 – If you are a single homeowner, who is not disabled, you may legally exempt up to $75,000 of the equity accrued in your home (or other small property) covered by the California homestead exemption. This amount increases to $100,000 if you live with another family member. You may be exempt up to $175,000, if you are 65 or older, or if you are 55 or older, have lower income, and creditors are attempting to force the sale of your home.
- System 2 – A homeowner may exempt up to $29,275 of their home equity.
Interaction with California Bankruptcy Law
California bankruptcy law, as it relates to the homestead exemption, applies in both Chapter 7 and Chapter 13 bankruptcies. If you file for a Chapter 7 bankruptcy in California, and the equity in your home or property is equal or lesser than the amounts listed above, then you will be able to keep the equity in your home. However, if you have equity that exceeds the amount listed above in your home or property, the bankruptcy trustee for your case may make a determination to sell the property.
Therefore, if you have a great deal of equity in your home, you may consider filing for a Chapter 13 bankruptcy in California, as you may also be able to keep the equity in your home by restructuring your debts. It is always important to talk to an experienced real estate attorney regarding these complicated tax and real estate matters, in order to ensure that your rights and as much of your assets as possible are protected.
Types of Homestead Exemptions
California has two types of homestead exemptions available to homeowners.
- Declared Homestead: This homestead exemption is granted when a homeowner or property owner files an application and paperwork with the correct county recorder’s office to obtain a homestead exemption.
- Automatic Exemption: This homestead exemption occurs when the homeowner or property owner has not filed for a homestead exemption, but rather the exemption happens automatically to protect the homeowner against any unsecured creditors’ claims against their property or assets.
The difference between the two types of homestead exemptions relates to the sale of the property. In a declared homestead exemption, the homeowner’s equity in the property will be protected whether the sale of the home is done voluntarily by the owner, or involuntarily by a creditor through a forced sale. The automatic exemption only protects the homeowner’s equity in the property under an involuntary sale that is forced due to the request of a creditor, and not when the homeowner decides to make a voluntary sale of their property.
You may wait for the automatic exemption to apply to your situation. However, filing a declaration of the homestead exemption will protect you, your property, and your equity, if you decide to sell the property or move at a later time.
How to File for a Homestead Exemption
A homeowner must file for the homestead exemption with the correct county recorder’s office. An example of a homestead declaration for Orange County can be found here. Filing the applications and paperwork is important, and any improperly filed documents may fail to protect the homeowner.
Oftentimes, a homeowner can utilize the services of a company, or an experienced real estate attorney, which will provide these services for a fee.
Warning Regarding Homestead Exemption
It is important to note that if your California home is being foreclosed upon, or if there is a forced sale or auction that is being handled through a mortgage lender or bank, a declaration of homestead through a homestead exemption will not protect your assets. As stated earlier, it will only protect your equity up to the maximum allowable amount.
Additionally, if you have a court judgment against you for any delinquent alimony, unpaid or delinquent child support, or any mechanic’s liens, filing for a homestead exemption will not protect the equity or assets you have.
Contact a Real Estate Attorney Today
During times of economic distress, you can find yourself overwhelmed, confused, and anxious. The tax and real estate laws of California are complex and difficult to navigate without assistance. At The Myers Law Group, located in Newport Beach, California, our legal team of experienced real estate attorneys will devote their depth of knowledge and skill to help you achieve the best results possible. Our team can help you understand your rights, and help you protect your property. Contact us today at (888) 676-7211 or online for a consultation.