You want to protect your home if you’re thinking about filing for bankruptcy in California.
When contemplating a bankruptcy, you may decide to give up the home and start over. On the other hand, you may want to keep it. Regardless, you need to know whether you can keep it before walking into the process.
What’s An Exemption?
An exemption is a dollar value that can be kept out of the reach of the bankruptcy court. If you have property that is of a value at or below the exemption amount, you get to keep it in Chapter 7 bankruptcy.
How Is Value Established?
Value, for the purposes of bankruptcy exemptions, looks to the equity you have in the property. We look at the fair market value of the property, deduct the full balance of all mortgages and property taxes due on the property, and come up with the equity value of the property.
For the purposes of bankruptcy, the equity value of the property must be at or below the exemption limit.
Under What Circumstances Can The Homestead Exemption Be Used?
If you’re looking to protect your real estate, you cannot use any exemption unless it is your homestead – that is, the place you actually live. Investment properties can’t be protected, at least not under the homestead provisions.
It’s important to remember that the homestead exemption may be used only on your primary residence – so if you own multiple properties you can use it in only the one in which you live. Similarly, you cannot claim a homestead exemption on a property that is purely an investment or rental property.
If you live in the property and rent the other part out, then it is still a primary residence and you may use the homestead exemption.
California Homestead Exemption Under CCP §704.730
The California homestead exemption found in CCP §704.730 allows you to exempt a homestead up to the following limits:
- $75,000: Basic homestead for single person
- $100,000: Head of household
- $175,000: Single debtor 55 yrs+ and up to $25,000 gross annual income, or $35,000 for joint debtors.
California Homestead Exemption Under CCP §703.140(b)
CCP §703.140(b) provides dollar amounts of exemptions from enforcement of judgment. Under this exemption scheme, you can exempt up to $22,075 worth of equity in real property or personal property that you or your dependent uses as a residence. This exemption extends to cooperatives as well as in burial plots.
Which California Exemption Scheme To Use?
As you can tell, there are two separate exemption schemes in California. Though the homestead exemption under CCP §704.730 may seem more generous, there are other considerations to take into account when choose an exemption scheme in bankruptcy.
I consider the analysis of your situation to be one of the most important parts of my job as a bankruptcy lawyer. When we talk, I’ll give you the benefit of that analysis so you don’t end up on the wrong end of a bad situation.