Before filing for bankruptcy, you'll want to know whether you can keep valuable property, especially your home. People who qualify to use the California homestead exemption can use it to protect some equity in a residential home, both inside and outside of bankruptcy.
But the process is different depending on when you plan to use the homestead exemption. In this article, we explain:
For more information, read How California Bankruptcy Works. Not only does it explain the bankruptcy process, but you'll find helpful checklists, a more substantial bankruptcy exemption list, and a link to an interactive bankruptcy quiz.
Some states allow bankruptcy filers to use the federal bankruptcy exemption system instead of the state system. California isn't one of these states. However, you'll still have an exemption choice.
If you reside in California and are eligible to use California's bankruptcy exemptions, you'll choose one of California's two exemption systems. You can't mix and match exemptions from each set, so you'll pick the system that will protect the most property.
In California's System 1, homeowners can exempt up to $600,000 of equity in a house. In California's System 2, homeowners can exempt up to $31,950 of home equity.
The California Judicial Council updates the amounts every three years. The last changes reflected in this article occurred on April 1, 2022. (CCP §§ 703.140(b)(1); 704.010 et. seq.)
In California System 1, the homestead exemption applies to property where you reside, including a mobile home, boat, stock cooperative, community apartment, planned development, or condominium. In System 1, the homestead exemption also applies to proceeds from a forced sale of your home received six months before bankruptcy.
In California System 2, the homestead exemption applies to property that the debtor or the debtor's dependant uses as a residence, including a cooperative or a burial plot for the debtor or the debtor's dependent.
Under this system, the homestead exemption also applies as a wildcard exemption. If you don't need the entire homestead exemption to protect your home's equity, you can use the unused portion to protect any property of your choice. This amount is in addition to the wildcard amount of $1,700. (CCP § 703.140(b)(5).)
To claim the full value of the homestead exemption in any state, you must have owned the property for at least 1,215 days before the bankruptcy filing. If you can't meet this requirement, your homestead exemption is limited by federal law to $189,050 for cases filed between April 1, 2022, and March 31, 2025. Learn more about qualifying for the homestead exemption in bankruptcy.
Some states allow married couples filing joint bankruptcy petitions to double the homestead exemption amount. California, however, doesn't allow married couples to double the homestead exemption amount.
In California, the bankruptcy homestead exemption is automatic, so you won't need to file a homestead declaration with the county assessor where the property is located before using the homestead exemption in bankruptcy. Instead, you'll claim the homestead exemption when filling out your bankruptcy paperwork by listing it on Schedule C: The Property You Claim as Exempt.
Filing a homestead declaration in the county where the property is located can protect your home from judicial liens in some instances, but not always. Judicial liens arise after a creditor sues you in court, gets a judgment against you, and files a lien in the county in which your house is located. The first hurdle is filing a homestead declaration before the lien attaches to the property.
Even then, don't assume that you're fully protected by the homestead exemption. Here's what happens. If a creditor sells your house by foreclosure, the proceeds would be used to pay your mortgage, child and spousal support arrearages, and tax liens first. If anything remained, you'd receive it up to the homestead amount. Anything over the homestead amount would be used to pay judicial liens.
This is a simplified explanation of a somewhat complicated process. An attorney can explain the filing process and tell you how effective filing a homestead exemption would be in your situation.
You'll find California's System 1 homestead exemption in the California Code of Civil Procedure §§ 704.010 et seq., and California's System 2 homestead exemption in the California Code of Civil Procedure § 703.140(b)(1).
Did you know Nolo has been making the law easy for over fifty years? It's true—and we want to make sure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.
Updated: April 5, 2022