Before filing for bankruptcy, you want to know whether you can keep valuable property—especially your home. If you qualify to use the California homestead exemption, you'll be able to protect some equity in your house. In this article, we explain:
For more information, read How California Bankruptcy Works. Not only does it explain the process, but you'll find helpful checklists and a link to an interactive bankruptcy quiz. Or, for a comprehensive bankruptcy guide, try What You Need to Know to File for Bankruptcy in 2021.
Some states allow bankruptcy filers to use the federal bankruptcy exemption system instead of the state system. California isn't one of these states. If you reside in California and are eligible to use California's bankruptcy exemptions, you must use either California System 1 or California System 2.
In California's System 1, homeowners can exempt up to $600,000 of the equity in their home. In California's System 2, homeowners can exempt up to $29,275 of the equity in their home.
The current amounts for System 2 aren't reflected in the statute.The California Judicial Council updates the California System 2 exemption amounts every three years and the last change occurred on April 1, 2019. (CCP § 703.140(b)(1).)
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 a dependent of the debtor uses as a residence, including a cooperative, or a burial plot for the debtor or dependent of the debtor. Under this system, the homestead exemption also applies as a wildcard exemption. You can use any unused portion of the homestead exemption in addition to the wildcard amount of $1,550. (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, federal law might limit your homestead exemption. To learn more about this requirement and some critical exceptions to it, see The Homestead Exemption in Bankruptcy.
Some states allow married couples filing joint bankruptcy petitions to double the amount of the homestead exemption. California, however, doesn't allow married couples to double the homestead exemption amount.
In California, the bankruptcy homestead exemption is automatic—you don't have to file a homestead declaration to claim the homestead exemption in bankruptcy (but you'll still need to claim the homestead exemption when filling out your bankruptcy paperwork).
However, you might want to file a homestead declaration to protect your homestead exemption from judicial liens and to protect the proceeds of a voluntary sale of your home for six months.
You'll find California's System 1 homestead exemption in the California Code of Civil Procedure § § 704.710, 704.720, and 704.730, and California's System 2 homestead exemption in the California Code of Civil Procedure § 703.140(b)(1).
Updated: July 6, 2021