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California Bankruptcy Exemptions 2021

California Bankruptcy Court Locations

Bankruptcy law and the California Homestead Exemption – What does it mean? #bankruptcylawyers

As you may already know, bankruptcy law is federal law and the bankruptcy courts are located in federal courthouses. Each state is divided into federal districts, which are further divided into federal divisions. Typically, each division has its own courthouse to serve locals and to ensure that people arent forced to trek to far-away district courts when they file bankruptcy, bring a lawsuit, or participate in jury duty.

California is divided into four districts: the Eastern, Central, Northern and Southern districts. Below are links to each courts bankruptcy website if you are looking for information on court locations in your area and their contact information.

Outdated Limits On Homestead Exemption Do Not Apply In Bankruptcy

Creditors have argued that California Code of Civil Procedure § 704.965 does not allow debtors to claim the new, increased homestead exemption if the judgment was recorded before 2021. However, this argument has been rejected by multiple cases. Courts have instead ruled that debtors are not limited to to a lower, pre-2021 amount even if the declared homestead was recorded before 2021. See In re Zall, No. BAP.EC-05-1476-MOSB, 2006 WL 6811022, at *4 . Rather, the declared homestead is deemed irrelevant because the automatic homestead exemption effective on the petition date of the bankruptcy defeats any outdated limits on the declared homestead exemption. This allows debtors to claim the increased homestead exemption despite a previously declared, pre-2021 homestead exemption.

Navigating Your California Bankruptcy Case

Bankruptcy is an unusual area because it’s essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can’t skip a step.

One way to keep track of your research is to use the bankruptcy forms as an outline. You’ll find links to the exemption-related bankruptcy forms and other exemption resources in the chart below. You can also look at the list of Chapter 7 and 13 bankruptcy forms to see where this topic fits in the bankruptcy scheme. And this handy bankruptcy document checklist will help you gather the things you’ll need to complete the petition.

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California Bankruptcy Exemption Timing Rules

It’s tempting to move to a state with significantly more generous bankruptcy exemptions when filing for bankruptcy. But it likely won’t do much good. To prevent people from abusing the system, California filers must live in the state for at least two yearsotherwise, they must use the previous state’s exemptions. Here’s how it works.

  • If you’ve made your permanent home in your current state for at least two years, you can use the state’s exemptions .
  • If your domicile hasn’t been in the same state for two years, the rules get more complicated, so prepare yourself. In fact, it sounds so strange we’ll explain it in three different ways so you know you didn’t read it wrong. Here goes: You’ll choose the state that you lived in the longest during the 180 days immediately before the two years before filing.

Did you get that? If not, here’s a way to figure it out. Count back two-and-a-half years. Then ask yourself where you lived the longest during the first six months of that two-and-a-half-year period.

Still confused?Let’s try an example. Suppose you planned to file on January 1, 2022. Your two-and-a-half-year period would start July 1, 2019, and you’d qualify to use the exemptions of whichever state you resided in the most during the July 1, 2019, through December 31, 2019 period. You wouldn’t have to file your case there, but you’d use that state’s exemptions. Hopefully, that helps!

Find out more in Chapter 7 Homestead Exemption in Bankruptcy.

Reducing Liquidation Value For Determining Chapter 13 Payments

Chapter 7 Bankruptcy California Exemptions � Jul 2021

In a Chapter 13 bankruptcy, you generally are able to retain any property that you wish to keep and can surrender any property that you do not wish to keep. The drawback is that you must make monthly Chapter 13 payments to the Trustee over a period of time, which is generally 3 to 5 years. There are several ways to determine the amount of a Chapter 13 payments. One factor in determining the payment amount is the so called Liquidation Analysis. This test looks at what would happen if you had filed a Chapter 7 instead of a Chapter 13. If unsecured creditors would have received a payment in the hypothetical Chapter 7, then your Chapter 13 plan must provide that these creditors receive at least as much. Since these new exemption laws would be applicable in that hypothetical Chapter 7, then the result is that you may be able to reduce your Chapter 13 payment accordingly.

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California Code Of Civil Procedure Section 704730 Californias Homestead Exemption Statute

Effective January 1, 2021, California Code of Civil Procedure Section 704.730 now reads:

The amount of the homestead exemption is the greater of the following:

The countywide median sale price for a single-family home in the calendar year prior to the calendar year in which the judgment debtor claims the exemption, not to exceed six hundred thousand dollars .

Three hundred thousand dollars .

The amounts specified in this section shall adjust annually for inflation, beginning on January 1, 2022, based on the change in the annual California Consumer Price Index for All Urban Consumers for the prior fiscal year, published by the Department of Industrial Relations.

When You Can Use California Bankruptcy Exemptions

You can file for bankruptcy in California after living there for more than 180 days. However, you must live in California much longer before using California exemptionsat least 730 days before filing, to be exact. Otherwise, you’d use the previous state’s exemptions.

But suppose you weren’t living in any particular state during the two years before filing for bankruptcy. In that case, you’d use the exemptions of the state you lived in for most of the 180 days before the two-year period that immediately preceded your filing. .)

Learn more about filing for bankruptcy after moving to a new state and who can and can’t file for bankruptcy.

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Am I Required To Reinvest Homestead Proceeds In A New House

The debtors share of the proceeds are not fully exempt either. If the debtor does not reinvest his proceeds in a new homestead within six months of receipt, they lose their exempt status. Cal.Civ.Proc.Code § 704.720. In re Jacobson, 676 F.3d 1193, 1198 . Specifically, the rule is that: The proceeds are exempt for a period of six months after the time the proceeds are actually received by the judgment debtor, except that, if a homestead exemption is applied to other property of the judgment debtor or the judgment debtors spouse during that period, the proceeds thereafter are not exempt. Cal. Code. Civ. Proc. § 704.720.

Filing Chapter 7 Bankruptcy

New California Homestead Exemptions

If you are considering filing Chapter 7 bankruptcy in California, but have property that you donât think is covered by any of the available exemptions, a good first step is to speak with a California bankruptcy lawyer. An attorney will analyze your situation in detail under the 703 and 704 schemes, and then help you make a decision on what is best for you. They will educate you on how you can protect most of your property by filing Chapter 7 in California. In most cases, filing Chapter 7 bankruptcy in California is better than filing Chapter 13. However, depending on your specific financial situation, Chapter 13 may be a better fit in some circumstances.

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How To Maximize The California Homestead Exemption Using Exemption Planning Methods

Under certain circumstances, debtors may be able to use exemption planning tools to maximize the amount of the homestead. For example, imagine a debtor who sells off their assets before bankruptcy and uses this money to pay down their mortgage. Essentially, this takes otherwise non-exempt assets and turns them into exempt assets. As long as the equity does not exceed the exemption amount, these assets may be exempt in the bankruptcy on all remaining debts. This strategy, known as exemption planning, will likely become more widespread because creditors cannot touch home equity.

Some courts have found that the conversion of non-exempt assets into exempt assets on the eve of bankruptcy is not fraudulent per se. Gill v. Stern , 345 F.3d 1036, 104445 . Indeed, where the only evidence presented is that non-exempt assets were deliberately converted to exempt assets just prior to filing the bankruptcy petition, such evidence is insufficient as a matter of law to establish fraud. Id. ). In other words, debtors may maximize their exemptions, even when they do so shortly before the filing of a bankruptcy petition. See also House Report of Bankruptcy Reform Act of 1978, H.R. REP. NO. 95595, at 361 , reprinted in 1978 U.S.C.C.A.N. 5963, 6317 . In re Thomas, 477 B.R. 778, 78283 .

California Bankruptcy Homestead Exemptions Increase For 2022

In April 2022, the Bankruptcy Court implemented an increase in bankruptcy exemptions allowed on certain property. Homestead exemptions allow individuals and families filing for bankruptcy to keep their homes instead of liquidating assets to put towards their debt. However, the homestead exemption only protects homes up to a certain value under Chapter 7 bankruptcy. Our team at Wadhwani & Shanfeld breaks down the new increase of California bankruptcy exemptions below.

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How The Homestead Exemption Works

The amount of your home equity is considered an asset.If you file a Chapter 7 bankruptcy, how much equity you can protect with an exemption will be one of the factors used to determine whether you will be able to keep your home. If the homestead’s equity exceeds the limit of the exemption, creditors may force the debtors to sell.

For example, if you own a home in Orange County worth $500,000 and you have $100,000 in equity , then your equity is protected, and the bankruptcy trustee cannot force you to sell the home to satisfy the debt. If your equity in the previous example is $450,000 , the trustee could take the house and sell it to pay off your debts. From the proceeds of the sale, you will receive the maximum exemption in Orange County, $400,500.

In aChapter 13 bankruptcy, you won’t lose your home, but you’ll have to pay creditors an amount equal to the value of the property not protected by the exemption or your disposable income, whichever is more.

Homestead exemption does not protect you againstforeclosure. This exemption also wont protect you from federal actions, such as efforts by the IRS to collect back taxes.

You Got The House Too Recently

California Bankruptcy Exemptions: An Overview

The first way you can lose your homes protection is if you acquired the house too recently. Technically, the lookback time is 1215 days, or just under four years. When did you acquire the home? Have you had it for only three years? File bankruptcy in California and that $600,000 protection you thought you had is vanished, shattered, gone.

What about home equity from a house you and sold years ago which got rolled into your current residence? The answer, as with most things in the law, is it depends 522 strikes again at . When is important, but so too is the where.

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California Bankruptcy Exemptions And Law

By FindLaw Staff | Reviewed by Bridget Molitor, J.D. | Last updated April 14, 2021

Financial stress is an unfortunate part of life for most Americans. High credit card bills and other unsecured debts, like student loans, cause much of this stress. Delinquent secured debt accounts, like past-due mortgage payments, add to it. For many California families, filing bankruptcy is a way out.

The Bankruptcy Code offers a fresh start for honest yet unfortunate debtors like you. A voluntary petition enables families to retake control over their own finances. And with the help of a bankruptcy lawyer, most families quickly recover from bankruptcy, so they can move on with their lives.

Exemptions In Chapter 7 And Chapter 13

You can protect property covered by an exemption regardless of whether you file for Chapter 7 or 13. But each chapter treats nonexempt propertythings not covered by an exemptiondifferently.

  • In Chapter 7 bankruptcy, the bankruptcy trustee sells nonexempt property and distributes the proceeds to creditors.
  • In Chapter 13 bankruptcy, you keep everything you own. However your repayment plan must pay the value of the nonexempt property equity, or your disposable income, whichever is more.

The different approaches ensure that creditors receive the same amount regardless of the chapter filed.

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California Homestead For 2022

The California homestead got a real makeover in 2021. Not only was the homestead amount pegged to the median sales price of homes in the county in the prior year, the cap on the exemption adjusts annually for inflation.

The new homestead as enacted in 2021 had a minimum value of $300,000 and a maximum of $600,000, independent of the value of homes sold in the county. The minimum and the maximum value was adjusted January 1, 2022, and will adjust annually going forward.

For 2022, the adjusted California homestead minimum is $313,200 and the cap is $626,400.

What This Means For Debtors

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For debtors, the new homestead exemption is extremely beneficial as sympathy is high for borrowers right now. People with expensive homes who are in a high asset bracket are now potential bankruptcy candidates. For example, those with fixed business costs that they cannot pay due to the coronavirus pandemic may now be able to file for bankruptcy even if they have a lot of equity in their home.

Additionally, borrowers struggling between making their mortgage payments and credit card payments may no longer have to choose. Chapter 7 bankruptcy will discharge credit card debts while borrowers can continue to make mortgage payments.

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California Homestead Exemption On Property Acquired In The 1215 Days Before A Bankruptcy

Note that some bankruptcy trustees might argue that this is improper under some circumstances. For example, 11 U.S.C. Section 522, absent certain exceptions, electing to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $125,000 in value in real or personal property that the debtor or a dependent of the debtor uses as a residence orreal or personal property that the debtor or dependent of the debtor claims as a homestead. Note that under 11 U.S.C. Section 522: For purposes of paragraph , any amount of such interest does not include any interest transferred from a debtors previous principal residence into the debtors current principal residence, if the debtors previous and current residences are located in the same State. For example, the Ninth Circuit held that homestead is not subject to the $125,000 cap contained in Section 522, because he purchased the underlying property interest more than 1215 days before the bankruptcy filing. In re Greene, 583 F.3d 614, 625 .

What Can I Do About This New Legislation

Since AB 1885 has no immediate-effectiveness conditions, it wont be effective until January 1. And, as noted earlier, 2020 median home sale prices for California counties arent available yet. However, you should not wait to file for bankruptcy. The large volume of filings expected early next year means there could be further delays if you dont act soon.

At OakTree Law, our Los Angeles bankruptcy attorneys are up-to-date on the California homestead exemption increase law. We can determine how it may apply to your financial situation and the exact amount your home qualifies for. Immediate assistance might avoid foreclosure, wage garnishment, and other collections actions not to mention the stress that being in debt can cause. To speak to a lawyer with your best interests in mind, request a free evaluation or call us directly at .

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Choice For California Residents

The Federal bankruptcy laws give each State the right to either allow residents of the State to use the Federal exemptions, or, alternatively, the State can opt out of the Federal exemptions and enact their own set of exemptions.

The State of California has opted out of the Federal exemptions. If you live in San Diego, California, then you have to use Californias exemptions.

California has actually enacted two sets of exemptions that you can choose from: the California exemptions or Californias Federal-like exemptions, which for the most part mirrors the Federal exemptions.

California Exemption Calculator California Homestead Exemption

Californiaâs Homestead Exemption is Changing: Will it Impact Me?

California residents saw a more generous homestead exemption, as of January 1, 2021, when the standard Homestead exemption increased from $75,000 to a range from $300,000 to $600,000 depending on your county. California exemption amouts are adjusted every three years for inflation on April 1, so that amount as of April 1, 2022 is $313,000 to $626,000 depending on your county.

LegalConsumer.com has added a California Exemption Calculator to help you quickly find what the exemption amount is in your county.

The new law states that the homestead exemption amount is based on:

  • the median county-wide sale price for a home
  • in the previous calendar year
  • But not less than $300,000
  • and not more than $600,000.

The California Homestead calculator shows you the 2021 overall median sales price for every county in California county based on available numbers from the California Realtors Association. The numbers you see in the calculator are based on the 12 month average of monthly median numbers for January 2021 through December 2021.

State/Region/County

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