california homestead exemption law

Understanding California’s New Homestead Exemption Law

California recently amended its homestead exemption law. A homestead exemption is a legal provision that is designed to protect the value of a resident’s home from creditors, property taxes, and circumstances that arise from the death of a spouse. California’s updated homestead exemption law sets the exemption amount at $300,000. However, this amount can be as high as $600,000 depending on the median sale price of homes in the area where a home is located. These new homestead amounts will automatically increase to keep pace with inflation. Before the amendment, the homestead only protected about 15% of the value of the average California home due to inflation and rising home costs.  

What We Know About the New Homestead Exemption Law

California’s new homestead exemption law protects family homes from forced sale both in and out of bankruptcy. Out of bankruptcy, the homestead law limits the ability of a creditor to force the sale of a home to collect a judgment. When a forced sale is required, the homeowner must be paid the homestead amount before the creditor may collect any proceeds from the sale. 

In Chapter 7 bankruptcy, a homeowner is permitted to file a homestead claim, and the same restrictions regarding the sale of a home discussed above will apply. The homestead also plays a role in Chapter 13 bankruptcy. Although a home can’t be forcibly sold in Chapter 13 bankruptcy, the amount of non-exempt equity in a home usually determines how large a debtor’s monthly Chapter 13 payments will be. This is due to the fact that when a debtor gets to keep his assets in Chapter 13 bankruptcy, creditors must receive as much as they would have had the debtor filed for Chapter 7 bankruptcy. This ensures that creditors are paid what they are owed regardless of whether a debtor files for Chapter 7 or Chapter 13 bankruptcy. 

What We Don’t Know About the New Homestead Exemption Law

Although this increase is good news for California residents, several unknowns are surrounding the updated law. For example, it isn’t clear which information source will serve as the point of reference for the median home price in each county. Although the law’s legislative history reveals the California Association of Realtors’ database as a possible source, the legislation itself is silent on this matter. 

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