Groundbreaking Changes to California’s Homestead Exemptions

“Financial distress” seems to be the catchphrase for 2020. Thousands of Pasadena residents are struggling, making minimum credit card payments, and still getting deeper into debt. The dramatic Homestead Exemption changes enacted by the California legislature give homeowners the relief they need to keep their homes in times of financial distress. If your debt burden is overwhelming, contact the Law Office of Terrence Fantauzzi. The new legislation can help you keep your house if bankruptcy is your next best option.

What is a Homestead Exemption?

Your home is probably your most valuable and largest asset. It’s also the biggest ongoing expense. Not only do you have monthly mortgage payments and insurance, but there’s also property taxes, maintenance, and possible HOA fees.

The homestead exemption protects the equity in your home. However, there’s a cap on the amount of the exemption. For the last 45 years, the law has provided three exemption levels, ranging from $75,000 to $175,000. Prior to the Homestead bill change, if you had $100,000 in debt but $300,000 equity in your home, the Chapter 7 bankruptcy trustee would sell your house to pay creditors.

According to Zillow, in today’s Southern California real estate market the median home price in Rancho Cucamonga is over $560,000 and in Pasadena it is over $880,000. As of today, if you have significant equity and want to keep your home you can file for Chapter 13 instead of Chapter 7 but would be committing to a three to five-year payment plan that you may not be able to maintain.

California Assembly Bill 1885

On September 18, Governor Gavin Newsom updated the previous homestead bill. It was grievously outdated, with no consideration for the profound change in home prices over the last four decades. Starting in January 2021, the amount of equity that can be protected is vastly expanded. The California homestead exemption is increased from $300,000 to not more than 600,000 depending on the county you reside in. If you file for Chapter 7 bankruptcy after 2020, the new cap will allow the average California homeowner to discharge their debts without the fear of the Chapter 7 trustee selling their home.

California residents who have owned their homes for many years or who have been making extra payments to pay down the mortgage faster often have significant equity in their property. Under the new rules, you can discharge the majority of your debts without losing your home in a Chapter 7 bankruptcy.

The California Association of Realtors reports that in August 2020, approximately 15% of homes for sale in 51 counties in the state were below $300,000. Nearly 50% were between $300,000 and $600,000. For Southern California residents, this means more than three times as many homeowners can keep their homes while still benefiting from debt relief offered by Chapter 7 and Chapter 13 bankruptcy.

Get Debt Relief Help Today

There’s no denying that 2020 has been a difficult year. If you are drowning in debt due to economic conditions, contact me to schedule a free consultation. We can talk about your debt and discuss options available to you. If bankruptcy isn’t the right choice, there may be alternatives that meet your needs better.

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