Effective January 1, 2021, California’s homestead exemption — the amount of equity in a primary residence that can be protected from creditors — will increase to $600,000 for all Bay Area residents.  Assembly Bill 1885 provides that the homestead amount will be the greater of $300,000 or the countywide median sale price of a single-family home in the calendar year prior to the calendar year in which the judgment debtor claims the exemption up to $600,000. As a comparison, the current homestead amounts only cover equity in a primary residence of up to $75,000 for a single person under age 65; up to $100,000 for a married couple or the head of a household; and up to $175,000 for people age 65 or over, those with disabilities, and low income individuals over the age of 55. Those homestead amounts have not changed in years and have become seriously out of date.

The new law is a game changer as it will help thousands of homeowners in need of bankruptcy relief and avoid having their homes sold by a trustee and used to pay creditors. The last few years, prospective bankruptcy clients have had a problem with too much equity and little income as they cannot file either chapter 7 or chapter 13 without the risk of having to sell their house or get refinancing. They are then forced to deal with their creditors or find some other relief. Now bankruptcy can be the most cost-effective option as they can file bankruptcy, get a fresh start and keep their house.

Countywide median statistics on sales can be found at https://www.nar.realtor/research-and-statistics/housing-statistics/county-median-home-prices-and-monthly-mortgage-payment (National Association of Realtors website).  Northern California Counties with median sale prices over $600,000 include San Francisco County, Marin County, Alameda County, Santa Clara County, San Mateo County, and Contra Costa County. Sonoma and Napa Counties are also on that list. Outlying counties like Solano and San Joaquin will have lower amounts.

As we know many Californians are caught in the financial distress and stress of 2020.  People are out of work or on reduced schedules because of remote learning for their children.  Forbearances are in place on credit, auto and mortgage debt. The new law offers much needed relief. Due to low interest rates and increased demand for the suburbs, many California counties are experiencing record home prices despite the pandemic and record unemployment. This law will give homeowners more flexibility in getting back on their feet.

If you have questions regarding these issues, you should consult David A. Arietta, a certified bankruptcy specialist, at (925) 472-8000.