How to Protect your Home Under California’s New Homestead Bankruptcy


Every homeowner in California who struggles with debt has the same concern: protecting their home while getting relief from other debts like credit cards, medical bills, or personal loans. Under California’s new homestead bankruptcy exemptions, homeowners facing debt challenges now have a powerful tool to shield their homes while seeking relief from other financial burdens like credit cards, medical bills, or personal loans. Governor Gavin Newsom signed Assembly Bill 1885 (AB 1885) into law on September 18, 2020, marking a significant shift in the protection afforded to Californian homeowners during bankruptcy proceedings.

Understanding the Homestead Exemption Boost

Assembly Bill 1885 (AB 1885) raises the homestead exemption to $600,000 for many Californians, a considerable increase from the previous limitations. The allowed equity protection is determined by the median sales price of a single-family home in the county in the preceding year, ranging from $300,000 to $600,000. Given that most Californians reside in counties with median prices surpassing $600,000, this adjustment provides them with the maximum exemption when navigating bankruptcy. The former law restricted homeowners to safeguarding $75,000 to $175,000 of home equity based on age, disability, and marital status. Furthermore, AB 1885 introduces annual baseline exemption adjustments tied to inflation, ensuring continuous increases if home prices rise.

A Lifeline for Homeowners in Debt

This legislative overhaul is a game-changer for homeowners burdened by debt yet possessing equity in their homes. Previously, filing for Chapter 13 or exploring risky financial maneuvers like cash-out refinancing or second mortgages were common paths. Now, Californians have expanded options for addressing credit card debt and other unsecured obligations. This is especially pertinent for seniors with home equity but constrained incomes, providing them with viable alternatives without jeopardizing their most valuable asset.

A New Dawn in Bankruptcy Options

Effective from January 1, 2021, the new law empowers more Californians to pursue bankruptcy protection without risking their home equity. Chapter 7 bankruptcy, in many cases, allows individuals to address other debts without significant payments. For those grappling with mortgage arrears, back taxes, or high-interest car loans, Chapter 13 offers a means to restructure debts without shouldering the full weight of credit card obligations.

If you’re struggling to pay your bills and also own your home, schedule a FREE consultation with one of Gale Angelo Johnson P.C.’s experienced bankruptcy attorneys today to see how you might benefit under the new law. 

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