New California Homestead Exemption Amount (2020)

Currently under consideration by Governor Newsom is a bill that would protect numerous homeowners by increasing the California homestead to an amount that would keep most homes from creditors. It’s no surprise that this issue is coming up given the financial issues surrounding eviction moratoriums, COVID-19, and elections in the news.

With this backdrop and the support of bankruptcy attorneys, the California legislature passed AB 1885 (and the senate equivalent SB 832) on September 2nd, 2020. If AB 1885 becomes law, it will increase the California homestead to the greater of $300,000 or median sales price in the county where the single-family home is located in the prior year, though this cannot exceed $600,000.

To help homeowners in California understand what this means, the following are projections for a few of California’s major metropolitan areas.

  • Los Angeles County: $600,000 (Estimated $664,500 Median)
  • Riverside County: $400,500
  • San Bernardino County: $370,215
  • Orange County: $600,000 (Estimated $765,497 Median)
  • San Diego County: $600,000 (Estimated $628,500 Median)
  • San Francisco County: $600,000 (Estimated $1,444,000 Median)

To understand what this means, the homestead exemption protects a part of the , of a homeowner’s home in the event the debtor files a consumer or business bankruptcy, or if a creditor requests that the house be sold to pay a judgment. This means that, if the bankruptcy trustee wants to sell your home, they would normally figure out whether it will derive any value for the bankruptcy estate after payment of the mortgage, taxes, homeowner’s association dues, and, of course, payment to the debtor for their homestead exemption. Since many homeowners do not have equity in their house that exceeds the median sales price in their county, capped at $600,000, chances are that their home will not be sold in a Chapter 7 bankruptcy.

This is considerably more generous for debtors than existing law, which provides only a $75,000, $100,000 (married couples) or $175,000 (disabled or over 65) homestead exemption, depending on age, disability and marital status. Suffice to say that these homestead exemptions do little for many homeowners in more affluent areas, or those who have paid down their mortgage after many years. Of course, creditor attorneys are displeased by this change, which would solely benefit debtors at the expense of creditors.

Right now, this bill is sitting on Governor Newsom’s desk and is expected by many to be signed into law. If signed, the bill will become effective on January 1, 2021.

This will represent a sea change in bankruptcy law in California in favor of debtors, leaving creditors and trustees holding the bag.

New Code of Civil Procedure Section 704.730 if Amended by AB 1885

(a) The amount of the homestead exemption is the greater of the following:
(1) 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 ($600,000).
(2) Three hundred thousand dollars ($300,000).
(b) 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.