Homestead Law change in California and impact on Debt relief in Bankruptcy
The new 2021 Homestead Law Change will help millions of individuals and families solve their debt problems. Over the years, millions of dollars were spent on lobbying Congress by credit card companies and collection agencies to make it harder for average people to file bankruptcy. In 2005 all the money spent resulted in an overhaul of the bankruptcy code with creditor friendly provisions incorporated into the new law.
Recently California law has changed the to increase the Homestead Law Change protections available for average people. Under the law of the monarch can claim a homestead exemption to protect equity in the residence. For a long time, the maximum amount a person could protect was $75,000 for an individual, $100,000 for a head of household or person with dependents or if over age 65 a of $175,000.
AB 1885 Newly Increased California Homestead Exemption Law Protects $600,000 of equity in your home.
This new Homestead law change will effectively allow individuals living in Orange County and Los Angeles County — who previously could not file for bankruptcy without losing their home — now file bankruptcy and wipe out their debts by filing a Chapter 7 Bankruptcy Petition. Why? Because they can protect up to $600,000 of equity in their primary residence! This is a HUGE change in the California Homestead Law exemption!
Call Orange County Bankruptcy attorney Michael Franco at (714) 252-6268 for a Free and confidential phone consultation, or to schedule a sit-down consultation to see how the $600,000 Homestead Exemption affects your situation.
Consumers have ‘leveled the playing field’ against the many prior successes of the credit card and collection company lobbyists.
Just this year the California legislature was able to increase the homestead law for greater protection. Starting on January 1, 2021, the homestead exemption has increased to $300,000 or a maximum of $600,000 of equity that can be protected, provided that the median home price in that county exceeds $600,000. The median home price in Los Angeles County and Orange county exceeds $600,000. That means a homeowner can have up to $600,000 net equity in their residence and have it protected from creditors in a bankruptcy.
Homestead Law Change and Chapter 7
It was not that long ago that when I was advising clients if they had large equity in the residence, we would advise against filing a Chapter 7 bankruptcy for debt relief. How is equity calculated? You begin with the fair market value of your residence today then you deduct first or second mortgages or home equity lines of credit – the remaining amount would be your equity. In the event you have a mortgage for second mortgage or other lien from a family member you should consult with a professional to make sure such a family lien would be treated as valid in a Chapter 7 bankruptcy filing by the Chapter 7 trustee.
This increase of the homestead exemption translates into millions of Californians now having Chapter 7 bankruptcy relief become a viable option. Many people are suffering from financial hardship due to the Covid-19 lockdown.
Homestead Law Change & Commercial Lease Debt Caused by Covid-19
Indeed, there are many people who are not in business but are still affected because they have guaranteed debt or commercial leases for other family members for their businesses, restaurants, or other commercial activities. Rather than wait until you are sued in state court for breach of the lease as a guarantor, we recommend you speak to a qualified professional to explore all your debt relief options. Options which now as of January 1, 2021 are greatly expanded from previous years due to the change in the homestead law protection.
Homestead Law Change and Chapter 13
The large increase in the homestead exemption changes not only chapter 7 analysis but also Chapter 13 repayment plans. In a Chapter 13 bankruptcy a person files to propose a repayment plan to their creditors. This repayment plan must meet the “best interests of creditors test” – meaning that the proposed repayment plan must be no less than the creditors would receive in a hypothetical Chapter 7 liquidation. Obviously with the previous lower homestead, the analysis meant that people had to pay back more to their creditors under Chapter 13. Now with the higher homestead the analysis would support a repayment plan that only recently would have been required to be much higher. It is important to note that a repayment plan to cure mortgage arrearages would not be affected by this analysis. However, there are powerful tools in Chapter 11 bankruptcy to allow restructuring of secured claims.
Homestead Law Change and Chapter 11
Chapter 11 is more complicated and usually more expensive than a Chapter 13 reorganization. Depending upon the circumstances a Chapter 11 may be an enormously powerful option. Once again it is important to distinguish between a Chapter 13 personal reorganization plan, also known as a wage earners plan and a Chapter 11 which traditionally was a corporate reorganization. Individuals may file for Chapter 11, but they must meet the requirements. Each situation is unique, and a general overview discussion of applicable law cannot address the specifics of an individual situation. Therefore, it is vital when assessing your options to speak with an appropriate professional so that you may make informed decisions on which options may or may not work for you.
If you have been discouraged from considering financial remedy through bankruptcy in the past months or years this huge Homestead Law change in California may flip the script for your situation. You should contact an Orange County bankruptcy attorney to find out if the new 2021 Homestead law change might solve your financial dilemma.