The California Homestead laws protect a person’s home from non-mortgage creditor claims in and out of bankruptcy.  The homestead laws are part of a broader set of laws called exemptions.  In addition to the homestead, the exemption laws protect household goods, furniture, vehicles, retirement and much more.   The homestead is the largest exemption and protects the most important asset, your home.  As good as that sounds, the homestead has conditions and limitations.

Your Home – The homestead only applies to real estate you own and live in.  You do not need to be the only owner to claim the homestead, meaning it is not a problem if there is someone else on title with you or living in the home with you.  Similarly, it is not a problem if you rent part of the house to someone else.  The idea is to protect the roof over your head.

Value Limitation –  The homestead protects realizable equity of up to $678,000 (as of January 2023) in most Bay Area Counites.  Realizable equity is the amount of money you would receive if the house was sold, meaning after payment of real estate commissions and all mortgages.  For example, assume your home is worth $700,000 and you have a mortgage with a principal balance of $300,000.  The calculation is $700,000 minus estimated commissions of $42,000 would leave $658,000 and after payment of the mortgage of $300,000 the realizable equity is $258,000.

No Foreclosure Protection – The homestead does not protect your home from foreclosure by a mortgage lender.  This means if your mortgage payments are delinquent and the lender is threatening to foreclose, the homestead laws will not help you.

No Protection from IRS liens – The homestead does not protect against federal tax liens.  This means tax liens can be recorded and enforced despite the homestead.  Note: many liens that impair the homestead can be removed in bankruptcy but not a tax lien.  Fortunately, the IRS almost never attempts to sell a person’s home to satisfy an unpaid tax debt, even huge tax debts.

The homestead in bankruptcy – The homestead is most powerful in the context of chapter 7 bankruptcy.  The homestead laws protect your home from being sold to satisfy debts like credit cards, payday loans and medical bills.  The homestead, in conjunction with the bankruptcy laws, can even remove judgment liens from the title to your home.  The homestead also offers protection in chapter 13 bankruptcy.

The homestead outside of bankruptcy – If a non-mortgage creditor (credit card, payday loan, medical bill) obtains a judgment against you, and attempts to sell your home to satisfy the judgment you are entitled assert the homestead as a defense.  Most creditors are well-versed in the homestead laws and do not bother trying to sell a person’s home to satisfy a judgment.

In summary, the homestead laws shield your home from most creditor claims and are most powerful when used in combination with bankruptcy.

At the Law Office of Michael Primus we have helped thousands of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy.  If you live in Contra Costa, Alameda or Solano counties and have debt problems, contact us for a free consultation.  We have offices in Walnut Creek, Antioch, and Hercules.

In talking to people about bankruptcy,  I have seen time and again the same erroneous assumptions.  One common misconception is that people filing bankruptcy automatically lose their home.  Many people assume the judge will strip them of their possessions and their dignity, presumable as a punishment.  This notion does not exist in the law but stubbornly persists in society.  To rectify this misunderstanding, I will first say the purpose of bankruptcy is to offer a fresh start to people in a financial hardship.  The law acknowledges that food, shelter and transportation are necessities of life, and provides limited protection for these assets so people can go forward in life after bankruptcy.  But wait, maybe you’ve heard of people that filed bankruptcy and lost their home?  Alas, there are threats to homeownership.

The single largest threat to the family home is not bankruptcy, it’s foreclosure.  Another misconception is to equate foreclosure and bankruptcy.  Foreclosure is the procedure for a lender to take a person’s home if the mortgage payments are not paid; foreclosure is not an issue if the mortgage payments are current.  Bankruptcy can forgive credit card debts, payday loans, personal loans, lawsuits and much more.  Bankruptcy is also a powerful tool to stop foreclosure and give the homeowner an opportunity to make payment arrangements.  Usually when mortgage payments are six to twelve months behind the lender will initiate foreclosure.  The California foreclosure laws require notices and waiting periods before a lender can actually sell a home to collect the money owed.  Filing bankruptcy can give homeowners a last chance to save their home from foreclosure.

Another threat to the family home is filing chapter 7 (sometimes called straight bankruptcy) if you are “land rich” in the eyes of the law.  A person is land rich when the equity in their principal residence exceeds the protection provided by the homestead laws.  Filing chapter 7 when a person is land rich can result in the home being sold by the bankruptcy trustee.  In 2023, the California homestead laws allow a person to protect realizable equity in their principal residence of $678,000 in most Bay Area counties.

Note: realizable equity is the amount you would receive after paying all mortgages, commissions and costs of sale.

In summary, the bankruptcy system will not take your home as a punishment.  On the contrary, one of the goals of the law is to protect the family home.  If your home is in foreclosure, or if you have substantial equity in your home, you should speak to an attorney and carefully review your options before filing bankruptcy.

At the Law Office of Michael Primus we have helped thousands of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy.  If you live in Contra Costa, Alameda or Solano counties and have debt problems, contact us for a free consultation.  We have offices in Walnut Creek, Antioch, and Hercules.

Can I file Bankruptcy Again?  Many people assume they can only file bankruptcy once in their lives, other people assume they need to wait until their bankruptcy comes off their credit report before they can file again. The truth is the bankruptcy laws are more flexible than most people think. This article is limited to cases where debts were forgiven in a past bankruptcy.

Chapter 7 After Chapter 7

If a person has filed a chapter 7 and received a discharge (debts forgiven) then section 727(a)(8) of the Bankruptcy Code provides that another chapter 7 within 8 years will not forgive debts.

Chapter 13 After Chapter 7

If a person has filed a chapter 7 and received a discharge (debts forgiven) then section 1328(f) of the Bankruptcy Code provides that a chapter 13 filed within 4 years of the chapter 7 will not forgive debts.

Chapter 13 After Chapter 13

If a person has filed and completed a chapter 13, section 1328(f) of the Bankruptcy Code provides a chapter 13 filed within 2 years of the filing of the prior case will not forgive debts.  However, if the original chapter 13 was dismissed (did not complete plan, debts reinstated) then a person can file another chapter 13 almost immediately but must get a court order pursuant to Bankruptcy Code section 362(c)(3) to be protected from creditors.  This type of court order generally requires a brief explanation of why the first case failed.

Chapter 7 After Chapter 13

If a person has completed a chapter 13 and received a discharge then section 727(a)(9) provides that a chapter 7 filed within 6 years of the filing of chapter 13 will not forgive debts.

Call now for a free consultation. Offices in Walnut Creek, Antioch and Hercules.

Law Offices of Michael Primus