Major Increase in California Homestead Exemption

Insolvency insights (Reeder Law Corporation) February 2021

Up to 600%  increase in the amount of personal residence equity that can be shielded by the California homestead exemption: a gamechanger

The homestead exemption numbers

On January 1, 2021, an unprecedented increase in the California homestead exemption passed by the Assembly and signed by the Governor in late 2020, went into effect.  The amount of equity in a personal residence that financially strapped homeowners can now shield from a judgment creditor, or a bankruptcy trustee, went from $75,000/$100,000/$175,000 under the pre-2021 old law to as much as $600,000, under the new law. Homestead exemption amounts under the old law depended on family circumstances.  The amounts under the new law depend on the location of the homestead and real estate values there.

Why the waffling in the exact numbers?  Because this is California.  Both the old homestead exemption and the new and improved version include multiple “if/then” scenarios.  To wit:  In its pre-2021 form, California Code of Civil Procedure (“CCP”) § 704.730 allowed a homeowner to shield equity in a personal residence equal to $75,000 if the homeowner was single and did not reside with a “family unit”, $100,000 if the homeowner was part of a family unit, and $175,000 if the homeowner was either over 65, disabled, or over 55 with certain income limitations. 

The new version of CCP § 704.730 scraps those amounts and replaces them with the following:

“The amount of the homestead exemption is the greater of the following:

  1. , not to exceed six hundred thousand dollars ($600,000);
  • Three hundred thousand dollars ($300,000).”

What this means is that there are three possibilities regarding the amount of a homestead exemption:

  1.  If the homeowner lives in a county in which the median single-family home sale price for the previous year was $600,000 or higher (see Table 1.0 below – examples: Los Angeles County, Orange County, Santa Clara County), then the homestead exemption is $600,000; or
  •  If the median sale price is between $300,000 and $600,000 (examples: Riverside County, San Bernardino County, Fresno County), then the homestead exemption is equal to the median sale price, or
  •  If the median  sale price is less than $300,000 (examples: Kern County, Tulare County) then the homestead exemption is $300,000.


 Table 1.0 County-wide median single family

 home sale price[1] 

CountyMedian Single Family Sale Price 2020  
Southern California   
  Los Angeles$662,310
  San Bernardino$348,000
  San Diego$710,000
S.F. Bay Area 
  Contra Costa$752,000
  San Francisco$1,650,000
  San Mateo$1,700,000
  Santa Clara$1,385,000    

Claiming the new homestead exemption amounts in a bankruptcy case; there’s a catch

For homeowners filing bankruptcy, and claiming a homestead exemption under the newly-enacted statute, there is a catch.  Congress, when it enacted the creditor-friendly amendments to the Bankruptcy Code in 2005, included a provision to attempt to trip up “homestead exemption carpet-baggers,” who sold their residences in low homestead exemption states (New York), and fled to homestead havens such as Texas and Florida.  There they could reinvest the substantial proceeds from their sale of their original home  in  a replacement home, file a bankruptcy case, and take advantage of the state’s generous homestead exemption to shield hundreds of thousands, if not millions of dollars from creditors. 

The remedy that Congress prescribed was that anyone claiming a homestead under applicable state law in a bankruptcy case (in Federal bankruptcy cases, exemptions are most often determined under state law), must have acquired the interest being exempted at least 1215 days (3 1/3 years) prior to the bankruptcy filing.  In the event that that the interest being exempted was acquired less than 1215 days before the bankruptcy filing, section 522(p) of the Bankruptcy Code limits the homestead exemption to $160,375. The idea was to preserve some of the homestead protection under state law, but not to allow homestead exemption carpetbaggers to benefit from the law of a state to which they moved solely to take advantage of the liberal homestead exemption.   Thus, a California homeowner seeking to take advantage of the enhanced homestead exemption must have purchased the residence over 1215 days before the bankruptcy filing, or have the homestead exemption capped at $160,375.

Prior to the newly enacted homestead exemption amounts, the maximum homestead exemption in California was $175,000. It is likely that only a limited number of homeowners who would have qualified for the $175,000 homestead exemption found themselves deciding whether to wait for 3 1/3 years to pass after purchasing their residence, in order to squeeze out the last $15,000 of their homestead exemption, or file before the 1215 period ran, and have a slightly smaller homestead exemption. 

Now that the exemption for most Southern California and Bay Area homeowners filing bankruptcy is now $600,000, but the amount is capped at $160,375 until their period of ownership passes the 1215-day mark, prospective bankruptcy filers will have some serious decisions to make regarding whether they can simply hang on until the 1215 days period is reached, and take advantage of the additional $439,625 in exemption of their personal residence, or file now and lose that equity in a forced sale. 

Myths regarding the homestead exemption

Contrary to widespread belief, a homestead exemption does not forbid the forced sale of a personal residence.  Instead, when a forced sale takes place, either by a bankruptcy trustee, or an executing judgment creditor, the debtor receives the amount of the properly claimed homestead exemption after the close of the sale.  It must be remembered that a bankruptcy trustee will not attempt to sell estate property unless there is non-exempt equity in excess of liens and the debtor’s homestead exemption. Thus, an executing judgment creditor or a bankruptcy trustee can, in fact, sell a homeowner’s residence, but if the homestead exemption was property claimed, then the homeowner is “out on the street” with up to $600,000 in his/her pocket. 

The second myth regarding homestead exemptions is that it is effective against consensual liens (i.e.: mortgages).  A homestead exemption is not effective against a foreclosing creditor if the obligation secured by the lien was consensual.  Thus, the homestead exemption simply does not apply to foreclosures.

The major change in chapter 7 bankruptcy calculus

The new homestead exemption amounts will change the chapter 7 playing field.  Prior to the substantial increase in the homestead exemption, homeowners whose equity in their personal residence exceeded their homestead exemption could not utilize the expedited discharge provisions of chapter 7 without risking the sale of their residence by the bankruptcy trustee.  The result was that financially strapped homeowners with non-exempt equity in their personal residence were required to look at either chapter 13 or chapter 11 relief, both of which were sub-optimal for many reasons.

With the new homestead exemption limits, more financially stressed homeowners will be able to avail themselves of the chapter 7 process and its expedited discharge, without risking the forced sale of their home by a bankruptcy trustee. 

There’s more.

This article touches the surface of an area of law which seems simple, but isn’t.  There are substantial and potentially complex issues regarding the declared homestead, the statutory homestead, the effect on the exemption of a temporary absence from the homestead, and many other nuances.  Any question regarding the presence, absence or effect of a homestead exemption should be answered by a qualified attorney. 

Important note:  Nothing herein is meant to be legal advice regarding any person or specific case.  Persons with homestead exemption questions should seek the advice of an attorney qualified in the areas of bankruptcy and the use of exemptions.

[1] Source: California Association of Realtors preliminary figures January 2021.