California Homestead Exemption and Bankruptcy

The California homestead exemption is of paramount importance to homeowners when filing for bankruptcy protection under Ch. 7 or Ch. 14 of the United States Bankruptcy Court. An effective and accurately calculated homestead exemption can result in the homeowner’s being able to keep their home, preserving the equity in their home, and shielding creditors and lien-holders from being able to foreclose on the home or obtain relief from the automatic stay.

When filing for bankruptcy, the debtor’s attorney must calculate the debtor’s equity in the home, calculate and analyze all liens against the home and determine the amount of the homestead exemption the debtor will qualify. Once the homestead exemption is thoroughly analyzed by an experienced bankruptcy attorney, the exemption is listed and cited on Schedule “C” of the applicable bankruptcy petition. The exemption, and or amount of the exemption, however, may be challenged by the bankruptcy trustee. If the trustee challenges the exemption, the bankruptcy debtor’s attorney will initiate informal resolution of the trustee’s concerns and if necessary, an evidentiary hearing (a mini trial) is conducted by the bankruptcy court and the bankruptcy judge will determine if the homestead exemption is correctly claimed and what the correct amount of the exemption should be. Liens can even be stripped if the attorney successfully argues that the lien impairs the homestead exemption. US Bankruptcy Code Section 522(f) Stripping liens is outside the scope of this blog and will be discussed by a future blog posted by Khansari Law.

If the court determines that a homestead exemption applies, the judge may stop a proposed sale of the home, or enforcement of the applicable lien, or order the sale of the property dependent on the fair market value of the property and the exemption amount. (CA Code of Civ. Pro. 704.780) “The court will require a sale, unless it determines that the sale of the dwelling would be unlikely to produce a bid sufficient to satisfy any part of the amount due on the judgment…” (Ca Code of Civ. Pro. 704.780 and 704.730). CA Code of Civil Procedure states that “if no bid is received at a sale of a homestead pursuant to a court order for sale that exceeds the amount of the homestead exemption plus any additional amount necessary to satisfy all liens and encumbrances on the property, including but not limited to any attachment or judgment lien, the homestead shall not be sold. (CA Code of Civ. Pro. 704.800). Hence, when filing for bankruptcy, hiring an attorney is essential for analyzing whether the homestead exemption applies, the amount of homestead exemption and for strategies to use the homestead exemption to protect the debtor from the foreclosure sale of the home, enforcement of liens if relief from the automatic stay is granted protecting the maximum amount of equity in the dwelling.

Please note, this information is solely for informational purposes. Every individual’s situation is different and requires personal attention. For more information regarding homestead exemptions and bankruptcy, please contact attorney Andre A. Khansari at 818.650.6444.