This article is written by Daniel Weintraub & James Selth of Weintraub & Selth APC, a Bankruptcty Law Firm in Los Angeles, CA.
A question we often face from our clients who need relief from credit card debt, bank loan taxes and judgments is "Will I lose my house?" It’s an understandable concern, of course. After all, our home is often our largest single investment, is the place where precious family memories are formed and represents to so many of us our place of security.
So what's the answer to the question? As you might expect from a lawyer, the answer is "It depends." The discussion below assumes a person is filing a Chapter 7 or "straight bankruptcy" and not under Chapters 11 or 13 which are reorganization chapters.
When a bankruptcy petition is filed under any of the chapters, a new entity is formed known as the "bankruptcy estate". The estate consists of all property of the person(s) filing, wherever located and however held. It includes all assets, including those with no equity, and of course assets with equity. Similarly, claims and debts of the person filing essentially leave the person and become liabilities of the estate. In Chapter 7, the Court appoints a trustee. The trustee's primary job is liquidate assets and generate money to pay to creditors. Because only those assets which have equity and are "not exempt" generate funds for creditors, only those assets with equity are in jeopardy. The trustee presides over the estate and its assets, administers and pays claims and has fiduciary duties to the creditors of the estate.
Individuals filing for bankruptcy relief in California are entitled to retain certain assets. There is a strong public policy in favor of not making people who fall on hard economic times complete paupers. To the contrary, we want people to remain productive members of society and one of the ways this is done is by allowing those who file for bankruptcy to declare certain assets as exempt from the bankruptcy process, the trustee and creditors.
So how do we know which assets are exempt and to what extent? The answer lies in the California Code of Civil Procedure (CCP). Specifically, Section 703.100, et seq. and 704.100, et seq. set forth in detail those assets that a person or a couple filing for bankruptcy may keep and insulate from the bankruptcy trustee and creditors. An individual or a couple must choose to apply either the Section 703 series of exemptions or those of Section 704. When working with an attorney who is experienced in bankruptcy matters, such as the lawyers at Weintraub & Selth, APC, the attorney will guide you through this process and in effect make the choice of which exemptions to utilize based upon the maximum benefit for the client. And to take it one step further, a conscientious and creative bankruptcy attorney will, if at all possible, carefully plan your case so that all assets of the bankruptcy filer are exempt. We will take up pre-filing planning in a separate article.
So back to our house. . . Is our house exempt and therefore protected from the bankruptcy trustee and creditors? CCP section 704.710 through 704.850 govern the homestead exemption for California residents.1 [FN 1 Special considerations are necessary for individuals and couples who have recently relocated to California and the following discussion may not apply to such persons.] These sections define what a "homestead" is (generally a person’s dwelling which they live in or intend to live in) and the limits of the homestead exemption. In summary, real or personal property you occupy including a mobile home, boat, stock cooperative, community apartment, planned development or condo is exempt as follows:
|Family Unit||Exemption Amount|
|Single Person who is not disbaled||$75,000|
|Families if no other member has a seperate homestead||
|65 or older or with no physical or mental disability||$175,000|
55 or older, single and gross annual income is $25,000 or less or married and gross annual household income is $35,000 or less
While the above chart sets forth the current homestead amounts, it is important to note that the California legislature is presently considering an amendment to the law which would substantially increase the amount of the homestead exemption for California residents (to $300,000) and would provide the exempt amount with permanent protection. Under current law, the exempt amount is protected from levy or seizure for a period of six months.
We continue this discussion in What Happens to My House If I File for Bankruptcy: Pt 2