Exploring California’s 2024 Updated Homestead Exemption: How It Affects Homeowners In Los Angeles County And Orange County

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In this article, you will discover:

• The 2024 changes to the California Homestead Exemption Law.
• When it’s necessary to file a homestead declaration.
• How to maximize the homestead exemption when filing for Chapter 13.

What Changes Were Made To The California Homestead Exemption Law In 2024?

In January 2024, California increased to the maximum equity exemption for your principal residence from $600,000 to $699,421, if you live in either Los Angeles County or Orange County. This is because the median sale price of a home in each of those counties is more than $699,421. If you live in a county with a median sale price that is lower than $699,421, then the maximum equity exemption you can take is that median sale price. The equity exemption only applies to the equity in your principal residence. You can’t use the exemption for rental or commercial property.

The homestead exemption — which is a provision of California law — was designed to protect people from losing their homes; or if they lost the home in a forced sale, then under the right circumstances they would at least get the exempt equity from the sale to buy another home.

Although the homestead exemption applies outside of the bankruptcy context, it also plays a role in bankruptcy. The Bankruptcy Code is a federal statute. It has an exemption table. However, it allows the states, if they wish, to use their own state tables. California is unique among the states in that not only have we opted out of the federal table entirely, we use two state tables: One is for homeowners with equity in their principal residence, the other is for everyone else — I colloquially refer to it as the renter’s table. You must choose one, and only one table. You cannot mix and match.

Even though California is an opt-out state, there is an umbilical cord connecting California’s homestead exemption to two important limitations in the Bankruptcy Code. 

The first limitation depends on how long you have owned the property. If, on the day you file your bankruptcy petition, you have owned the house for less than 1,215 days — i.e., three years and four 30-day months — the exemption drops precipitously to a little less than $190,000. (This number will change on April 1, 2025.) Thus, timing can be crucial to protecting the equity in your home because if you file too soon, you might have some nonexempt equity.

The second limitation depends on whether you’ve been convicted of a certain kind of felony within five years immediately prior to filing your bankruptcy petition. If you have, then you’re stuck with the $190,000 homeowner’s exemption. 

How Does The 2024 Homestead Exemption Affect Homeowners Filing For Chapter 13 Bankruptcy?

There is an important requirement in a Chapter 13 plan that arises from asset exemption in Chapter 7. Chapter 13 debtors must propose a plan of reorganization that satisfies the best interest of creditors requirement; what I refer to as the Chapter 7 liquidation requirement for Chapter 13. What does that mean? 

Your Chapter 7 bankruptcy petition includes a complete listing of everything you own or in which you have an interest; everything, down to the shoes on your feet. All of your assets get divided into two categories: exempt and non-exempt. The exempt assets are yours to keep. The nonexempt assets are fair game for the Chapter 7 trustee to seize, liquidate, and have money to pay the creditors. We use the appropriate exemption table to determine whether or not something is exempt. Thus, in a Chapter 7, you could lose assets to the depredations of the Chapter 7 Trustee.

In Chapter 13, you keep all of your possessions. No trustee will seize any assets. However, we still go through the exercise of listing all your possessions and dividing them into exempt and non-exempt categories. We do this because the minimum that you can get away with repaying your creditors over the life of the Chapter 13 plan is what the creditors would have received in a Chapter 7 — i.e., the dollar value of your nonexempt assets.

In the case of your principal residence, you don’t necessarily exempt the entire value of the property. Instead, you exempt the value of the portion of the property you own. That is what’s referred to here as equity. How is that equity calculated? We determine the property’s fair market value, and then subtract the amount you still owe on all the encumbrances against the property. The result is the value of the portion of the property you own. That’s the equity, the value that you protect in Chapter 7. If the equity exceeds the exemption amount, the excess is nonexempt and goes into determining how much you must pay your creditors through the Chapter 13 plan.

What Happens If My Home Equity Exceeds The Homestead Exemption Limit During A Chapter 13 Bankruptcy Filing?

Generally, the valuation is done on the day the petition is filed. Therefore, we need an appraisal that is dated within a few days of the petition date. Subtract from that the encumbrances against the property, and you have the equity fixed for the life of the Chapter 13 plan. The extent to which the equity exceeds the homestead exemption, is the value of the nonexempt equity. In similar fashion, we estimate the nonexempt equity of all your other assets. We then add up all the nonexempt amounts to get the value used in the Chapter 7 liquidation requirement for Chapter 13. That number is fixed for the life of the plan. And when the judge confirms the plan, it’s binding on everybody. 

There is one instance when a Chapter 13 Trustee might ask for an increase in the plan payments: If you’ve had a surge in income. In that case, the Bankruptcy Court takes the position that you shouldn’t benefit from that surge if your creditors get less than what you owe them. Of course, if you have a 100% plan, then you don’t have to increase plan payments — creditors are not entitled to more than 100% of what they are owed, with no postpetition interest accrual. Thus, you won’t be incurring credit card interest rates at 29.99%.

In sum, the Chapter 13 Trustee may later ask that you increase your plan payments based on a surge of income; but your plan payments will not increase based on a change in the value of your house. 

Is It Necessary To File A Homestead Declaration In Los Angeles County Or Orange County To Receive Exemption Protection?

For bankruptcy purposes filing a homestead declaration is not essential, but it can be very important outside of bankruptcy. To understand what’s at work here, we must distinguish between a “voluntary” and “involuntary” sale of your home. 

A voluntary sale is when you decide to sell your house. You put it on the market; somebody tenders an offer which you accept, and the house is sold.

An involuntary sale is when somebody forecloses on your home. That can happen if you fail to make your mortgage payments. In that case, the mortgage company avails itself of California real estate law by seizing and selling the property.

An involuntary sale could also happen as a result of litigation. Perhaps somebody sues you successfully, gets a judgment against you, and records a lien against your home. In that situation, if the lien is sufficiently large and there is enough equity to cover the lien, that judgment creditor may seek to conduct a foreclosure. 

If you don’t record the homestead declaration, you have the automatic homestead exemption. That protects you against involuntary sales that will leave you without anything. You do at least get your equity exemption. 

However, suppose you conduct a voluntary sale. Somebody gets a judgment against you and wants to seize the money you received from the sale. Is that money protected? No, unless you previously recorded a homestead exemption. Perhaps you should have filed a bankruptcy case instead of selling the house. That way you might have discharged the debt in question without facing the loss of the sale proceeds.

If you record the homestead exemption, then the voluntary sale proceeds are protected for up to six months. However, you must reinvest that money in a new domicile within six months of receiving it, or else it loses its exempt status. To maintain the exempt status, you can’t spend the money on anything else other than a new home. 

Can I Exempt More Than One Property Under The Updated 2024 Homestead Exemption?

You can only exempt one domicile or principal residence. If you sell your house, you extinguish the recorded homestead exemption for that property; and you will need to record a new homestead exemption on your new home. 

Suppose you bought another home in addition to your principal residence, moved in, and recorded the homestead exemption. Then the homestead on the first property will automatically be extinguished. You can only have one homestead, even if you have a multiple personality disorder. And the homestead must be your principal residence.

How Can I Maximize The Benefits Of The Updated 2024 Homestead Exemption In LA County And Orange County?

To make sure you’re entitled to the entire homestead exemption in a bankruptcy case, you must have acquired the property — i.e., been on title with a recorded deed in your favor — at least 1,215 days prior to the petition date.

Thus, if you lived in the property for 20 years because it was your parents’ house, they died, you inherited it, and you’ve only owned it for a year, you won’t qualify for the full exemption amount. Therefore, unless you have very little equity because the mortgage dwarfs the property’s value, you should wait the entire 1,215 days and then file on day 1,216. The timing really is down to the day. Get a copy of the recorded grant deed from the County Recorder’s Office to determine the date you acquired the property.

What if, within the last five years you’ve been convicted of one of those felonies mentioned in 11 U.S.C. § 522(q)? See Section 522 of the Bankruptcy Code. You might want to wait until the five years have elapsed to get the full benefit. If you don’t wait, you only get the significantly reduced homestead. The could mean that your Chapter 13 plan percentage will be close to or at 100% because the Chapter 7 liquidation requirement must be met. 

What Role Does The Median Home Price In Los Angeles County Or Orange County Play In Determining The Amount Of My Homestead Exemption?

The maximum exemption you can get on your principal residence is the lesser of (a) $699,421, and (b) the median sales price for a home in your county. Because real estate is so expensive in Los Angeles County and Orange County, the median sales price exceeds the maximum exemption amount of $699,421. Therefore, the maximum exemption is $699,421.

In sum, if you’re in Los Angeles County or Orange County, as long as you’ve satisfied the 1,215-day requirement and the felony requirement, you’re entitled to the maximum equity exemption. 

Can Bankruptcy Lawyers Advise Clients Across State Lines?

While bankruptcy law is federal law, lawyers are only licensed to practice law on a state-by-state basis. For example, if you’re considering bankruptcy as a resident of Michigan, I cannot give you legal advice because I am only licensed to practice in California. 

If I were to give you advice, I would be practicing law without a license, as I am not licensed in your state. I’m only licensed to practice law in California. If you’re not in my state, you’re free to check out my YouTube videos, but you should discuss your case with a local lawyer. 

However, if you are in Los Angeles County or Orange County, California, please give me a call. I’d be happy to talk with you and represent you in a bankruptcy case. 

Still Have Questions? Ready To Get Started?

For more information on Exploring California’s 2024 Updated Homestead Exemption, a free initial consultation is your best next step. Call me at (562) 777-9159 today.