I have been practicing bankruptcy law for 12 years now and have noticed that often the laws don’t keep up with reality. While the bankruptcy laws are generous in what they allow you to keep while at the same time wiping out your creditors, the amount of home equity that you can protect has been outdated for years. While home prices and people’s equity has soared over the years, the amount of home equity exemption allowed in bankruptcy has stayed stagnant. Between the two sets of exemptions, the 703 and 704 exemptions, you generally choose the 704 exemptions to protect your home, and for over a decade you have been allowed to protect between $75,000 to $175,000 depending on your age, income, and a variety of other factors. If you live in Southern California, then these numbers are clearly outdated, especially as home prices have been breaking records recently.
Fortunately, as of 2021, the laws have finally changed. You can read about the new 704 Exemptions here.
What the new bankruptcy exemptions mean is that for many, you may now be able to protect up to $600,000 worth of equity in your home and still file a Chapter 7 bankruptcy without fear of losing your home to the bankruptcy Trustee. As these numbers and the associated law are relatively new for 2021, it may take the bankruptcy Trustees, and the Courts some time to interpret them. How much you can actually protect will depend on the county in which you live, and the median home price for that county. Regardless, this is a breath of fresh air for many people who have been desperately needing to file a Chapter 7 bankruptcy but up until now have not been able to do so because they had “too much equity” and were at risk of losing their homes. For others, it can also mean that filing a Chapter 13 will result in a much lower repayment plan if they no longer have to factor in to their plan the fact that they are over the equity limits.
Given that your most important asset is your home, you should always consider hiring a bankruptcy attorney to prepare and file your case, especially when a home is involved. We offer a free over the phone consultation to see if you qualify. Call today! 818.293.5291
