A recent bill (SB 308) introduced by Senator Bob Wieckowski in the California State Senate proposes major improvements to current bankruptcy exemptions which, if enacted, have the potential to impact many Californians. Of the many changes that the new bill proposes, the most significant change involves the homestead exemption.
Currently, the law provides that a typical debtor filing for bankruptcy can exempt up to $100,000 of the equity in their home, the qualification being that they live with a family member. Other debtors can exempt up to $175,000 if certain conditions are met, such as being 65 or older or being disabled. Nondisabled, single homeowners (not living with a family member) can exempt up to $75,000 of the equity in their home. In other words, if you own a home with equity, are not disabled, and live with a member of your family in that house (spouse, sibling, child, parent, etc.), you are currently allowed to pass up to $100,000 of your equity through a bankruptcy and would not be required to liquidate your asset to use that equity to satisfy creditors.
The new provisions in SB 308 seek to increase this homestead exemption to $300,000 for all individuals. This means that, under the proposed law, individuals with significant equity in their home (greater than $100,000) who are also burdened by debt would be able to pass up to $300,000 of equity through a bankruptcy. For many individuals with equity greater than $100,000, bankruptcy simply isn’t an option under the current law because the Trustee would most likely elect to liquidate their home to satisfy creditors. SB 308, if enacted into law, has the potential to provide many individuals who are fortunate enough to have significant equity in their home but who are also burdened by debt, the option of achieving a fresh start through bankruptcy.
The new bill also proposes a number of other changes to bankruptcy exemptions, many of which are likely not to apply to most debtors. Some of the more impactful proposed changes include increasing the vehicle exemption to $6,000 and establishing that the filing of a bankruptcy itself does not constitute an event of default. By and large, SB 308 is a debtor-friendly bill that offers many benefits for individuals considering bankruptcy.
The bill recently passed the Senate and is currently before the Assembly Standing Judiciary Committee. After approval by the Judiciary Committee, it will be considered by the full Assembly. Because the proposed legislation is so debtor-friendly, some segments of the financial industry are working to kill this bill. Members of the bankruptcy community have joined together to urge Assembly Members to pass this bill. We will keep you informed as to the status of the enactment of SB 308 and if you have any questions about the bill or about bankruptcy in general, feel free to give us a call. We are happy to help.