Thomas F. Miles, Attorney and Counselor at Law
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Proposed legislation to expand bankruptcy exemption law

When a California homeowner encounters serious financial difficulties, filing for personal bankruptcy can be a very appealing option. Bankruptcy laws are written to protect consumers, but there are instances in which those protections seem to fall short of that goal. An example may be found in the use of the bankruptcy exemption, which may not adequately shield homeowners from losing the value of their home.

Currently, individuals who file for bankruptcy and are forced to sell their home to satisfy creditor demands are allowed to keep a portion of the equity that has built within that property. That amount is capped at $75,000 for individuals and $100,000 for married couples. Seniors and disabled persons are allowed to keep $125,000.

However, the laws require that this money be used to acquire new property within six months. This is where the problem lies: consumers who have emerged from bankruptcy are typically unable to secure a new mortgage until a period of at least two years has passed. Current real estate prices are well above any of the allowance amounts mentioned above, so there is no realistic opportunity to take that money and use it to make a cash payment on a new property. Therefore, many homeowners end up losing the ability to make use of these important bankruptcy exemptions.

Under the newly proposed legislation, California residents would increase the bankruptcy exemption levels to $175,000 for individuals, $250,000 for married couples and $300,000 for seniors or disabled persons. Should the bill be signed into law, homeowners who are forced to sell their home during bankruptcy might have the chance to use some of their accumulated equity to purchase a less expensive property. As can be expected, the California bill is being strongly opposed by banking institutions and debt-collections agencies.

Source:, "Not all debtors are equal in California", Timm Herdt, Sept. 2, 2015

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