IN California, depending on the system of exemption used and the qualifications of debtor filing for bankruptcy, the equity of the residence or homestead that may be claimed as exempt is $50,000 to $150,000. A single person without any dependents may claim a $50,000 equity exemption for his homestead while a person at least 65 years old at the time the bankruptcy is filed may claim a $150,000 equity exemption pursuant to California Code of Civil Procedure 704.730. Note that it is the equity of the house that is claimed exempt. Equity is current fair market value on the day the bankruptcy is filed minus the outstanding balance of all mortgages on the property. Hence, if the fair market value of the house is $300,000 while the outstanding mortgages is $250,000, a single person with no dependents can claim the house as exempt in his bankruptcy and be able to keep the house despite the bankruptcy. In this example, if the outstanding mortgage balance was $150,000, a single person who is at least 65 years old on the date of his bankruptcy filing may be able to claim the house as exempt because his exemption qualification is up to $150,000. But the younger single person can exempt only $50,000 of equity. Thus, the younger single person may lose the house to the bankruptcy trustee if his mortgage balance was only $150,000. In that instance, the Chapter 7 trustee may sell the house and give the single person his exemption of $50,000 in cash and use the rest of the sale proceeds to pay creditors. If there is money left after creditors and administrative expenses are paid, including trustee and trustee counsel fees that money is given to the debtor.
What happens if the debtor claims a homestead exemption for a house that he does not live in? The exemption does not apply because the homestead exemption only applies to a house that the debtor lives in. For instance, debtor rents an apartment in Los Angeles, where he lives, but owns a house in Riverside, which he keeps vacant because he likes to spend the holidays in that house. The house in Riverside has equity of $100,000. Debtor will not be able to claim the Riverside house as his homestead. If debtor files for Chapter 7 bankruptcy, he will lose the house in Riverside because the exemption claimed for the house is not applicable in his case. But what if debtor’s intent is to keep the Riverside house as his residence when he retires in 2 years? He will still lose the house because he must live in the Riverside house on the date of filing his bankruptcy. In re CAMPBELL, and out of state case, the court sustained the trustee’s objection to the debtors’ homestead exemption.
When the Campbells filed for Chapter 7 relief, they said they rented their home and had no interest in real property. Ten days later, wife’s grandmother died and she inherited an undivided one half interest in a house in Oklahoma. Debtors then amended their schedules stating an intention to move into the inherited property, and claimed it as their exempt homestead. The court sustained the trustee’s objection to the homestead exemption. The court said that the debtors could not claim a homestead exemption in the property because they neither occupied the house nor were able to express when they would do so with any certainty. Debtors told the court that they would move in after their son graduates from high school. The court found this intention to be "far too tenuous" to qualify as an intent to occupy. "Their anticipated date of occupation is certainly not imminent." Their son was graduating in two years. The court said that a lot of things could happen in a span of two years, which could change debtors’ intention to move.
If you need debt relief, contact my office. I will analyze your case personally.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.
( Published October 7, 2009 in Asian Journal Los Angeles p. B3 )
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