New law provides greater protection for your home against creditors

THIS has got to be the best news I have heard recently! Given the huge job losses and high unemployment rate that have left many unable to pay their debts, this may be the biggest change in the law that can help many people protect and keep the substantial equity they have in their family home.

On September 18, Governor Newsom signed AB 1885 into law which takes effect on January 1, 2021. What exactly is AB 1885 all about and how does it benefit homeowners?
In California, prior law (Section 704.730 of the Code of Civil Procedure) provided that a specified portion of the equity in your residence was exempt from execution to satisfy a judgment debt: $75,000 for single person, $100,000 for a married couple (or the debtor and a dependent living in the residence) and $175,000 for homeowners over 65 years of age or disabled. So, for example, if a judgment creditor were to force a sale of your residence to satisfy the judgment, these were the amounts that they could not take from you. But what if you had substantial equity in your home that was above these amounts? Well, under the law, you were simply out of luck.

These exemption amounts also apply if you were to file Chapter 7 bankruptcy. If your home equity exceeded the allowable exemptions amount, a bankruptcy trustee can force a sale of your home to pay creditors. While the old law did provide protection to SOME homeowners, it still was not enough to protect those homeowners with higher equity amounts. So, if you have worked hard all your life and have accumulated significant equity in your home, the old law not only left you vulnerable to judgment creditors but would have also put your family home at risk of being lost.

Enter the new law. AB 1885 was passed to amend these outdated homestead exemption amounts. Beginning the 1st of next year 2021, you now get to exempt the greater of $300,000 or the median sale price of a single-family home last year in your county, not to exceed $600,000. To help you understand what this means for you, here are some projections for several counties:

1. Los Angeles: $600,000 (Estimated Median = $645,000)
2. Riverside: $400,500
3. Orange: $600,000 (Estimated Median = $765,497)
4. San Bernardino: $370,215

So, let us say you were married and lived in Los Angeles County. If your home was worth $550,000 and you still owed $100,000 on it, that means you have $450,000 in equity.

Normally, filing Chapter 7 (which only allowed a $100,000 homestead exemption for married couples) would have been a problem. Under the new law, however, since you get to exempt $600,000 instead of only $100,000, you can file bankruptcy without losing you home. Going forward, these dollar amounts will continue to be adjusted by inflation.

In Chapter 13 where the court also looks at the unprotected home equity in determining how much a should pay, the old law made the Chapter 13 plan payment too high and unaffordable to a lot of people. The higher homestead protection amounts will now make a lot of Chapter 13 plans affordable by significantly reducing the amount that has to be paid in a lot of cases.

For people in dire financial situations caused by COVID-19 who could not obtain bankruptcy relief under the old law, this new law provides the greatest protection that we have not had for a very long time. Homeowners who are crippled with overwhelming debt will now be able, in many situations, to file bankruptcy and discharge their unsecured debt while keeping their home 100% safe. Of course, every case is different, and you should seek the advice of a competent bankruptcy attorney in order to fully understand your legal rights.

If you are in debt and need to find a way out, I can help you figure out all possible options.

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NOTE: Due to the current lockdown order caused by COVID-19, I am offering free consultations BY PHONE to anyone who needs help in dealing with their debt problems.

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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped over 5,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call RJB Law Offices at TOLL FREE 1-866-477-7772.

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