The bankruptcy homestead exemption (also referred to as the bankruptcy home exemption) protects a certain amount of equity in your home when you file a chapter 7 bankruptcy. This is the amount that you are allowed to keep before unsecured creditors are paid. Unsecured creditors are those without a lien or judgment against you.
Californians are not allowed to use the federal bankruptcy home exemption. Instead, they have two sets of bankruptcy exemptions to choose from. Under the one set, the homestead exemption increased by $25,000 as on January 1, 2010.
A homestead is defined as any real or personal property that you occupy and could include a mobile home, boat, condo, or community apartment.
Under one set of bankruptcy exemptions (system 2 and the one you would normally choose if you own a home in which there is a lot of equity), the amount of equity that is protected is:
$75,000.00 if single and not disabled
$100,000.00 for families if no other member has a homestead
$150,000 if age 65 or older or physically or mentally disabled
$100,000 if 55 or older, single and earn under $15,000 or married and earn under $20,000.
Another set of bankruptcy exemptions (system 1) in California provides for only $20,725 and these may be the exemptions that you choose if you do not own a home or have very little equity in one. Under this set of bankruptcy exemptions, the unused portion may be used to exempt or protect any real property.
For example, if you only have 5K equity in your home, you could use the remaining $15,725 to cover the property of your choice. If you do not own a home, you can use the entire $20,725 to cover the property of your choice.
I chose system one which was a no brainer since I did not own a home. This allowed me to protect some additional stocks, bank accounts, cash and jewelry.
As always, please consult with a qualified bankruptcy attorney before making any decisions as to which bankruptcy home exemption to use as you may have circumstances unique to your case. I am not a lawyer.
Wishing a fresh start to all who need one,