Law Offices of Nicholas Gebelt

Does The Homestead Protect Me From Creditors In California?

If you have a homestead, then the dollar amount of that homestead is determined based on the California homeowner’s exemption table. Creditors can’t seize and sell your property if you have equity in the house that is less than the exemption amount. That does not mean that a creditor who gets a judgment against you is prohibited from recording a lien against the property. Why would they do that? If you have equity that is below the exemption amount, the creditor will not be permitted to foreclose on the property and seize it, but it’ll have that lien so that if, in the future, you decide to refinance or sell your property, you’ll have to pay off that lien as part of the transaction.

In short, your house is protected up to the exemption amount. You can’t be thrown out on the streets if you lose a civil action, and the creditor gets a judgment against you. The creditor, nevertheless, is not without recourse. In addition to recording the lien against your property, it can enlist the services of the sheriff to garnish your wages or levy funds out of your bank accounts. In sum, just because the house is protected in the sense that you get to continue living there does not mean that you’re completely insulated from any sort of consequences from that judgment.

You can avoid that lien on your property in bankruptcy under just the right circumstances, based on this idea of the exemption. (This is a somewhat unusual usage of the word “avoid.” It means to render null and void, a definition you’ll probably only see in law.) So, how can you avoid that judgment lien?

(A judgment lien is a lien that’s recorded by a creditor who got a judgment against you in a lawsuit in the California Superior Court. The creditor can then take that judgment lien, sometimes referred to as a judicial lien, and record it in the county recorder’s office in the county in which you live against the title of the property.)

In bankruptcy you can avoid that judgment lien to the extent that it impairs your exemption. To understand the exemption impairment, we must apply the formula found in Section 522(f) of the Bankruptcy Code. We begin by taking the value of the lien, plus the sum of all other liens against the property, plus the value of the exemption that you could take if the house had no liens against it at all. We then compare that sum to the fair market value of the property. The extent that that sum exceeds the fair market value of the property is the extent that the exemption is impaired. This is the extent to which you can avoid the lien. It’s important to note, of course, that the lien avoidance doesn’t get rid of the underlying debt against you as a person unless you get a discharge of that debt. It does, at least, clear the title of that particular judgment lien.

However, if the underlying debt is not discharged, then after the Court closes the bankruptcy case, the creditor can rerecord the lien. Therefore, there is no point avoiding the lien unless the underlying debt is dischargeable.

As I discussed earlier, exemptions have a very real place in California outside of bankruptcy. However, what I’ve just described regarding the lien avoidance is not available outside of bankruptcy because it’s a creature of the Bankruptcy Code. In conclusion, California does have homestead protection, and if you’re in a bankruptcy, you also have the option of avoiding any judgment lien to the extent that it impairs your exemption.

Is The Homestead Exemption Automatic In California?

There is what’s called the recorded homestead. When you purchase a property, you can record the homestead with the county recorder’s office so that it appears as part of the chain of title; but there is also an automatic homestead, which serves the same purpose. The difference has to do with whether the sale of the property is voluntary or involuntary, how the payment is arranged, who gets paid first, and how much of the equity you might be able to recover. California’s automatic homestead is found in the homeowners’ table, which means you get an automatic homestead of up to $600,000 in the equity in the property.

For more information on Homestead Exemption in California, a free 20 minute consultation is your best next step. Get the information and legal answers you are seeking by calling (562) 777-9159 today.

Attorney Nicholas Gebelt

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