Forthcoming changes in California law will result in a tremendous increase in  homeowners’ ability to protect their homes through Chapter 7 bankruptcy. Previously  capped off at $75,000, $100,000 or $175,000 the Homestead Exemption will increase as  of January 1, 2021. This increase will be based on local median sale prices in the county  in which the home is located.  

Here are the current local median sales prices as of September 2020:  

• Placer County – $529,595.00  
• Sacramento County – $402,230.00  
• Butte County – $329,998.00  
• San Joaquin County – $389,858.00  
• Solano County – $459,751.00  

 California has finished below the national average for Chapter 13 filings as a  percentage of all filings for the past two decades partly because they permit a filer to  protect more equity in Chapter 7 than many other states. Even without this expanded  homestead exemption, debtors in California still had a much greater chance at getting  

debt relief from a Chapter 7 case without losing their homes than residents in some other  states. Just over 20% (15,861 cases of 69,432 total) of all bankruptcies filed in this state  in 2019 were filed under Chapter 13, which means that the majority of filers used Chapter  7 bankruptcy which represented 76% of all Cases Filed in 2019 (52,903 cases of 69,432  total). Perhaps, at least a portion of this difference can be explained by higher  homeownership rates in other states (e.g. Tennessee has a homeownership rate of 68.6%  of the population versus California’s 54.6%).  

 Some states receive unlimited homestead exemptions which permit a filer to  protect any amount of home equity in their possession. These states are: Florida, Iowa,  Kansas, Oklahoma, South Dakota and Texas. These states’ chapter 7 filing rates relative  to the total amount of cases filed in 2019 were as follows:  

• Florida – 66.6%  
• Iowa – 87.2%  
• Kansas – 54.4%  
• Oklahoma – 82.2%  
• South Dakota – 85.1%  
• Texas – 50.8%  

 Only half of these states have a greater number of Chapter 7 cases filed relative to  total case filings than California did and each has a higher home ownership rate. It is  possible that the increase in homestead exemption starting in 2021 puts California more 

alongside states like Iowa and South Dakota which see nearly 9 out of 10 bankruptcies  being filed under Chapter 7; however, there is another possibility. There may be a  sizeable population in California who possess home equity in excess of the $100,000 that  is currently permitted to be protected under Chapter 7 who cannot afford to file a chapter  13 while making ends meet. A percentage of these people may have explored the  possibility but never ended up filing Chapter 13 bankruptcy, therefore they would not  contribute to the total share of cases filed. With the new rule in place, many of these  people could now file under Chapter 7 without losing their homes. Rapidly increasing  home values in the state have resulted in many people accruing equity rapidly despite  purchasing a home only a few years ago. It appears that the top-line rate of nearly 9 in 10  cases is possible, but given California’s already rather high rate of Chapter 7 cases  relative to the total body of filings it is likely that this exemption does not create a  situation where Chapter 13 functionally goes the way of the dodo. There are other  reasons to file chapter 13s outside of home equity, but this is one of the primary factors  that can decide a case’s fate.  

 If you’re facing trouble with debt and have been previously advised that you  cannot keep your home in Chapter 7 bankruptcy it very much might be worth exploring  this possibility once again in 2021.  

 If you have any questions about filing bankruptcy please feel free to reach out to  your Stockton bankruptcy attorney at 209-952-0355.  

Works Cited  

Source: https://abi-org.s3.amazonaws.com/Newsroom/State_Filing_Trends/FilingTrendsCalifornia.pdf  Source: https://abi-org.s3.amazonaws.com/Newsroom/State_Filing_Trends/FilingTrendsTennessee.pdf  Source: https://abi-org.s3.amazonaws.com/Newsroom/State_Filing_Trends/FilingTrendsFlorida.pdf  Source: https://abi-org.s3.amazonaws.com/Newsroom/State_Filing_Trends/FilingTrendsKansas.pdf  Source: https://abi-org.s3.amazonaws.com/Newsroom/State_Filing_Trends/FilingTrendsOklahoma.pdf  Source: https://abi-org.s3.amazonaws.com/Newsroom/State_Filing_Trends/FilingTrendsSouthDakota.pdf  Source: https://abi-org.s3.amazonaws.com/Newsroom/State_Filing_Trends/FilingTrendsTexas.pdf 

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