The Importance of Homestead Declarations in Chapter 13 Bankruptcy

The Importance of Homestead Declarations

Homestead declarations are a unique feature of California law that protect a certain amount of equity in your home from creditors. While not required before filing for bankruptcy (or for any legal reason), filing a homestead declaration with your local county recorder’s office is always recommended, and can be especially useful if you’re planning on filing for Chapter 13 bankruptcy. Filing a homestead declaration usually costs under $20.

What a Homestead Declaration Does Under California Law

The Importance of Homestead Declarations

When you fill out a homestead declaration, you are declaring under penalty of perjury that your home is your primary residence that you physically reside in. Filling out this declaration protects any equity that is in your home after you have sold it and paid off any mortgages in liens. Under current California law, the current limits on the amount of protected equity are:

•        $75,000 for a single occupant.
•        $100,000 for a married couple or close relatives.
•        $175,000 for a single owner over the age of 65, or if the owner’s spouse is over the age of 65, or disabled, or over the age of 55 with a gross income of less than $25,000 annually. This income cap is increased to $35,000 for married couples over the age of 55.

Homestead Declarations and Chapter 13 Bankruptcy

Aside from bankruptcy, homestead declarations are useful for ensuring that you get some equity from your home in the event that someone obtains a judgment against you and gets a lien on your home.

Homestead declarations are unaffected by forced sales, which sometimes occur in Chapter 7 bankruptcy. Their usefulness arises in more unique Chapter 13 bankruptcy cases.

Let’s say you’re in the middle of a five-year repayment plan in Chapter 13 and your home has substantially increased in value. For several reasons you would like to sell it and move while the market is hot.

If you spent the $20 to record a homestead declaration prior to filing for bankruptcy, you can keep whatever the amount of the exemption is allowed under the law. Keep in mind that depending on your age and marital status, this could be up to $175,000.

However, if you didn’t record a homestead declaration and decide to sell, all of that money will likely be turned over to the bankruptcy trustee who will distribute it to creditors.

So while homestead declarations may only occasionally arise in court cases, for how little they cost, they are extremely useful tools for protecting your assets.

Is It Time to File for Chapter 13 Bankruptcy?

There’s a lot to think about when filing for bankruptcy, but Law Offices of Melanie Tavare of Oakland and Hayward can help you understand your rights when filing for either Chapter 7 or Chapter 13 bankruptcy. You can reach the Law Offices of Melanie Tavare online or by calling our office 510-255-4646.

The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.