How do the California Homestead Exemptions Work?
The state government of California, just like most others in the United States, has set in place different measures protecting its citizens from property seizure by creditors when they file for bankruptcy. These serve to ensure that the debtor does not end up in poverty, further disadvantaging such an individual as well as their immediate families and their dependents.
One such measure set in place by the Californian authorities is the Homestead Law.
The Homestead law, as interpreted by the California Judicial Council, establishes limits to actions of creditors against the individual and the equity accrued in their homestead. In this manner, the procedure by declaration allows homeowners as well as small property owners to declare their assets as being their homestead, effectively shielding them from having to sell them to pay off accrued debts.
The Homestead law, in effect, is an extension of the exemption procedures set by the state government to shield the citizens from property loss when they encounter economic challenges.
Homeowners wishing to invoke the homestead law in bankruptcy proceedings are provided with two types of exemptions to choose from, declared homestead and automatic exemptions.
A declared homestead exemption is granted through an application by the owner via the county recorders’ office, who thereafter make the decision to either approve it or otherwise based on preliminary assessments.
An automatic homestead exemption, on the other hand, occurs automatically without requiring the homeowner to specifically file their case with the county recorder.
What then, one may ask, is the difference between the two given that they are meant to serve the same purpose?
The difference between these two lies in their application under the California Judicial Laws. Whilst an automatic exemption serves to protect the homeowner’s equity from the involuntary sale, the declaration of an applied exemption would effectively protect the property and equity from both voluntary and involuntary sale by the actions of a creditor.
The Homestead Law, however, has its limitations in application. The law, for instance, would not protect your assets from a forced sale or auction through a mortgage lender. Similarly, it can only be applied subject to the maximum allowable amounts as set by law. Furthermore, it will not protect your assets in instances of delinquent alimony, child support and mechanic liens.