AB 1885 updates exemptions in bankruptcy to better reflect today's rising housing costs
SACRAMENTO – State Senator Bob Wieckowski (D-Fremont) tonight praised Governor Gavin Newsom for signing a major increase in the state’s outdated homestead exemption law that will boost the amount of equity protected from creditors and prevent more homeowners from losing their residences in bankruptcy cases. AB 1885, a budget trailer bill, puts California more in line with other states that have strong homestead exemption laws.
“Protecting people’s most valuable asset by meaningfully updating the homestead exemptions will keep families from falling deeper into debt and economic insecurity,” said Wieckowski, a member of the Senate Budget and Fiscal Review Committee. “The homestead exemptions are currently not nearly reflective of the actual value of residential property in California in 2020. To put it bluntly, they are woefully insufficient. AB 1885 will change that and I applaud the Governor for approving this important update.”
The existing homestead exemption in the event of a bankruptcy is $75,000 for singles, $100,000 for a married couple and $175,000 for seniors and the disabled.
AB 1885 would increase that to the greater of $300,000 or the countywide median sale price of a single-family home in the calendar year prior to the year when the judgment debtor claims the exemption. It caps the amount at $600,000 and, beginning in January 2022, adjusts it annually for inflation based on the change in the California Consumer Price Index.
This bill is targeted at middle-class California homeowners to enable them to keep their homes in a bankruptcy.
Discussions on updating the homestead exemptions began in the Democratic Caucus Working Group on Economic Recovery, created by Senate President Pro Tem Toni Atkins. They eventually became part of the budget dialogue between the Senate and Assembly.
For middle class Californians who have decades of work building equity in their homes, this bill makes it less likely that their home will be forcibly sold to pay off an unsecured debt. It will especially help seniors on fixed incomes who have spent a lifetime paying down their mortgage.
Senator Wieckowski represents the 10th District, which includes southern Alameda County and parts of Santa Clara County.