What is the Bankruptcy Homestead Exemption? (A Guide for San Francisco)

It is normal to feel stressed, frustrated, and overwhelmed if you are falling behind on your bills. Getting deeper into debt each month can be a difficult hole to climb out of. In some cases, bankruptcy may ultimately be the best path forward. For homeowners, filing for bankruptcy protection can be especially stressful. You may be wondering: Will I lose my home?

For many people in California, the answer is “no.” Our state has a bankruptcy homestead exemption in place that allows homeowners to use the bankruptcy process while protecting a certain level of equity in their primary residence. Here, our San Francisco bankruptcy attorney explains the most important things you need to know about the California homestead exemption. 

What is the Homestead Exemption?

California law provides some key protections to homeowners who are filing for bankruptcy. The state’s homestead exemption—which is one of the most comprehensive and generous in the entire country—allows people who file for either Chapter 7 bankruptcy or Chapter 13 bankruptcy to exempt some (or all) of the equity in their home from the process. In other words, the homestead exemption is a safeguard against a claim against your home’s equity by an unsecured creditor. 

Bankruptcy Homestead Exemption Varies By County in California

California Assembly Bill 1885 (AB 1885) was passed into law in the Fall of 2020. It increased the state’s homestead exemption for bankruptcy cases. Under California law (California Code of Civil Procedure § 704.730), the homestead exemption varies by county. The value of our state’s homestead exemption is “the countywide median sale price for a single-family home in the calendar year prior.” However, there are minimum and maximum amounts. It was updated on January 1st, 2024. 

• The minimum homestead exemption for any county in California is $349,720; and
• The maximum homestead exemption for any county in California is $699,426.

Note: For most counties in the Bay Area—including San Francisco County—the homestead exemption is at or near the state maximum level of $699,426.

Understanding How the Exemption Actually Works in Bankruptcy in San Francisco

How does the homestead exemption actually work when filing for bankruptcy protection in San Francisco? It depends, in part, on the type of bankruptcy you are filing for, your level of home equity, your mortgage, and whether or not you want to remain the house going forward. Here are some of the key points to know about the use of the homestead exemption in San Francisco: 

• The Homestead Exemption Applies Automatically (If Keeping it): In San Francisco, the homestead exemption is automatically applied when you file for bankruptcy—as long as you are choosing to keep and remain in your home. In other words, the equity in your home falls within the exemption limits, it is automatically shielded from being seized by creditors to satisfy debt obligations when you file for bankruptcy. As noted, the bankruptcy exemption for San Francisco County is at the state maximum of $699,426. You can shield up to that amount of home equity during bankruptcy. 

• You Must Declare Homestead Exemption (When Selling Home): As part of the process of restructuring your life when filing for bankruptcy protection, you may be considering selling your home. If you decide to sell your home, declaring the homestead exemption becomes necessary to protect the proceeds from the sale. Put another way, the homestead exemption still protects you from creditors. However, you must proactively “declare” that you are taking the homestead exemption so that you can protect the proceeds of the home sale. A top-tier San Francisco bankruptcy attorney can help you navigate this complex matter. 

• A Lawyer Will Determine Your Equity and Your Debts: When navigating bankruptcy—particularly in a high-stakes situation where you have significant equity in a primary residence in San Francisco or elsewhere in the Bay Area—it is essential that you have strong legal representation. Your San Francisco bankruptcy lawyer can evaluate your financial situation and help you determine the best course of action. Along with other things, your attorney will assess the equity in your home—calculated as the current market value minus any outstanding mortgage or liens—and compare this to your debts. The valuation is key to determine how much of your home’s equity is actually exempt. 

• Non-Exempt Equity is Subject to Liquidation for Creditors: Equity in your home that exceeds the exemption limits is considered non-exempt under California law. Imagine that you own a $890,000 home outright in California. You need to file for bankruptcy protection. Under state law, you can not exempt the full value of that home. Indeed, nearly $200,000 of that home equity will be subject to liquidation by creditors. In other words, if your home equity surpasses the maximum allowable exemption, that additional value could potentially be used to pay off creditors. If you find yourself in this situation, you need a San Francisco bankruptcy attorney who can help you best protect your hard-earned assets. 

Why Trust Our San Francisco Bankruptcy Lawyer 

Are you a homeowner in the Bay Area who is considering bankruptcy protection? You need a top-tier attorney on your side. Our founder and principal attorney Le’Roy Roberson has extensive experience handling Chapter 7 bankruptcy and Chapter 13 bankruptcy in California. We have the knowledge and legal expertise to navigate homestead exemption cases. Whether you are also having trouble with your mortgage or you own your home outright, there is always a path forward to a more stable financial future through the bankruptcy process. Consult with our San Francisco personal bankruptcy lawyer today for a confidential, no obligation initial consultation. 

Speak to Our San Francisco, CA Bankruptcy Attorney Today

At Resolve Law Firm, APC, our San Francisco bankruptcy lawyer has the knowledge, skills, and legal expertise that you can rely on. If you have any specific questions or concerns about California homestead exemption, please do not hesitate to contact us today for a free case review. Our firm provides bankruptcy representation in San Francisco and throughout all of the Bay Area, including in San Jose, Oakland, Fremont, Santa Rosa, Hayward, Sunnyvale, Concord, and Richmond.