California increased the creditor homestead exemption for personal residences, allowing debtors with residences in California to protect more equity in their homes. AB 1885 increased the California homestead exemption to the greater of $300,000 or the median sales price in the county where the single-family home is located in the prior year, not to exceed $600,000. This new homestead exemption amount will become effective January 1, 2021. The homestead exemption protects a specified portion of a debtor’s home equity in the event of bankruptcy or if a creditor requests that the debtor’s house be sold to pay a judgment.

The current homestead exemption is believed by many to be antiquated. The new law is intended to significantly increase the protection of a debtor’s primary residence and bring the law current with California home values.  The new homestead exemption is significantly more protective for debtors than existing law. Under existing law, the homestead exemption provides for just a $75,000 to $175,000 homestead exemption, depending on age, disability and marital status.

California will adjust the homestead exemption amounts for annual inflation based on the change in the annual California Consumer Price Index for All Urban Consumers, and thus the exemption amounts will likely increase year-over-year.