Whether you are contemplating selling your home before or during a bankruptcy proceeding, or just need protection from a relentless creditor that is attempting to enforce a judgment against you, there are several important benefits to filing a Homestead Declaration in California. Now it is true that under California law you are entitled to an automatic homestead exemption. So why would you need to file a Homestead Declaration? Many people are surprised to learn that there are important benefits to recording a Homestead Declaration that provide for additional protection in relating to a bankruptcy case. These are important benefits that you do not receive with the automatic homestead exemption.
Benefits of Filing a Homestead Declaration in California
A homestead exemption refers to the amount of equity in your home that is protected from the claims of creditors both in and out of bankruptcy. A homestead exemption gives you the same amount of protection, even if you have not filed a Homestead Declaration. This is because the exemption is automatic. You receive the exemption automatically, by operation of law, just by virtue of the fact that you own a home and reside there. But there are other benefits to filing Homestead Declarations, other than simply being able to exempt a certain amount of equity in your home.
Abstract Will Not Create Judgment Lien Unless Surplus Equity Exists
One of the most important reasons for recording your Homestead Declaration in California is that in the event an abstract of judgment is filed against you, the judgment lien will not attach to your property and will not even create a judgment lien unless there is surplus equity over and above the homestead exemption amount. In contrast, if you did not have a recorded Homestead Declaration, the judgment lien would immediately create a lien and would attach to any equity in your home the moment the abstract is filed with the County recorder.
Can Sell and Keep Proceeds, If Reinvest
Another important benefit to filing a Homestead Declaration is that if you sell your home, your proceeds, up to your homestead exemption amount, are protected from judgment creditors if you reinvest the proceeds into another homestead within 6 months, and provided certain conditions are met.
Keeping Sale Proceeds In Bankruptcy Cases
The benefit of being able to keep sale proceeds (because you filed a Homestead Declaration), applies in San Diego bankruptcy cases. If you voluntarily sell your home before filing bankruptcy, the sale proceeds, up to your homestead exemption amount, are protected if you reinvest the proceeds into another homestead within 6 months, and provided certain conditions are met.
Similarly, if you do a voluntary sale of your home after filing bankruptcy (during the time your bankruptcy case is pending) you can exempt the proceeds as long as you reinvest within six months. This scenario may frequently arise in a Chapter 13 since you are in a 5 year plan. It would not typically occur in a Chapter 7 since most Chapter 7 cases are completed in 90 days. However, if your Chapter 7 stays open for years due to complications and you need to voluntarily sell your home, you will need to have a Homestead Declaration filed in order to protect the proceeds and of course would need to reinvest them within 6 months.
Chapter 13 Trustee Will Want to See Homestead Declaration
If you want to sell your home in a Chapter 13 repayment proceeding, the San Diego bankruptcy trustee in your Chapter 13 case will require that your attorney provide a copy of a properly recorded Homestead Declaration before any proceeds of the sale are released to you. (If there is no equity in your property, then you would not need to be concerned with protecting proceeds of sale, since there wouldn’t be any proceeds.)
Can Play a Crucial Role in Helping You Get Out of Debt
There are other advantages to filing a Homestead Declaration in San Diego bankruptcy cases. Recording your Homestead Declaration may play a crucial role in helping you get out of debt San Diego and protect the equity in your home. You should discuss with an experienced attorney whether filing the homestead declaration before bankruptcy would be beneficial for your case.