2023 California Homestead Exemption, increased by inflation
The 2023 California homestead exemption numbers are already available, and different from last year, and even the original range of $300,000 to $600,000. In fact, in 2023, they top out even higher than $600,000, which helps you save more of your home from creditors than the homestead exemption could in 2022. Why? Because of inflation. The new California homestead exemption is tied to the CPI, or consumer price index. And everyone knows things lately aren’t cheap.
Basics about exemptions
Chapter 7 bankruptcy is liquidation; the bankruptcy trustee can take your stuff. They don’t take the shirt off your back, but at some point they draw the line regarding what you can keep. These are the bankruptcy exemptions, and each state has its own. The California exemptions include a way to protect home equity.
There are two sets of California bankruptcy exemptions. California bankruptcy attorneys call these the 703s and 704s. The California homestead exemption is found in the 704s, at California Code of Civil Procedure 704.730. If you choose this way, you lose other things, including the ability to protect a tax refund. Meet with a bankruptcy attorney to find out what’s best for you.
The Three Homestead Exemptions in California Before 2021
In the old days, and by that, I mean prior to 2021, the California homestead exemption was based on the characteristics of the person filing bankruptcy, not the location of the real estate. It was subdivided a few ways. Firstly, there was the bankruptcy exemption that a single homeowner gets. This was in old subsection (a)(1). Most recently, a single person who lived in a house gets to protect $75,000 of home equity under the California exemptions.
Secondly, there was a higher exemption for a married person’s residence. This was in (a)(2). The California homestead exemption for a married person is $100,000 in the last year of this system.
Finally, if you can tick one of three boxes, you would get the superduper $175,000 homestead exemption in California’s bankruptcy exemptions. To level-up and qualify for this, you have to either be:
- 65 years old;
- have a disability that prevents gainful employment; or,
- 55 years old, and make below a certain income level that changes from time to time
This may seem simple, but what exactly is “disabled?” What does “as a result of?” What is the income level, and which time period is measured? Also, a good thing about the $175,000 California homestead exemption is that it would extend to the spouse of the person filing Chapter 7. So if the debtor is, say, 63 years old, but their husband is 67 but really doesn’t want to file bankruptcy, the 63 year old who does file Chapter 7 bankruptcy gets the $175,000 homestead exemption in California anyway.
In the right circumstances, someone filing consumer bankruptcy can protect a lot more house equity under this third option, which is less than the minimum after the law changed in 2021.
The new California Homestead Exemption starting in 2021
Then, in 2021, the California homestead exemption increased dramatically. This provided tremendous relief to California homeowners. What this means to the person contemplating filing bankruptcy is that more of their home equity can be protected. Why? Because they really do take houses in Chapter 7 bankruptcy.
Previously, the amount of home equity which could be protected was inadequate and hardly kept up with the inflated Calif real estate. But then in 2020, COVID-19 struck, and people were suddenly unable to pay their rent and mortgages. Partially in response to the pandemic, the state legislature passed and the governor signed a dramatic increase to the California homestead exemption.
The result is a system which depends upon the location where the house is, and has nothing to do with marital status or age. And this makes sense, as a homeowner in Ventura County probably has a higher home value than someone who owns a home in Lancaster CA. It’s now tied to the median home price for the previous year.
So, starting in 2021, homeowners who’ve lived at a home for 4 years or more get a minimum of $300,000 of home equity protection, and a maximum of $600,000 of California homestead exemption, based on what is, or was, mysterious data. What exactly is the county median home price? In Los Angeles and Orange County, a consensus slowly formed about the amount of the Los Angeles County median home price. And it changes each year (more on that below).
But be warned: if you haven’t lived there that long (and there are other factors which could jeopardize the new massive California homestead exemption), you don’t even get the $300,000 minimum.
Los Angeles County median home price 2023 and Exemption Inflation Calculator
You will want to consult with a qualified bankruptcy attorney before you risk losing your house.
2023 California Homestead Exemption: Updated numbers
The 2023 homestead exemption amount adjusts starting on January 1, 2023. Due to today’s historic inflation, the California homestead exemption in 2023 will be higher than in 2022, which was higher than the the initial range of $300,000 to $600,000.
Why? CCP 704.730 (b) says: “The amounts specified in this section shall adjust annually for inflation, beginning on January 1, 2022, based on the change in the annual California Consumer Price Index for All Urban Consumers for the prior fiscal year, published by the Department of Industrial Relations.” So let’s walk through the progression.
Warning: there are those who think that the CPI adjustment is applied only to last year’s median, and not last year’s adjusted number. Or put differently, there is disagreement as to whether the CPI adjustments stack up other CPI adjustments, or go only to last year’s median. If the adjustment applies only the most recent year’s median, that will make this year’s homestead exemption lower. Beware!
In 2021, the top limit for the California homestead was $600,000. Then, in June 2021, the CPI was 297.447, a 4.4% increase from the June the previous year. Applying that factor to the homestead amounts, that would increase both ends of the spectrum to $313,200 and $626,400. As inflation in 2022 is higher yet again, 2023 California homestead exemption will be even more than that.
Now, in 2023, we do the same thing all over again. With such high inflation recently at 8.27%, the 2023 California homestead exemption will be a little over $675,000. To be more precise, the 2023 inflation-adjusted range of the California homestead exemption is $339,189 and $678,378. To see how these numbers are reached, check out our own custom calculator for county median home price to reach the homestead exemption after adjusting for inflation. This will be helpful for the many counties whose median home price is between these two numbers.
Fun fact: Do you have to actually live at the home to get the exemption? For how long? Find out more here.
Be careful in Chapter 7 bankruptcy. It’s not always the best type of bankruptcies.
Read my 12 crucial tips before filing bankruptcy.
Don’t go it alone
You really should consult to a qualified Los Angeles bankruptcy lawyer, as you get what you pay for, and it’s not worth risking your home. If you don’t do this right, you’re literally gambling with your house.
Schedule a Zoom consult with me, and let’s talk.