SB1099: New California Bankruptcy Exemptions Increase (2022) | 5 Major Wins
SB1099, the new California exemptions increase which gives debtors in bankruptcy more protections, is now law. The new California exemptions in 2022 help people in bankruptcy keep more of their assets, including their cars, their home, money, support pay, and sick leave. The bill was signed by the governor yesterday, and takes effect 1/1/2023.
Note that SB 1099 and the 2022 California exemptions are different from the 2021 increase in the California homestead exemption which is tied to Los Angeles County median home prices. Last year’s homestead exemption boost strictly involved homes. The 2022 exemption hikes for California improves protection homes, cars, savings, support, and accrued leave and wages.
While the changes in the new California exemptions of SB 1099 are many and wide-ranging, below are some key highlights.
Home equity appreciation now goes to debtor, not the estate
A key provision of the new California exemptions law is that postpetition appreciation in the home equity of debtors cannot be taken to repay debts. Section 2 of the SB 1099 says:
[I]n a case where the debtor’s equity in a residence is less than or equal to the amount of the debtor’s allowed homestead exemption as of the date the bankruptcy petition is filed, any appreciation in the value of the debtor’s interest in the property during the pendency of the case is exempt.
This addresses the horrible, terrible, no-good decision of In re Jacobson, 676 F.3d 1193 (9th Cir, 2012) which provided the perverse result that debtors had a contingent homestead exemption. The
Ninth Circuit there ruled, “That right was contingent on their reinvesting the proceeds in a new homestead within six months of receipt. Cal.Civ.Proc.Code § 704.720(b). The Jacobsons did not abide by that condition and thus forfeited the exemption.” Jacobson at 1199.
Now, with SB1099 becoming law, regardless which way the housing market goes after homeowners file bankruptcy, appreciation in their house is theirs, and not the trustee who previously could take it to pay their debts.
Ridethrough for Cars is Back in California
In 2005, the bankruptcy reform known as BAPCPA required debtors in Chapter 7 bankruptcy to sign reaffirmation agreements if their lender provided one. This meant that the debtor owed the car loan, even if they lost the car to repossession after bankruptcy. With SB 1099, the debtor doesn’t need to sign the reaffirmation agreement, and the car loan can “ride-through” the bankruptcy case. Ridethrough was the norm before BAPCPA, and now in California, it has returned. The ride-through policy protects debtors from being liable for a big debt if they eventually default on the car loan.
The “ride-through” bankruptcy part from the new CA law helps debtors. In short, no longer is the person in bankruptcy gambling that they won’t suffer some future hardship and lose the car, and still be stuck post-bankruptcy with thousands of dollars in a car loan they can’t afford. Ride-through in bankruptcy for cars is back in California.
Car Exemption is Increased to $7,500
The new SB1099 law also increases the car exemption amount to $7500, regardless of which exemption scheme is chosen. The California exemptions have two tracks, in the 703 and 703 sections of the California Code of Civil Procedure. Each section previously has a different amount for protecting equity in a vehicle. Now, regardless which scheme debtors choose, they can protect $7,500 of equity. This is crucially important in this era of record prices for used cars.
Sick leave & family leave time protected up to $7500
Family leave, sick leave, and vacation credits are now exempted up to $7,500, as these terms are defined in Section 200 of the Labor Code.
Alimony and support
Pre-existing law included an alternative exemption for the debtor’s right to receive alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor. This new California exemption adds a general exemption matching the existing alternative exemption.
And there are more.
New California Exemptions of SB1099 help debtors … a lot.
While the list goes on and on, these are the key provisions. It amends Section 2983.3 of the Civil Code, Sections 703.140, 704.010, 704.050, and 704.113 of, and to add Section 704.111 to, the Code of Civil Procedure, and amends Section 22329 of the Financial Code, which relates to bankruptcy. The bottom line is the newly-enacted SB 1099 California exemptions protect homeowners, car owners, people receiving support, and sick pay. It’s a win for Californians, and those who lose out are the credit card companies. Rejoice, California!