Tag: california

Bankruptcy can toll or extend the statute of limitations using Section 108(c)

Does Bankruptcy Toll the Statute of Limitations? 108c Top Points

Does Bankruptcy Toll the Statute of Limitations? 108c Top Points

Does bankruptcy’s automatic stay toll a statute of limitations for a creditor’s claim or judgment, or extend it in Calif and beyond. What to know.

When a bankruptcy is dismissed or discharged, is the statute of limitations tolled on an earlier claim by the automatic stay, and suspended? Or is the statute of limitations extended by a few weeks with just a little bit of time tacked on? The answer could make a big difference on how much time the creditor has the act on their claim, lawsuit, lien, or other collection actions.

Automatic Stay giveth, but what does it take away?

Extending time using Section 108
Live photo of someone extending time using Section 108

You probably already know there’s bankruptcy protection in 11 USC 362 called the automatic stay. In short, this means that once a bankruptcy is filed, all collections against the debtor have to stop. This is powerful and effective. In a typical case that successfully ends with discharge, the debt is no longer collectable, ever.

However, sometimes a Chapter 13 bankruptcy — sort of a years-long debt consolidation — doesn’t make it to discharge. If the case is dismissed, what happens to the statute of limitation timing on claims and judgments before the bankruptcy? Is the statute tolled (suspended), or is the timeline to collect extended?

Suspend: Tolling of the Statute of Limitations

Suspension would involve tolling the statute of limitations for the time in bankruptcy. A common example would be in California. Here, there’s a four-year statute of limitations for breach of contract. If three of those years have run, and then someone files Chapter 13 for two years before it’s dismissed, how much time remains to collect? If the statute was suspended or tolled, there would still be a year to file a law suit against debtor, post-bankruptcy.

Extend: Add some time to collect after bankruptcy.

Extension of time would be tacking on additional time to prosecute the case and file the lawsuit after the dismissal of the bankruptcy.

Let’s look at the law and see what it says for guidance.

Bankruptcy Code 11 USC 108

Section 108(c) of the Bankruptcy Code says:

…if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, or against an individual with respect to which such individual is protected under section 1201 or 1301 of this title, and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of—
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) 30 days after notice of the termination or expiration of the stay under section 362, 922, 1201, or 1301 of this title, as the case may be, with respect to such claim.

What this means is that Section 108(c) kicks in regarding someone protected under Chapter 12 or Chapter 13 bankruptcies (1201 or 1301), so it wouldn’t apply in the more common Chapter 7 bankruptcy cases.

It also specifically says that the period to commence or continue an action against the debtor doesn’t expire until the later of (1) the suspension of the period; OR (2) 30 days after notice of the stay ended, which sounds like an extension.

What does this mean? Let’s go to the Bankruptcy Appellate Panel in the Ninth Circuit: “In simpler terms, unless the limitations period under applicable nonbankruptcy law would expire later, a limitations period that did not expire prepetition will expire thirty days after the expiration or termination of the automatic stay.” In re Brown, 606 BR 40, 47 (9th Cir BAP, 2019).

So, there’s both suspension and extension. Are both in play as both are in the statute, or is it just one used practically, depending on jurisdiction? As usual, we look to the courts for interpretation.

Statute of Limitations have been both extended and suspended, depending on which court interprets Section 108
Statute of Limitations have been both extended and suspended, depending on which court interprets Section 108

How the Courts have interpreted Section 108(c)

Differing opinions on suspend or extend

In the battle of suspend (toll) vs extend, the result seems to be specific to jurisdiction, facts, and the underlying nonbankruptcy law in play. The Supreme Court of the United States has weighed in: “Petitioners believe § 108(c)(1) contains a tolling provision. The lower courts have split over this issue.” Young vs US, 535 U.S. 43, 52 (Sup Ct, 2002).

Lower courts have made the same observation. “They [the parties] differ in interpretation, however, with CPI finding no separate federal basis for tolling state prescriptive periods and Rogers arguing that § 108(c) itself tolls the prescriptive period. We are not the first circuit to face this issue. Panels of both the Second and Ninth Circuits have examined the language and legislative history of this section of the Code. Unfortunately, they have created a potential split in result. Other federal courts have divided likewise.” Rogers v. Corrosion Products, Inc., 42 F. 3d 292, 296 (5th Circuit, 1995)

Statute of Limitations extended … A Little Bit

Some courts have used Section 108 to merely extend the statute of limitations. One example: “We hold that Section 108(c) of the bankruptcy Code extends a creditor’s right to bring an action through the pendency of a debtor’s bankruptcy case only for 30 days after the automatic stay expires by operation of law or is lifted by order of court.” In re Baird, 63 BR 60, 63 (WDKY, 1986).

While Section 362 doesn’t deal with time, Section 108 above has a few factors, and can extend contractual, statutory or judicial deadlines. Here’s the Second Circuit Court of Appeals: “…we observe that by its terms § 108(c) does not provide for tolling of any externally imposed time bars, such as those found in the two maritime statutes of limitations. The bankruptcy section only calls for applicable time deadlines to be extended for 30 days after notice of the termination of a bankruptcy stay, if any such deadline would have fallen on an earlier date.” Aslanidis v. US Lines, 7 F. 3d 1067, 1073 (2nd Cir, 1993).

A mere 30-day extension can be challenging for creditors, and good news for debtors, as it’s not always certain creditors will get notice of the bankruptcy dismissal in 30 days. If that’s the case, the 30 days can go quickly and then the debtor is safe from any claims brought from that creditor.

Suspended or Tolled Statute: California State Law CCP 356

Let’s start with this nugget of a quote:

“Although the automatic stay is a broad and powerful provision, it does not stay the passage of time.”

That is from Judge Sidney Weaver in the case Matter of Lauderdale Motorcar Corp., 35 BR 544, 548 (Bankr. Ct, SD FL 1983). Judge Weaver’s quote is consistent with the Second Circuit above in Aslanidis, and would seem to be very friendly to debtors. They can’t run out the clock in a bankruptcy, but a small 30-day window puts the odds in their favor.

But not so fast. Other courts (and state laws) have come to a different conclusion.

In California, the automatic stay suspends time for the SOL

Locally, in California, state law kicks in. We have CCP 356, which says: “When the commencement of an action is stayed by injunction or statutory prohibition, the time of the continuance of the injunction or prohibition is not part of the time limited for the commencement of the action.”

“A bankruptcy stay has been held to be a ‘statutory prohibition’ within the meaning of Code of Civil Procedure section 356.” Schumacher v. Worcester, 55 Cal.App.4th 376, 380 (1997) . Later, this was cited by another California court, which added: “The provisions of sections 362(a), 108(c), and Code of Civil Procedure section 356, as well as the relevant case law set forth above, enforce our conclusion that the automatic stay provisions applied here to toll the limitations periods.” Kertesz v. Ostrovsky, 8 Cal. Rptr. 3d 907, 914 (Cal Ct of Appeal, 4th Appellate Dist., 3rd Div. 2004), but note limitations in law construction that focused on the 1872 enactment date of Section 356. Inco Development, Court of Appeal of California, Fourth District, Division Two, August 4, 2005.

California law and the Discharge Injunction: also suspends time

That’s all well and good. It seems to be settled in California that because of CCP 356, the Automatic Stay of Section 362 suspends (that is tolls) the statute of limitations. But does CCP Section 356 have the same effect on tolling because of the discharge injunction of Section 524(a)(2)?

Surprisingly, the Ninth Circuit BAP says, yes, the discharge injunction also tolls and suspends time in California. To wit: “In sum, the Browns have not persuaded us that the discharge injunction is beyond the scope of C.C.P. § 356. To the contrary, we are convinced that the discharge injunction triggers the limitations period suspension provided for in the statute. Therefore, we reject the Browns’ principal argument on appeal.” Brown, 606 BR at 50.

But Beware Phillips v Gilman for Postpetition Fees and Costs in a Bankruptcy

When it comes to fees in a bankruptcy using nonbankruptcy statutes CCP 685.040 and 685.080, the Ninth Circuit BAP found that Section 108c doesn’t apply. Why? Because Section 108(c) involves seeking relief in a court other than a bankruptcy court; and that period must not have expired when the petition is filed. Both of these were missing.

The BAP of the Ninth Circuit ruled, “By their conduct, Creditors demonstrate that CCP § 685.080 did not require Creditors to act “in a court other than a bankruptcy court“; this fact alone renders § 108(c) inapplicable to their motions.” In re Gilman, 603 BR 437, 445 (9th Cir BAP, 2019). Further, “[b]ecause all of the fees were incurred postpetition, CCP § 685.080’s two-year period did not commence prepetition and, again, § 108(c) does not apply.” Id.

In short, as the Ninth Circuit Court of Appeals stated in an unpublished rejected appeal, “Section 108(c) does not apply here because Creditors filed their fee motions in the Bankruptcy Court for fees incurred after Debtor filed his bankruptcy petition.” Phillips v Gilman, unpublished, (9th Cir, 2020). The lesson? It’s in footnote 9 of the main BAP case: ” the bankruptcy court did not prohibit Creditors from filing CCP § 685.040 motions or memoranda at two-year intervals.”

The Ninth Circuit Extends for Judgments

Let’s go outside of California state law, but stay in the Ninth Circuit. What do we find there?

In 1989, the Ninth Circuit weighed in on the issue when it ruled that Section 108(c) extends the limitations period so long as the creditor is barred by the automatic stay from enforcing its judgment against the property of the estate. Hunters Run, 875 F.2d 1425 (9th Circuit, 1989).

That settles it, then, right? Not so fast. The 5th Circuit Court of Appeals found 9th Circuit’s ruling “opaque” when it ruled: “Again, the general question was whether § 108(c) applied to the time limits of enforcement actions of liens. The court held that it did and that the time period was “tolled.” The court did not decide whether the “tolling” meant that the time period ceased to run, or simply that a thirty-day grace period existed under the statute if the time period had run.” Rogers, 42 F. 3d at 296-297.

The Hunters Run rule was discussed further in In re Spirtos, 221 F. 3d 1079 (9th Circuit, 2000), where the Ninth Circuit (not BAP) distinguished collecting on a judgment versus merely renewing a judgment. There, the Circuit Court recited what Hunters Run stands for, and then itself ruled the proposition that section 108(c) extends the limitations period so long as the creditor is barred by the automatic stay from enforcing its judgment against the property of the estate.

More recently, in evaluating an ORAP lien, the Ninth Circuit held “that the period in which a creditor may execute on a lien constitutes the continuation of the original action that resulted in the judgment and is thus tolled during the automatic stay.” In re Swintek, 906 F. 3d 1100, 1102 (9th Circuit, 2018).

The IRS, taxes, and 108(c)

Generally, taxes, tolling, and the bankruptcy automatic stay

Taxes are a very tricky issue in bankruptcy, much of it involving timing. As a rule, taxes are not dischargable in bankruptcy. The exception is that they can be eliminated if enough time has passed for various benchmarks.

Section 6503(b) of the Internal Revenue Code states:

The period of limitations on collection after assessment prescribed in section 6502 shall be suspended for the period the assets of the taxpayer are in the control or custody of the court in any proceeding before any court of the United States . . . and for six months thereafter.

How does the IRC’s 6503 interplay with the Bankruptcy Code’s 108? Or put differently, what if someone is in a Chapter 13 during the three years the IRS has to collect taxes in their priority status of 11 USC 507(a)(8)?

The Ninth Circuit BAP, citing Baird above, and reviewing Congress’ legislative intent, found that, “…it is clear that Congress, by enacting Section 108(c), intended to activate Section 6503(b) and thereby suspend the running of the statute of limitations for tax collection during a taxpayer’s bankruptcy proceedings.” In re Brickley, 70 BR 113, 115, (9th Cir BAP, 1986). Section 6503, then, takes over for Section 108, and the result for the tax clock is that it’s suspended. (But see In re Gurney, 192 BR 529, (9th Cir BAP, 1996), allowing the court’s Section 105 powers for equitable tolling balanced against the policy to prevent tax evasion schemes, limited in In re Gardenhire, 209 F. 3d 1145, 9th Circuit, 2000).

The Ninth Circuit Court of Appeals found the BAP’s logic in Brickley persuasive, and followed it in In re West, 5 F. 3d 423 (9th Circuit, 1993). There, the 9th Circuit reviewed the 240-day rule of Section 507’s interaction with Section 108. Considering using bankruptcy for tax evasion, the Ninth Circuit concluded, “The debtors’ joint Chapter 13 case suspended the running of § 507(a)(7)(A)(ii)’s 240-day priority period from the date of the bankruptcy petition until six months after the case was dismissed. ” West at 427.

Equitable Tolling and the Statute of Limitations in Bankruptcy

Sometimes, courts find that it’s just fair to prevent someone from using bankruptcy in a tax evasion scheme. In those situations, equitable tolling is used to provide the taxing authority more time to collect the taxes.

In the Young case discussed above, a person filed a Chapter 13 bankruptcy during the three-year lookback period, and then a Chapter 7 in an effort to run out the clock. The Supreme Court found equitable tolling, finding the just result was stopping the clock (ie: suspending) and the statute of limitations during the bankruptcy cases.

In the Ninth Circuit, that was not the result when Brenda Jones filed a Chapter 13 bankruptcy, and then filed her California state tax return owing money. The Franchise Tax Board (FTB) didn’t protect its claim in the 13, and then years later, Jones dismissed her case and then filed a Chapter 7. The FTB wondered if it could maintain a postconfirmation tax claim if the prepetition property of the estate revested in the debtor at confirmation. Here, the Ninth Circuit Bankruptcy Appellate Panel distinguished from Young and found no equitable tolling because the FTB didn’t seek relief from the automatic stay or file a motion to dismiss in the 13 for its priority taxes. In re Jones, 420 BR 506 (9th Cir BAP, 2009).

Summing up

The bottom line is, well, there is no bottom line. Cases are all over the map, depending on the state, circuit, and underlying nonbankruptcy law. It would seem pretty straightforward that once a bankruptcy is dismissed, you just wait thirty days and hope you don’t get sued. However, there are many courts, states, and situations where the statute of limitations is tolled, that is stopped, while the bankruptcy and automatic stay is active.

And so the short answer, like most things in law, is, “it depends.”

median income limits

2023 Median Income Limits to Nail Bankruptcy Means Test in Calif

Median Income Limits to Nail the Bankruptcy Means Test: New for 2023

The government just updated the numbers for 2023 median income limits. Using median household income, it again got easier to qualify for bankruptcy Chapter 7, because of another means test adjustment. And while bankruptcy may seem to be “just forms,” make sure you check out my list of 12 crucial tips to do or avoid before filing bankruptcy.

The means test for bankruptcy decides who qualifies for Chapter 7 bankruptcy eligibility. The first step of this process is comparing your median household income against the California median income limits set by the Department Of Justice guidelines to see if you earn less than bankruptcy median income limits.

Again, this comparison against the median income is merely the first step, and does not absolutely determine your eligibility for Chapter 7 or not.

Nov 2022 Update: The numbers for the means test adjusted November 1, 2022, and will be used for the first part of 2023.

Because of the above statement, these will be the first 2023 median income limits.

The means test limits adjusts over time. So, someone may not qualify according to the bankruptcy means test in one month but after the changes they do, or vice-verse. The last updates were in November 2022 . Below are the November 2022 bankruptcy median income figures to determine who can file Chapter 7 bankruptcy.

Means Test: 2023 Median Income Adjustments

2021 median income limits
2023 median income numbers are much higher than in years past

Every now and then, the government updates the bankruptcy median income limits. They last did it in Nov 2022. Good news: the California 2023 median income numbers are now even higher, increasing household income for bankruptcy means test qualifying. This means that more people could qualify for Chapter 7 bankruptcy using the California median income numbers below.

2023 Median Income for California Households

Because the California median income changes maybe once or twice a year, these recent changes last 2022 will be the first numbers used for 2023 median income. You’ll see below there’s talk about household size. Notice also that larger families also get a break, as the amount for each additional member after 4 increases another $9,900. This is helpful for households of five people or more.

What is Median Household Income: Roommates and Spouses

When reviewing median household income, we start splitting hairs, since not every home is a traditional household. So, things start getting kind of cloudy on what is or isn’t a household. It isn’t always clear who counts in a household.

Note that if you’re married in California, there’s a community property presumption that your spouse’s income is yours also. So add that, and them, to your household figures. Yes, you can file bankruptcy without your spouse. However, their income, assets, debts, and everything else of theirs still comes into your bankruptcy. Why? California is a community property state. Read more for a deeper dive in my article about spouses and filing bankruptcy.

There may be a difference if you have a roommate who pays rent. What if you’re married? Separated? Or have kids but they’re adults. Do you live with your significant other, who has their own finances? Would the answer be different if you had kids together, but weren’t married? Maybe they’d all be considered by the government to be in your household. Or, maybe they’re not.

You can see this is isn’t as simple as it may at first seem. Contact me and set up a Zoom to talk about it.

But below are the California median income limits for the various household sizes.

California household size and California median income for Bankruptcy
  • 1-person household: $69,660
  • 2-person household: $86,271
  • 3-person household: $97,021
  • 4-person household: $113,615
  • Each additional person: $9,900

These are the California median income numbers effective November 1, 2022. If it’s 2023 or you’re looking for the median household income for a different state, please review the DOJ link above.

Read Our Means Test Guide.

California Means Test Calculator for Chapter 7

Many of you have asked about a Means Test Calculator for Chapter 7. So, I put together the following Chapter 7 means test calculator. For other states, there many be others elsewhere on the internet, this won’t apply. This means test calculator for Chapter 7 bankruptcy is just for California.

Also, this is not intended to give advice or definitively say you qualify for Chapter 7 or not. The actual means test is many pages long, and it’s possible to qualify if your income is over the median. Similarly, it’s also possible to be ineligible for Chapter 7 even though your household income is under the median income. Reducing it to one box is like a cheap parlor game, and you should kind of think of this that way.

But notice how, after you input your income, how changing the household size affects the bottom line. As bankruptcy attorneys, this is something we have to be very mindful about and argue for our clients: the appropriate household size based on the unique circumstances of our clients.

With that being said, here’s my very crude 2022-2023 Means Test Calculator for Chapter 7 for California, which you should take with a massive grain of salt:

Wait! Can you file bankruptcy if your household income is over the median?

If you’re over the bankruptcy median, there’s still hope

Yes. The means test and 2023 median income isn’t the “end all be all.” The above/below median part is just a starting point. A person can still file Chapter 7 bankruptcy, in some cases, even if they earn more than the median income. The bankruptcy means test would just need to be filled out completely. It’s still possible to qualify.

Over the years, this Los Angeles bankruptcy attorney has helped people who earn over the California median income limits still qualify for Chapter 7. In one case, we even helped a family whose annual income was almost double the median household income. They were earning around $150,000 a year, and we helped them get a Chapter 7 discharge (your mileage may vary). However, even if someone isn’t eligible, debt consolidation is still a solution in Chapter 13 bankruptcy.

Being Under the Bankruptcy Median Income Doesn’t Guarantee Success

On the other hand, just because someone is earning less than the California median income, it’s possible that they’re not eligible for Chapter 7 bankruptcy. Bankruptcy is all about whether someone can afford to repay their debt or not, and the means test is just one factor.

Note: the median income numbers are not to be confused with the Los Angeles County median home price figures, and each has a different place in evaluating Chapter 7.

Finally, as the economy is always changing, so does California median household income. We don’t know the next time changes to the median income limits will happen again. So, be sure to check before relying on these California median income limits in the future.

Contact Us and Let’s Find out If you Qualify



    California bankruptcy exemptions can save your house.

    New! 2023 California Homestead Exemption Increased by Inflation

    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

    The California homestead exemption can save your house.
    Talk to a experienced bankruptcy attorney about the California homestead exemption

    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.

    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.

    2023 California homestead exemption chart los-angeles-bankruptcy-net
    2023 California homestead exemption chart

    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.

    Figuring the Los Angeles Country median home price size is like trying to calculate the median coin weight when all we have is data about stack size

    How to Figure the Los Angeles County Median Home Price (2023)

    How to Figure the Los Angeles County Median Home Price (2023)

    The Los Angeles County median home price in 2022 and 2023 can be tricky to determine. There are different sources that say different things. It’s not clear which of the many options will be relied upon by courts and trustees for the California homestead exemption. Also, while bankruptcy may seem to be “just forms,” make sure you check out my list of 12 crucial tips to do or avoid before filing bankruptcy.

    2022-2023 update: there seems to be a consensus among local bankruptcy attorneys as to what the Los Angeles County median home price is. More than that, this L.A. median price changes each year. While it’s still untested in court, a lot of the initial uncertainty has cleared up. Read on!

    Warning: This is provided as information only, and is not legal advice. If you are thinking of filing bankruptcy, do not rely upon any information on this webpage. You are assuming all risk and are literally gambling with your home. You will have only yourself to blame if you use the wrong numbers for the Los Angeles County median home value.

    See a bankruptcy attorney for more updated information before you file, because there are ways you can lose the exemption.

    Average is not Median

    los angeles county median home value
    The Los Angeles County median home value is not the mean

    Before we can determine what the Los Angeles County median home price is, we’ll need to know what it’s not. A median is not the same as the average. This takes us back to high school math, but a quick couple of definitions:

    • Average (or mean): this is where you add up the data, and then divide by the number of data points
    • Median: this is where you list all the data, and then take the number which is at the midpoint

    So, as you can see, the median is not the same as the L.A. County average home value.

    The Median Changes Over Time

    Because the median is the midpoint of all the data, each time there’s another home sale, the median changes and moves. You may figure with a random distribution of data, there would be an equal likelihood that future sales will be about half above and half below the median, keeping the median the same. But home prices change over time and are not static, and particularly during a virus pandemic like the COVID-19 coronavirus we had in 2020 and 2021.

    For example, you might find some data sources that list the median home prices for last year, but only through December. Can you assume that houses would sell for the same prices in December around the holidays as they do during the summer when people move a lot and kids are usually out of school?

    Read Our Means Test Guide on Median Income Limits.

    The Los Angeles County median home price is not the same as that for the L.A. area

    Los Angeles County is one of the largest counties in the United States, with over 4,000 square miles. While you may find data for the metropolitan area, that’s very different than the numbers for Los Angeles County. Why? Because L.A County goes from South Bay all the way up to the Antelope Valley and Lancaster. The Los Angeles County median home price is pulling together data from all these.

    Los Angeles County is home to about 10,000,000 people, while the city of L.A. has “only” 4,000,000. If you use only city data, you’re missing out on home values in remote areas in LA County like Littlerock and Pearblossom on the 138 and on the way to Vegas.

    The Median Home Value is not the same as Median Home Sales Price

    You can find some sites which average the values of the homes in the L.A. area, or even Los Angeles County. The problem with that is this: you’re using their own estimate about the Los Angeles county median home values, even those that didn’t sell, when what you’re really needing is the sales price of homes that actually sold.

    After reviewing all the above, you can see that we’re looking for a very specific thing here, and no one website reports the Los Angeles County median home price, or has information that in 2022 is depended upon reliably as the “go to” source for Los Angeles County median home value information. Over time, maybe one place will emerge, but for now there’s just a few “almost there” entries.

    Some Data Sources Which are Close

    which data source can provide the los angeles county median home price
    Which of the various data sources is the right one?

    With all that being said, you can understand the challenge of finding the Los Angeles County median home price. Most websites are using averages, some have only the L.A. area, and none of them let you have access to the data of all the home sales so you can calculate the median yourself.

    Zillow: this company is famous for using its proprietary “Zestimate” to approximate home values. For example, if you go here, you can find what Zillow calls “the typical home value of homes in Los Angeles.”

    But that number isn’t clear…. What does “typical” mean – average or median? Remember, they’re different. Home value or home price? There’s no indication this is relying on sales data. And for what time period? Now, at this snapshot in time, last month, this year, or last year?

    The website doesn’t say what the Los Angeles County median home price is. It also doesn’t say if it includes single-family homes, is only single-family homes, or something else.

    Realtor: This website features real estate, but if you dig down deep enough, you can find market data, research, and trends. It provides data by month, not year, and appears to be providing listing prices, not sales prices.

    Redfin: Redfin is another national real estate website, which tracks listings and sales, and helps connect home buyers to realtors. It has market dataand trends, but seems to be restricted to only Los Angeles city, not all of Los Angeles county median home price info.

    CAR: The California Association of Realtors also has some market data. But it cautions that the data which it is using comes from over 90 associations and counts “single family detached homes only” and “median price changes may exhibit unusual fluctuation.”

    Trulia: Similarly, Trulia is a real estate website that tracks home sales and house prices. It has a way to filter for L.A. and show market information at the bottom of the page, but doesn’t show Los Angeles county median home price or value info. It appears to list home values the way Zillow does, but it doesn’t appear to be relying on sales data.

    News reports: You may find news reports from Los Angeles-based newspapers that report data on home sales prices.

    how to calculate the inflation-adjusted county median home price
    When calculating the inflation-adjusted county median home price, the median coin isn’t the median stack.

    Note: you may find some websites that provide spreadsheets of Los Angeles County median home price data, and lists medians by month. Taking the median of the medians isn’t the same as the median of all the sales data. It’s just creating garbage data. To find the true Los Angeles County median, you’d have to have access to all the sales data. This is something very few people have.

    And that’s the problem: no one person has the data, and different places which are close report different numbers for the Los Angeles county median home value.

    While some of these are close, none of these seem to provide “the” number. Not one can be relied upon, especially for something which involves risking your home.

    Summing up the initial Los Angeles County median home price

    Is there one bottom line source? Not yet, not until it’s litigated, and honestly, a lot of us in 2021 are trying to sift through all this information to make sense of it. Maybe in the months ahead, one choice will crystalize as the one we all rely upon.

    This will likely be after litigation and people guess wrong. Sadly, they will lose their homes in some cases because they guessed wrong on home value. Currently, there is not one number that we can reliably “bet the house” is the median home price in Los Angeles County.

    2022-2023 update: with all that said, it is generally agreed upon that the 2021 and initial Los Angeles County median home price is $600,000, adjusted for inflation.

    But wait, there’s more!

    California homestead exemption, county median price adjusted for inflation

    Recall that the California homestead exemption is the county median price adjusted for inflation. So, each year, each county’s exemption amount is different. Section (b) of the new California homestead 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.

    We don’t know exactly where the county median number comes from, (though the Central District of Calif court seems to endorse CAR but that may or may not be valid evidence in a trustee challenge). Further, the inflation percentage is a different number whose source is similarly mysterious.

    Here is how the inflation adjustment of section (b) would work.

    The California fiscal year ends in June. Therefore, we take the difference between the old June CPI number and compare it to the most recent new June CPI number. What is that percentage?

    CPI and inflation-adjusted California homestead exemption
    CPI and inflation-adjusted figures to use in calculating the California homestead exemption, chart from ca.gov showing increases from June 2020 to June 2022

    For 2022, the difference between the June 2022 number (297.447) and the June 2021 number (284.835) represents a 4.43% increase. Therefore, for counties capped by statute at the $600,000 maximum, the maximum 2022 median home price and homestead exemption would be $626,566.96. This number will change again in 2023, and “will adjust annually, beginning on January 1, 2022.”

    I made a calculator so you can figure out this year’s California homestead exemption amount for any county in California (assuming you have the median sale price number), adjusted for inflation. Better yet, we can calculate next year’s inflation-adjusted homestead exemption if we have June’s CPI numbers already. So bookmark this page and return every few months or so.

    Remember, these Calif CPI figures — and the resulting percentage increase — also impact the inflation-adjusted homestead exemption in counties where the minimum was $300,000, or counties in between that and the max, like Riverside and San Bernardino County.

    Be cautious, use this information at your own risk, as you’re literally gambling with your (or your client’s) house. Thanks for reading.

    Contact us

    If you’re in Los Angeles County, contact us to request a case evaluation, or go ahead and schedule it for free right now.

    wrongful death California community property

    Wrongful Death Proceeds and Community Property in California

    Wrongful Death Proceeds and Community Property in California

    Someone recently asked, “Are wrongful death recovery proceeds community property in California?” The field of bankruptcy crosses over with so many other areas of law. The question stands at the intersection of bankruptcy law, California community property law, and tort law. But the answer to this wrongful death question is critical for bankruptcy lawyers and someone filing bankruptcy in California.

    Why it matters if wrongful death claims are community property

    This might seem like a tiny point, but it’s really important whether a wrongful death claim or funds are community property or not. There are lots of twists and turns as to whether it affects the other spouse when only one spouse files bankruptcy.

    If the money or right to bring a cause of action belongs to only one spouse and not to both, then the other spouse has no ownership interest in the claim, or the cash. Or put more simply: if the money or right to get the money belongs to one spouse as separate property, it doesn’t belong to the other.

    With that, if the other spouse files bankruptcy and the claim doesn’t belong to them, then the trustee can’t get to it. If it does belong to them as marital community property, the trustee in a Chapter 7 bankruptcy can take it and repay debts with it. Therefore, it’s crucial to know if it belongs to one spouse, or both.

    Yikes. I don’t want the trustee to take my (spouse’s) claim or money.

    Exactly. Chapter 7 bankruptcy is called liquidation bankruptcy. This means someone can take your stuff. Many people think, “I don’t have anything.” But there are assets we may have that are more intangible, but are still valuable.

    One example of an asset that is intangible would be where someone owes you money. Another would be intellectual property. Yet another would be the right to sue someone. And even more removed, the right of a spouse to sue someone, even if the lawsuit hasn’t been filed yet. Yes, that’s an asset, and could be subject to liquidation in a Chapter 7 bankruptcy.

    This is why is why we need to filter a wrongful death claim through the grid of the California community property presumption, and California courts case law that interpret it and how it applies to different kinds of intangible assets over the years.

    A look at the law: the statutes and case law

    Where does the right to bring a wrongful death claim in Calif come from?

    First, a wrongful death — that is, the right to sue for the loss of a loved one — is defined by statute in California law. Civil Procedure Code 377.60 defines the cause of action for wrongful death. It then goes on to say who can bring the cause of action or lawsuit. It includes some obvious relationships like children and surviving spouse. But the statute was recently broadened to include domestic partners.

    The California Community Property Presumption

    The California community property general presumption from the California Family Code 760 is:

    All property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.

    That’s pretty broad. All property. Personal or real. Anywhere. During the marriage. It covers a lot of ground, and doesn’t except a whole lot.

    So, if a married person acquires money from wrongful death of a relative, that money sounds like property. When you consider a claim for wrongful death, that sure sounds like a property right, too. Maybe the courts have held otherwise because the loss of a loved one is so personal to the one spouse and possibly not as personal to the other. Let’s take a look.

    Wrongful Death California Community Property Court Cases

    Starting with Fuentes v Tucker, 31 Cal.2d 1 (Cal Sup Ct, 1947), the California Supreme Court has long held wrongful death recovery proceeds are community property. Later, the California Supreme Court affirmed the rule in Flores v Brown, 39 Cal.2d 622 (Cal Sup Ct, 1952).

    The Ninth Circuit Court of Appeals explained it even more clearly. The Court stated, “There is a statutory presumption that property acquired by the spouses during marriage is community property. The presumption is a strong one, which the California Supreme Court has characterized as fundamental to the community property system.”

    It continued: “It extends to every conceivable type of property, including insurance policies and their proceeds, a cause of action for the wrongful death of or injury to a minor child; a cause of action for injury to either spouse; a law practice; the interest of a spouse in a partnership; good will of a business; borrowed money; and leasehold interests. Why not to a retained equitable interest in a trust?” (emphasis added, cites omitted). Katz v US, 382 F.2d 723, 728 (9th Cir, 1967).

    Given the community property presumption, California Supreme Court case law, and Ninth Circuit Appellate Court rulings, if one spouse files bankruptcy in a community property state, the wrongful death claim of the other spouse would not be separate property. As such, it would have to be disclosed in the bankruptcy, and the money it brings possibly subject to being taken for liquidation by the trustee.

    As always, discuss your potential bankruptcy case with a skilled and experienced bankruptcy attorney before filing. While your brother’s wife’s hair stylist’s gardener didn’t lose anything when they filed bankruptcy, you might lose stuff in your case. Each situation is different, and with full disclosure and planning, we can find a solution that fits you.

    Can one person file bankruptcy separately

    One Spouse Filing Bankruptcy: Everything You Need to Know

    One Spouse Filing Bankruptcy

    All you need to know about one spouse filing bankruptcy individually or separately

    Can one spouse file bankruptcy without the other?

    Can one spouse file bankruptcy without the other? In consultations, that’s one question I get asked a lot. When we’re married in California, everything is presumed to be joined and shared. So, can a married person claim a bankruptcy? The answer is, “Yes.” Even though someone is married, they have every right to file bankruptcy without the other spouse. They have their own Social Security number and their own credit history. But just because you can do something doesn’t mean you should.

    I’m a bankruptcy attorney practicing in Los Angeles County in California, which is a community property state. All of the information here is specific to California. If you are in a different state, even if it’s community property, this information may not apply, and you should find a bankruptcy lawyer near you. Consult with your bankruptcy lawyer or if you’re in the greater Los Angeles county area, contact me for a consultation.

    If I file bankruptcy individually without my spouse, do I include their finances?

    Yes, in California, a community property state. A debtor needs to disclose all of their assets, and those of the community. 11 USC 541(a)(2). When we get married and say “I do” here, there is a general presumption that every asset or dollar acquired by either person is community property and belongs to both. Calif Family Code 760.

    So regardless of whose name is on the paycheck, bank account, or monster truck, the general marital community property presumption says that if it was acquired during the marriage, it belongs to you both (even a personal injury or wrongful death claim). And when one spouse files bankruptcy, he or she must list the income, stuff, and financial data of the other spouse. For this reason, this factor is no advantage for only one to file, as all the info comes in either way.

    Do I have to list the debts of my spouse if I file bankruptcy separately?

    Family Code Section 910 says, “…the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt.” California FC Section 914(a): “..a married person is personally liable for the following debts incurred by the person’s spouse during marriage: A debt incurred for necessaries of life of the person’s spouse before the date of separation of the spouses.”

    Given that, if you are liable for a debt, it is your debt. The bankruptcy petition tells you to list all your debts. Including those of your husband or wife. The bankruptcy trustee will ask if the papers list all of your debts. You must list all debts you are liable for, and that would include those of your spouse in California. Ask your bankruptcy attorney for more on your specific situation.

    If my spouse files bankruptcy, will it affect me?

    “Will filing Chapter 7 bankruptcy affect my spouse?” This question understandably comes up a lot. Affect is such a broad word. It’s almost certain that the bankruptcy will affect the spouse, though how varies from case to case. It may affect the spouse if it’s a Chapter 13 and the community income — that is both pay checks — are used to fund the debt consolidation. It might affect the spouse emotionally.

    Embed from Getty Images

    It could affect the spouse that their debts should be included in the bankruptcy even though the spouse isn’t filing, and affect the credit of the spouse, and the accounts are closed even though they’re being paid on time.

    If you file bankruptcy and your spouse doesn’t, I won’t need their Social Security number or their signature on anything. While I’m happy to meet them, if they truly don’t want to be involved, they need not attend any consultations or court hearings. However, as their financial information is included because of the community property presumption, it will likely affect the spouse in some way.

    Is there a benefit to me if my spouse files bankruptcy and I don’t?

    There are pros and cons to weigh and assess when trying to decide if only one or both spouses should file. There are benefits. Yes, because one spouse can file bankruptcy for both, that’s a benefit. If your spouse files bankruptcy and you don’t, there is one obvious benefit to you: you don’t have a bankruptcy on your credit report. Their bankruptcy should be eliminating your eligible debts also as nonfiling spouse, and the effect is to discharge the debts of both spouses, husband and wife, even though only one person filed. It can be a two-for-the-price-of-one transaction.

    Will filing bankruptcy hurt the credit of the nonfiling spouse?

    Yes. While the married person not filing (fancy term: non-filing spouse) won’t have a bankruptcy on their credit report, their debts should be in the bankruptcy. And when debts are in a bankruptcy, the accounts are typically closed, and reported negatively to Experian, Trans Union and Equifax credit reports. Not “bankruptcy” bad, but still, it should result in derogatory marks on their credit report since the accounts are no longer paid “as agreed.”

    My spouse is disabled, unavailable, or isn’t capable of testifying. Can I sign or testify for my spouse in my bankruptcy?

    Not without something more. Whoever files bankruptcy has to testify as to the truthfulness of the papers. This is done in two ways: one in signing the papers under penalty of perjury, and a second time at the 341(a) meeting of creditors. If your spouse is physically not available, or mentally or cognitively unable to testify, you cannot testify for them, without some additional permission and evidence.

    Can I use a power of attorney to file bankruptcy for someone else?

    The ability to use a power of attorney for a bankruptcy can vary by jurisdiction and is subject to local rules and practice. For example, some courts allow Power of Attorney. United States v Spurlin, 664 F. 3d 954, 959 (5th Cir. 2011), but see also locally here In re Foster, 2012 WL 6554718 (9th Cir. BAP 2012), which says a POA cannot be used in lieu of signature on a pro se complaint as it is construed as practicing law without a license.

    There’s a possible solution where you get court permission to represent your spouse or someone else. In the Central District of California, this is called a “next friend.” FRBP 1004.1 says a bankruptcy court will recognize a personal representative appointed by another court or the bankruptcy court has authority to appoint a next friend. The standard is that petitioner is unable to litigate his own cause due to mental incapacity and the next friend must have significant relationship with and is truly dedicated to the best interests of the petitioner. Coal. of Clergy, Lawyers, & Professors v Bush, 310 F. 3d 1153 (9th Cir. 2002). There are various types of evidence that may be used to show incapacity. AT&T Mobility v Yeager, 2015 WL 6951291, at 5-6 (E.D. Cal. 2015). This will incur extra work and legal fees, and may not always be necessary.

    If one spouse files bankruptcy, does the other spouse get bankruptcy protection?

    As usual in law… it depends. Chapter 13 bankruptcy is special in that it has something called a co-debtor stay of Section 1301. Both spouses are liable on the debts of the marriage, regardless who who incurred it or manages the finances. Family Code 910. So, both spouses are typically liable for all debts. This means that if you file bankruptcy and your spouse doesn’t, that they’re still protected by the codebtor stay if only one of you files Chapter 13.

    Great, but is there bankruptcy protection if only one spouse files Chapter 7?

    Yes, but not for the nonfiling spouse. Chapter 7 bankruptcy only protects the person or people who filed. And spouses in California, while they are liable on debts incurred during the marriage, are not protected by the automatic stay if they don’t sign the petition and schedules and file bankruptcy. However, once the filing spouse gets a discharge, their property cannot be collected against or it’s a discharge violation.

    So, most creditors don’t collect against the nonfiling spouse, since their assets are the same assets as the person who filed and got the discharge. But beware: Family Code 914 says that the separate property of the nonfiling spouse can be collected on, if they have any (most don’t).

    In most Chapter 7 cases, the creditors don’t collect against the other spouse where one files, but are allowed to, even give them a lawsuit. They just can’t use the judgment from a lawsuit to touch community property assets. As that usually is everything, most collectors don’t bother. But they can.

    As you weigh pros and cons, what is the benefit of certainty in Chapter 7 of both parties being absolutely protected from creditor calls and collections worth? If it’s a lot, is it “bankruptcy on your credit report” a lot? Talk with your bankruptcy attorney. There may be other variables in your unique circumstances.

    Can a lien be placed on my house for my spouse’s debts?

    Generally, yes. Because of the Calif Family Code sections above, both spouses (and their assets) are liable for the debts of the other in a marriage. So, if Spouse A got a big credit card debt, there could be a credit card lawsuit resulting in judgment. A judgment lien can then be attached against the asset which Spouse B also owns (typically community property acquired during the marriage in Calif). Filing bankruptcy and getting the automatic stay would stop the lawsuit, and protect that community asset. 11 USC 541(a)(2)(B).

    Can they garnish my paycheck for my spouse’s debts?

    Again, yes. See above. Both spouses — and their community assets — are liable for debts incurred during the marriage under the California Family Code. A paycheck belongs to both spouses, regardless of whose name is on it. There is also the issue if one innocent spouse can be liable for the fraud of the other. So the general answer is, yes, they can garnish your paycheck for the debts of your spouse, and vice verse.

    Summing up

    The intersection of bankruptcy law and community property confuses many people, including attorneys in California. There is not always one best answer to the question, “is it better for us both to file bankruptcy jointly together, or just one spouse separately.” Is it possible to file individually? Yes. What’s best for you and your unique circumstances? Contact me or set up a free Zoom consultation with the link at the top of this page and let’s go over it together. Thanks for reading.

    The 1215-day rule is unsettled about residency vs ownership in California

    1215-day rule: Is Residency Needed, or Merely Ownership in Calif

    1215-day rule: Is Residency Needed, or Merely Ownership in California?

    A look at how closing the Mansion Loophole could lose your home in bankruptcy

    Does the 1215-day rule for the homestead require occupancy as a domicile, or merely ownership? This is a new issue here for bankruptcy attorneys in California. It matters to you, too, if you own a home in California and are thinking of filing bankruptcy. This is because the homestead exemption amount until 1/2021 was always below the 522 number. Let’s break this apart in plain English a little bit so we can understand what’s at stake.

    New California Homestead Exemption and the Mansion Loophole

    Homestead Increased in California

    As you may have heard, the California homestead exemption increased recently. For years, it protected a maximum of $100,000 in home equity for a typical married couple. Suddenly in 2021, the California homestead was increased to a minimum of $300,000, and probably more than that where you live.

    Great news, right? But there’s a catch. Well a few catches. But let’s focus on just one: the mansion loophole.

    The Mansion Loophole, Federal Exemptions, and 522(p)

    What is the Mansion Loophole?

    What is the mansion loophole, you ask? It’s the kind of concept that allowed OJ Simpson to go buy a big fancy house in Florida and then move to that state and immediately exempt tons of equity in that home so that his creditors couldn’t get their hands on it.

    Congress decided that’s not fair to parachute in and just take advantage of a state’s generous exemptions. Or for scoundrels such as Enron executives like Kenneth Lay to shield millions in equity after harming so many people. To benefit from a state’s laws and protections, Congress said you need to acquire the property for a period beforehand, and not merely a domicile.

    The Federal Exemptions, 1215 days, and 522(p)

    Federal exemptions are bankruptcy protections available in some states, and fallback numbers for other states. They are figures published and updated by the federal government. The federal exemptions increase periodically. The 1215-day number used in here is valid for 2022, but may adjust in the future.

    Which brings us to 11 USC 522(p).

    to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $125,000 in value in—
    (A) real or personal property that the debtor or a dependent of the debtor uses as a residence;
    (B) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;
    (C) a burial plot for the debtor or a dependent of the debtor; or
    (D) real or personal property that the debtor or dependent of the debtor claims as a homestead.

    The gist of all that is that you need to have acquired an interest in the property over 1215 days prior to claiming the homestead exemption for it. OJ would now need to wait over three years after acquiring the property before his assets would be safe from creditors. Mansion loophole closed.

    The 1215-day rule is unsettled about residency vs ownership in California bankruptcy law
    Joyful household members establishing their domicile in an effort to comply with 522(p)

    Why this matters

    “Great,” you say, “but what does this have to do with me?”

    This means that if you file bankruptcy and you have a house, you don’t get the gargantuan California homestead exemption of a minimum of $300,000 if you acquired the interest in the last three years. You lose it, and “only” get the federal homestead exemption of $189,050.

    Maybe that’s enough. Maybe you lose your home in bankruptcy. The 1215 days matter to debtors in California. It can make the difference between keeping your house in Chapter 7 bankruptcy, or losing it.

    They never used to matter. Why? Because before 2021, we could never “lose” the exemption down to $189,050. This is because we were already capped at $100,000. The 522 limitations were never a factor in California. Until now. Suddenly, a $600,000 homestead can be slashed to less than a third. It matters that all of 11 USC 522 is paid attention to very closely now for California bankruptcy lawyers.

    But wait, there’s more.

    1215 days: Ownership or Residency?

    The issue

    Do you have to live in the place for 1215 days, or just own it? Let’s say you have a rental property in Santa Barbara which you acquired and have owned for over four years. It’s had renters living in it while you live elsewhere, and you’ve had title all that time. Then a month before you file bankruptcy, the renters leave and you move in. You live there a month, but have owned it for over 1215 days. Do you get the big massive California homestead exemption, or the shrimpy 522(p) reduction?

    It’s not as clear as you might think.

    Looking back at 11 USC 522(p), the words “amount” and “interest” and “acquire” are not defined in the Bankruptcy Code. So, like most things in life, it’s settled in court.

    The Ninth Circuit ruling on the 1215-day rule

    The Greene Case Looks Like a Win

    The issue was looked at by the Ninth Circuit Court of Appeals in 2009 (in the context of Nevada state law and its exemption). There, the 9th Circuit ruled:

    We hold that “any amount of interest that was acquired,” as used in Section 522(p)(1), means the acquisition of ownership of real property and that the monetary cap in Section 522(p) does not apply to property to which a debtor acquired title more than 1215 days before she or he filed a bankruptcy petition. That language does not include a homestead claim for the underlying property interest, which claim was recorded within the 1215-day period.

    In re Greene, 583 F.3d. 614, 624 (9th Cir, 2009).

    Boiling all that legal jargon down, the Ninth Circuit is saying that the smaller cap of 522(p) doesn’t apply if the acquisition of ownership of the property was more than 1215 days ago. The 9th Circuit Court of Appeals ruled that it can’t limit a homestead property interest that started in the 1215-days period.

    Or more simply, the court in Greene said that as long as ownership is more than 1215 days, the shorter homestead doesn’t matter. But remember, it was ruling on Nevada law and its exemptions.

    But The State Law Must be Interpreted

    Before we celebrate here in California, note that there’s a way this may not be applied here. In other words, state law must be looked at, and each state has its own meaning and reasoning for its homestead exemptions. Is it intended to create a property interest? Or is it just privileges?

    The 9th Circuit reached the Greene ruling after a review of state law (both Nevada and Texas) regarding the purpose of the exemption, and concluded that Nevada exemption law created a property interest, and not merely exemptions and privileges. (Id. at 621-622, citing the review of Texas in In re Rogers, 513 F.3d. 212, 225 (5th Cir, 2008).

    But What About California’s Homestead Exemption: Privilege or Property Right?

    In California, remember, this is all new because the 1215-day cap of 522p never mattered before 2021. The 9th Circuit has not ruled on this recently, that I’m aware of, in the context of California’s homestead exemption.

    However, a long time ago, when Pat Brown was governor, it did rule on the issue, in a case which would distinguish it from Greene and Rogers. The Ninth Circuit Court of Appeals ruled that California’s homestead laws do not create property rights, but merely exemptions.

    “…the California state courts have repeatedly held that the filing of a homestead declaration in that state creates merely a privilege or exemption attached to but not otherwise affecting title.”

    Shaw v United States, 331 F.2d. 493, 497 (9th Cir, 1964).

    That would distinguish it from the good news of the Greene case, and means that you have to live there for the 1215 days to get the California homestead exemption, even if you owned it for over four years.

    In closing

    Best I can tell, Shaw is still good law, at least until someone tests it in the years to come. This means the safe bet is residency is required for 1215 days at the property to “acquire” it, and not merely ownership.

    Perhaps with the new broadening of the homestead exemption in 2021 and the importance it underscores, the 9th Circuit may now reach a different conclusion, but it’s not something I’d knowingly bet a client’s house on.

    California Homestead and Reside Away from Home and State presents challenges

    California Homestead: Intent to Reside and the Out-of-State Home

    California Homestead: Intent to Reside and the Out-of-State Home

    A bankruptcy attorney colleague recently asked, does the California homestead exemption protect you if you don’t reside in the house? Are you required to live in the home? For how long? Who qualifies? Does the homestead exemption protect the home if the house isn’t in California? The answer, like most things in law, is: “it depends.”

    Dual residency in two states and and claim homestead in both?

    No, there is no dual residency in multiple states for the purposes of homestead. As you’ll read below, a homestead is the place in which you primarily live. You can’t primarily live in two places. So, the determination is where you primarily reside, which state law applies, and is the house protected by the California homestead exemption.

    Let’s look at these “away from home” situations one at a time.

    The California homestead and intent to reside

    california homestead away from home
    California homestead is challenged if away from home, and the intent to actually live there is unclear

    First, can someone claim the California homestead exemption if they live in the house on the date the petition is filed, but move out after? What if they move out after the Chapter 7 bankruptcy is filed, but it’s just a temporary relocation? Or what if the debtor who filed bankruptcy really has no intention to return?

    The result is very fact-specific, and has had bankruptcy courts and appellate courts carefully examining the particulars for the debtor before filed, on the date the case was filed, and then after the case was filed. Let’s review a few significant cases in the Ninth Circuit to see how the courts have ruled.

    Not residing in the house on date of filing

    First, let’s look at the case of Andy Diaz. He owned and lived at a home in Orange County, Calif. He then suffered two brain aneurysms. Those required many surgeries, and left Mr. Diaz in a coma. After weeks, he awoke from the coma, but couldn’t walk or speak, and the symptoms were similar to a stroke.

    Mr. Diaz got better, and to rehabilitate, moved into his mother’s house, which was across the street from his own home, six houses down. Diaz then filed bankruptcy, claiming the homestead exemption in his home where he wasn’t living.

    The Chapter 7 trustee challenged, and won in bankruptcy court. Diaz appealed. Nobody disputed that the debtor didn’t live in the house when the bankruptcy was filed.

    The 9th Circuit Bankruptcy Appellate Panel (BAP) ruled that, “California courts have long held that a lack of physical occupancy does not preclude a party from establishing actual residency and claiming the homestead, if the claimant intends to return.” In re Diaz, 547 BR 329, 335 (9th Cir BAP, 2016). It went on: “Physical occupancy on the petition date is therefore neither a necessary nor sufficient condition of residency.” Id. at 336.

    Residing in the home at filing, but intent to move

    Next, let’s look at the case of Kevin Gilman. He did live in his house on the date of filing. Residency established, slam dunk on the homestead exemption, right? Not so fast.

    Not an actual photo of Gilman on the date of his bankruptcy petition was filed and the home in escrow

    It turns out that Mr. Gilman also had his home in escrow at the time of filing. Creditor challenged. The bankruptcy court agreed with the debtor. The creditor appealed.

    The appellate court found that, unlike Diaz, it was undisputed that Mr. Gilman had occupancy of the premises, and was a continuous resident of the property.

    However, it also ruled: “To determine whether a debtor resides in a property for homestead purposes, courts consider the debtor’s physical occupancy of the property and the intent to reside there.” In re Gilman, 887 F.3d 956, 965 (9th Cir, 2018).

    It then cited the case of Mr. Diaz when it wrote: “Physical occupancy on the filing date without the requisite intent to live there, is not sufficient to establish residency.” Gilman at 966, citing Diaz at 336.

    After all that, the bottom line after Gilman to successfully claim a California homestead exemption is that, among other things, regardless of where the debtor lives on the date the bankruptcy petition is filed, there has to be evidence to show that the debtor intends to live at the residence.

    california homestead residence intent extraterritorial
    California homestead exemption is dependent if you’re moving away from home, or just going for a temporary walk

    Intent to reside but only equitable interest

    What if the person filing bankruptcy claiming the homestead exemption in California doesn’t even have title to the house? That brings up the case of Steve Nolan. There, Mr. Nolan claimed an exemption for a property in Corona, California. Like Gilman, he lived at the property, and intended to continue living there. Unlike Gilman or Diaz, he didn’t have legal title to the house.

    Instead, he was both trustee and partial beneficiary of a trust, which held title to the property. The bankruptcy court ruled that Mr. Nolan did not have an interest in the property subject to an enforcement lien and not even bare legal title.

    However, because he was 50% beneficiary of the trust, that portion is property of the estate per 11 USC 541(a)(1) and (c)(2). The Court then reviewed applicable case law that allows homesteading based on an equitable interest, and ruled in debtor’s favor. In re Nolan, 618 BR 860 (Bankr Ct CDCA 2020).

    The California homestead exemption for the out-of-state house

    Occupancy, future intent, but home outside California

    Next, we ask if someone claim a California homestead exemption if the California debtor lives in the house, intends to reside there so it’s his residence and domicile, but the house isn’t in California? The Ninth Circuit Court of Appeals considered this and ruled: yes.

    This is the case of Robert Arrol. He bought a house in Michigan. Then, without selling that home, he moved to California for two years. He then moved back to his Michigan house, and within 90 days of moving, he filed bankruptcy in California.

    He used California’s homestead exemption to protect his Michigan residence. You guessed it: the bankruptcy trustee objected to the homestead exemption. The bankruptcy court ruled in favor of Mr. Arrol, and the trustee appealed, and lost again. The trustee appealed yet again, this time to the Ninth Circuit.

    The Ninth Circuit’s ruling on an out-of-state California homestead

    The appellate court examined 11 USC 522(b)(2)(A), which pointed to state exemption law. Given that Mr. Arrol lived in California for the greater part of 180 days before filing, California law applied. Looking at CCP 704.730 and 704.710(c), the appellate court determined whether the state law allowed this. The Ninth Circuit found that California state law didn’t limit the homestead exemption to dwellings in California, and concluded,

    We find nothing in the California exemption statutory scheme, its legislative history, or its interpretation in California case law to limit the application of the homestead exemption to dwellings within California.

    In re Arrol, 170 F3d 934, 937 (9th Cir, 1999).

    California homestead exemption for out-of-state property with no intent

    Mike Showalter owned an interest in a Florida house. He had lived at the Florida property for some time over decades. For the twelve years prior to filing bankruptcy, he lived in California in a rental property. After filing bankruptcy, he moved to a different rental property in California. A month before filing bankruptcy, while living in California, he signed a declaration that the Florida house is his principal dwelling, and it’s his homestead.

    The appellate court determined that the declaration was “patently untrue” and by Mr Showalter’s own testimony, he hadn’t lived at the Florida property for about twenty years, he didn’t live in Florida, and no credible intention to return to live at the Florida property, and the claim of California homestead is invalid. In re Showalter, (12-22720, 9th Cir BAP, 2013).

    Residency and the California Homestead: Piecing it all together

    As of this writing, it seems the current law on the California homestead exemption for a home where you maybe don’t live which may be in a different state is the following. You can claim the California homestead exemption if it’s your residence, California law applies, and you intend to live in that residence as your future home, even if it’s not in California.

    ride-through california bankruptcy

    Ride-Through Back in Calif Bankruptcy

    Ride-Through Back in California Bankruptcy

    Ride-through is back in California bankruptcy. This is big news for 2022. It restores the right of someone in bankruptcy to be free of personal liability on a car loan in the event of a future default. To be clear, you don’t get a free car in bankruptcy. But if you don’t reaffirm the car debt, and stop paying the car after the bankruptcy discharge resulting in a repo, you won’t owe the deficiency balance.

    The change is part of SB1099, a bill the governor recently signed into law. The new law includes other protections or exemptions, for people filing bankruptcy. The changes take effect on January 1, 2023. Caution: it is likely that this may be challenged by lenders or trustees in court, so rely on this new law at your own risk. More on that below.

    Meaning of Ride-Through Doctrine in Bankruptcy

    ride-through doctrine meaning
    Meaning of Ride-through doctrine: car loan goes thru without adding dirt

    The meaning of the ride-through doctrine in bankruptcy is this: a vehicle can go through Chapter 7 bankruptcy without the debtor being on the hook for the car loan in case of future default after the bankruptcy is done.

    In my ultimate guide on Chapter 7 bankruptcy, I use a car wash as a metaphor for the process as a simple way to explain it. While the bankruptcy carwash is intended to remove much dirt, the ride-through doctrine means that the car owner isn’t forced to add the new road tar to his vehicle when it comes out the other side.

    You’d think that it would be common sense that all debts that existed at the time the debtor files bankruptcy would be discharged in the successful case. With credit cards, that’s certainly true (in most cases). However, a secured debt like that for a car or a house is treated differently. If you want to keep the car, you must stay current on the payments for life of the car loan.

    If, after the bankruptcy, the debtor and car owner loses his or her job and they need to turn in the car or have it get repossessed, what happens with the balance of the car loan? With the ride-through doctrine, the “old” bankruptcy reaches into the future and eliminates the new leftover debt. This is huge, as it can be thousands of dollars for something which was completely unplanned or unforeseen.

    2005-2022: Congress & BAPCPA End Ride-through

    It wasn’t always this way. During the dark years of 2005 through 2022, the ride-through doctrine was dead all throughout the nation. This is because back in 2005, Congress passed major bankruptcy reform called BAPCPA. As part of the sweeping changes, in a huge favor to big banks, Congress ended ride-through for all the people in the land.

    In its place, Congress compelled debtors seeking a new start by filing bankruptcy to sign reaffirmation agreements if they wanted to keep their cars. A reaffirmation agreement is where a debtor (you guessed it) reaffirms their debt in a bankruptcy.

    This means that the person signing the contract is promising to owe the debt and undo the bankruptcy with regard to it. Instead of discharging a debt, a reaffirmation is promising to owe the debt, no matter what. Promising to owe debt is bad, and the opposite of the goal of a successful bankruptcy. Millions of people seeking to be released from bondage to debt were forced to sign contracts owing it, or face losing their car anyway. These were dark times, indeed.

    2023: California restores Ride-Through in Bankruptcy

    But California changed that. In September 2022, a new law was completed which becomes effective in 2023, As part of the wide-ranging changes, California restored ride-through in bankruptcy. With Calif bankruptcy ride-through, failing to sign the reaffirmation agreement isn’t considered a default.

    The pertinent “ride-through” bankruptcy part from the new CA law:

    (2) Neither the act of filing a petition commencing a case for bankruptcy under Title 11 of the United States Code by the borrower or other person liable on the loan nor the status of either of those persons as a debtor in bankruptcy constitutes a default in the performance of any of the borrower’s obligations under the loan, and neither may be used as a basis for accelerating the maturity of any part or all of the amount due under the loan or for repossessing the motor vehicle. A provision of a contract that states that the act of filing a petition commencing a case for bankruptcy under Title 11 of the United States Code by the buyer or other individual liable on the contract or the status of either of those persons as a debtor in bankruptcy is a default is void and unenforceable.

    There it is: a person using Title 11 (which is the Bankruptcy Code) cannot be said to be in default, and any contract that says a person is liable on their car loan in case of default is void and unenforceable. This means there is no more repossession for failure to reaffirm or refusal to sign a reaffirmation agreement. This is how, during 2005-2022, some car lenders repossessed vehicles even if the borrower was current on the loan. The infraction? Failing to sign a reaffirmation agreement. So now you ask: after 1/1/2023, do I have to reaffirm a car loan in California bankruptcy and stay personally liable on the debt? The answer appears to be, “no.”

    Preemption: Supremacy Clause, federal law, and California’s ride-through

    Can a state change, or carve out an exception, to federal law? It remains to be seen whether this portion of the law will be challenged by creditors and car lenders. The strongest argument to challenge California’s bankruptcy ride-through is the Constitution’s Supremacy Clause of Art VI, Sec 2. This would state that the federal bankruptcy laws of 11 USC 521(a)(2) and 11 USC 524 are “supreme” to and therefore preempts California state law, and by applying the Supremacy Clause, the part of the state law which conflicts with federal law is void.

    A rebuttal to this would be that California’s bankruptcy ride-through is not in direct conflict with the Bankruptcy Code or of Article 1, Section 8 of the Constitution’s enumerated powers. California is not making laws about bankruptcy. Instead, the state can claim it is merely clarifying state law, as is its right. It can assert that a state has the right to define what is and is not a “default” in California, and a bankruptcy is not a default. Or whether or not car lienholders can repossess a vehicle, or make debtors owe the leftover deficiency balance on a debt after repo from an old bankruptcy case now closed. It remains to be seen if creditors or trustees act on this, and if so, which is more persuasive to a court of law.

    California’s Ride-Through is a New Day Dawning for Debtors

    new dawn of ride-through is back
    There is a new dawn: Ride-through is back in California

    The dark days of forced reaffirmation are behind us. No longer will a person seeking to become debt-free be coerced to sign a contract promising to owe on a potential future default. No more will hopeful Californians be saddled with thousands of dollars of debt after completing their bankruptcy, unable to file again for a number of years. Never again will people finishing a bankruptcy lose their car even though they were current on payments.

    A new dawn is emerging in California. A radiant era where people filing bankruptcy won’t have to worry about having an old debt survive and burden them as a future liability. A glorious future where someone can seek a new start without compulsion, and have the freedom of a clear conscience, free of worry, and without having old debt burden them.

    Yes, ride-through is back in California bankruptcy!

    sb1099 new california exemptions good news

    SB1099: New 2023 California Bankruptcy Exemptions Increase

    SB1099: New California Bankruptcy Exemptions Increase for 2023 | 5 Major Wins

    SB1099, the new California exemptions increase which gives debtors in bankruptcy more protections, is now law. The new California exemptions for 2023 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 2023 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. In contrast, the 2023 exemption hikes for California improves protections for homes, cars, savings, support, and accrued leave and wages.

    Caution: as the new law has been in effect for just a few days, it’s likely that creditors and trustees will challenge key portions of it in court. As such, reliance on it and its changes should be done with caution until it’s established with some history and caselaw.

    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

    The provision

    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 has the possibility to addressing 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.

    New California exemptions provide more protection for home and appreciation
    New California exemptions provide more protection for homes and their appreciation

    There, the Ninth Circuit 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 that of the trustee who previously could take it to pay their debts. However, there is a countering argument that the legislature here says exemptions are not fixed on the filing date, which agrees with Jacobson, and thus, perhaps the case and its ruling are still valid. We’ll have to see how that plays out in the courts.

    November 2022 update: Did the Ninth Circuit just chip into Jacobson, in a gradual erosion towards the ruling’s demise?

    A Note on Preemption and SB1099

    Section 541(a)(6) says that the estate is entitled to postpetition appreciation. The Ninth Circuit BAP has held that to be the case, even if there is no equity on the date of filing. In re Viet Vu, 245 BR 644, 649 (9th Cir BAP, 2000). Creditors can challenge the new state law of SB1099 (or at least this portion of it) as being preempted by federal law, and even 9th Circuit authority on the point. It remains to be seen what courts would do.

    Also, 11 USC 521(a)(2) says that a debtor must perform his or her stated intention about the collateral and secured debt with the filed petition. The options in the federal statute are: reaffirm, redeem, or surrender. Lenders can assert that state law SB1099 is preempted by federal law of Section 521. One counter to this is that, by and large, debtors in California have not been reaffirming mortgages, which are also secured debts that fall under 521. Perhaps treating vehicles the same way, pursuant to California statute, will be similarly allowed.

    Ride-through for Cars is Back in California

    Bankruptcy ride-through is where debtors can have their car loan “ride through” their bankruptcy without having to sign a new contact. 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 704 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!