“They will’t take my home, no matter occurs. Proper?”
The younger man in my workplace “knew” how the California homestead works: he insisted that his house was exempt as a California homestead, even when he filed chapter.
He “knew” that bank card debt was dischargeable.
And that “data” result in his conviction that , in chapter, he may hold the home and ditch the bank card debt with out fee.
Incorrect.
In his thoughts, bits of authorized fact acquired stitched collectively right into a chapter fantasy. Let’s piece collectively the reality.
How California homestead works
True: each California home-owner can declare a homestead of their principal residence. CCP 704.720
However: the homestead is proscribed to a certain quantity of worth. For the one man sitting throughout my desk, that quantity was $75,000. Fairness in his condominium in extra of that isn’t protected by the homestead.
Worse, the homestead is barely efficient in opposition to sure sorts of collectors. The tax liens that had been of report for previous tax years aren’t defeated by a state regulation homestead. So the tax liens stay enforceable. *
Bank card debt is dischargeable
True: unsecured bank card debt (not incurred by fraud) could be worn out in chapter.
However: the discharge speaks as to whether the debt survives the chapter and is enforceable afterwards. Being dischargeable doesn’t imply that collectors don’t share within the chapter distribution. So, if there may be non exempt worth, dischargeable money owed share within the pool of cash.
Asset worth issues in chapter
True: each debtor can declare exemptions that shield the exempt quantity from being paid out to collectors within the chapter case.
However: the asset worth not protected by an exemption is offered to pay the claims of collectors, so far as that worth goes. For many unsecured collectors, all they get from the debtor is their professional rata share of the non exempt property of the property. Any unpaid steadiness is discharged. So, it pays to take care in valuing your property.
Chapter truths
So when the bits of the regulation my consumer acquired proper about how the California homestead works are expanded and seen as an entire, any chapter discharge was unlikely to end in paying much less to his collectors. His home represented way more worth than the money owed, dischargeable and non dischargeable, that he owed.
Seemingly, in both Chapter 7 or Chapter 13, his collectors would get 100% of their claims. For my part, any quantity he would possibly save in decreasing the curiosity accruing on these claims to the chapter rate of interest could be eaten up by the authorized charges to file the case, and the credit score hit he would incur.
True story of big financial savings on bank card debt
The one crucial chapter benefit is likely to be the ability of the computerized keep: if the mortgage lender threatened a foreclosures earlier than he may remedy the secured arrears, chapter may cease foreclosures lengthy sufficient to both suggest a Chapter 13 plan, or organize household assist to maintain the home.
* In Chapter 13, the home-owner may strip a tax lien right down to the worth of the house in any case senior liens had been subtracted. The stripped down lien must be paid in full by the plan. The steadiness of the tax lien could be handled as an unsecured declare.
Extra
Every little thing you might want to know concerning the California homestead exemption
Who will get paid first in chapter
