Judgment Liens and the California Homestead Exemption – Long Beach Bankruptcy Lawyer
As a bankruptcy lawyer in Long Beach, California, I hear a lot of misconceptions about judgment liens and the California homestead exemption when it comes to bankruptcy.
So, what is the California homestead exemption? And what is the interplay between California’s homestead exemption and judgment liens in bankruptcy?
California Homestead Exemption
California’s homestead exemption law allows a debtor to keep out of reach of creditors the equity in the debtor’s homestead in the amount of $75,000, $100,000, or $150,000, depending upon the debtor’s circumstances.
In order for the debtor to claim his home a “homestead” he must live in the property on the date the lien attaches, and continue to live the property thereafter.
Definition of “Homestead” Under California Law
California defines “homestead” as follows:
“Homestead” means the principle dwelling (1) in which the judgment debtor or the judgment debtor’s spouse resided on the date the judgment creditor’s lien attached to the dwelling, and (2) in which the judgment debtor or the judgment debtor’s spouse resided continuously thereafter until the date of the court determination that the dwelling is a homestead.”
So, under California law timing is key! The debtor must live in the property at the time the lien attaches, and continue living there until a determination of homestead is made.
So, for example, if you buy a rental property and a judgment lien attaches to it, and then you later move in and occupy the property as your residence, California law says that the judgment lien is superior to your claimed homestead exemption.
The Homestead Exemption Is Superior To Judgment Liens In Bankruptcy
However, when it comes to avoiding judgment liens in chapter 7 bankruptcy in California, debtor’s homestead exemption is treated as superior to the judgment lien, even if the debtor did not occupy the property at the time the lien attached.
Put another way, bankruptcy bestows upon the debtor’s property “homestead” status even though it doesn’t meet the definition of “homestead” under California law.
In chapter 7 bankruptcy, one way to avoid a judgment lien on real property is under 11 U.S.C. 522(f) on the grounds that the lien impairs the debtor’s homestead exemption.
But the analysis of whether the lien impairs the debtor’s homestead in bankruptcy asks whether the debtor would be entitled to an exemption under state law if the lien did not exist.
“The object of the test is to determine whether the actual existence of the lien deprives the debtor of potential property rights which would be available absent the len; whether the debtor would be entitled to an exemption under state law but for the lien itself.” (emphasis added)
In re Hastings, 185 B.R. 811, 814 (1995).
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