New Bill Proposes to Change Bankruptcy Exemptions in California

In February 2015, the California Senate introduced and began reviewing a bill which, if passed, would make significant changes to the exemption laws relating to bankruptcy in the state. The proposed changes in SB 308 appear to favor judgment debtors and may make it more challenging for judgment creditors to collect debts.

Most notably, the bill would make changes to the homestead exemption. Existing law, CCP §704.730, provides that during bankruptcy proceedings, up to $175,000 of equity in a homestead can be exempted, and thus unreachable by the bankruptcy trustee and judgment creditors. Under SB 308, the limit would be raised to $300,000. Additionally, under existing laws CCP §704.720 and CCP §704.960, bankruptcy debtors are required to reinvest any proceeds received from a claimed homestead exemption in a new home within 6 months of receiving payment. If they fail to do so, the bankruptcy trustee may reclaim the entire exemption payment from the debtor. SB 308 proposes to do away with the 6-month limitation on the exemptions, and in doing so will make the proceeds exempt from judgment creditors indefinitely.

This change would have a major impact on creditors attempting to collect debt and enforce judgments, particularly in Orange County and elsewhere in Southern California where many debtors have equity in real property.

SB 308 would also amend other bankruptcy provisions related to various exemptions. It seeks to broaden the definition of the “vacation credits” exemption, in order to include accrued or unused vacation pay, sick leave, and family leave. Furthermore it would increase the amount for the motor vehicle exemption from $2,900 to $6,000. And lastly, the bill would set aside an exemption interest up to $5,000 for self-employed individuals that have qualifying business bank accounts or accounts receivables.

In addition to making adjustments to the exemption provisions, SB 308 looks to provide greater overall protection to debtors by establishing that the act of filing bankruptcy petition cannot be used as justification to repossess one’s vehicle, providing that person is current on their payments.

On April 28th, the bill was passed by the Senate and referred to the Assembly for consideration. To track the bill’s progress, visit this website.


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