SB 308 would help put homeowners in a better position following bankruptcy
It’s no secret that many Californians have taken a big hit since the Great Recession. But for Baby Boomers, the timing has been especially bad.
For them, the Great Recession came just when they had reached the kinds of high-salary positions that are often targeted first during layoffs. Finding a new job that could offer a similar income in the worst economic downturn since the 1930s has been all but impossible for many, leaving baby boomers with no choice but to spend through their entire nest eggs in an attempt to stay solvent.
Some baby boomers have turned to bankruptcy to help give them a clean slate for the future, but unfortunately some aspects of California bankruptcy law—especially as it pertains to home loans—have hampered their ability to secure true and lasting relief from the indebtedness cycle.
Fortunately, a proposed bill known as SB 308 has been introduced into the legislature to help make bankruptcy more fair and more beneficial for homeowners.
The bill would:
Increase homestead exemptions: Homestead exemptions are intended to allow individuals to maintain a certain portion of their home equity, even as they discharge their home loans in bankruptcy. The trouble is, exemption amounts have not kept up with rising home prices over past decades. Right now, an individual with $500,000 in equity can only protect $75,000 to $175,000 of that equity during bankruptcy. SB 38 would increase this to $100,000 to $300,000 to put more Californians who are house-rich but cash-poor in a better position following bankruptcy.
Remove reinvestment requirements: In 2012, a court ruling gave banks and debt collectors unfair leverage in cases where individuals have had to sell their homes in bankruptcy. Currently, if the individual does not reinvest their exempted equity in a new home within a 6 month period, the bankruptcy court trustee could seize that equity and distribute it amount the creditors included in the bankruptcy. This requirement may actually be perpetuating the cycle of bad debt by pressuring people into new mortgages that may be difficult afford. SB 308 would give debtors the freedom to use exempted equity as they see fit rather than reinvesting it in a new mortgage.
Do You Have Questions About Homeowner Bankruptcy?
If you are considering filing for bankruptcy, you may not necessarily have to give up your home. Come to California Bankruptcy Relief to learn more about how to California bankruptcy exemptions and other legal provisions can help you secure maximum debt relief and get your financial future back on track.
