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CA’s homestead bankruptcy exemption is now $600K, best in US not counting state with no dollar limit.

Posted by John Reed on

In my recent book An American Principal Residence is the Most Advantaged Investment on Earth: Maximize Yours!, I said the CA homestead bankruptcy exemption was $175,000 for 65 or older.

To my surprise, I recently learned that it is now $600,000 for all ages. 

California's System 1 homestead exemption in the California Code of Civil Procedure § § 704.710, 704.720, and 704.730.

CA’s new homestead bankruptcy exemption is the HIGHEST IN THE NATION other than the seven states and DC that have no dollar limit at all. 

State homestead bankruptcy exemption

A homestead bankruptcy exemption says if you go bankrupt, your creditors may not touch your principal-residence equity up to your state’s limit. In seven states and DC, the limit is acreage, not dollars. (AR, FL, IA, KS, OK, SD, TX) That means you potentially can keep millions away from creditors in those states. Acreage limits in those seven states range from 1/4 acre to 10 acres in an urban area and 40 to 200 acres in a rural area. There is no acreage limit in DC.

Not just for poor people

Many dismiss bankruptcy exemptions as something only poor people need to think about. That is quite incorrect. Stuff happens. Bankruptcy is like alcoholism. Many do it notwithstanding that none of them intended to when they started.

Most asset protection is bogus

Asset protection used to be a hot topic. I started to write a book about it. So did my friend John Beck. We were working separately each on our own book. And we both abandoned the project, albeit for different reasons.

I abandoned it because I found the only moral, legal asset protection is to maximize your use of your state’s bankruptcy exemptions. That is called exemption planning. Exemption planning includes moving to a state with better list of exemptions. Some of my readers have done that as have many famous bankrupts. The differences between the worst state—NJ—and the best—TX—are breath-takingly enormous.

A famous person illustrates. OJ Simpson lost a wrongful death lawsuit. He was a resident of Brentwood, CA at the time. The plaintiff Goldman family got his house minus the then small CA homestead exemption and his Heisman Trophy. The Goldman’s could NOT touch his substantial NFL pension.

If OJ had lived in FL or TX or another no-dollar limit state, he would have been able to keep millions in home equity.

Do you know where OJ lives now? FL.

The usual asset-protection stuff you hear about is family limited partnerships, forming an LLC or a corporation, trust in an asset haven country, etc.. Generally, that stuff is immoral and/or can be penetrated by determined creditors.

The moral and often legal rule is “thou shallt not hinder or delay creditors.” Virtually all asset protectors would laugh and say “That is exactly what I want to do.” Don’t say it in court.

People say they only want asset protection to protect them from FRIVOLOUS LAWSUITS. That is a lie. You are already quite protected from frivolous lawsuits by FRCP §11(b)(2). If you file that motion to dismiss and it is not granted, by legal definition, the suit against you is NOT frivolous. What would-be asset protectors really want is protection against successful suits against them, a.k.a. judgments. That is immoral and illegal.

Asset havens

Beck found that asset protection was somewhat viable, but that it was too much trouble unless you had a whole lot of money. He traveled to asset havens around the world and interviewed the lawyers who wrote the pertinent laws in those jurisdictions. Generally, all they had were short statutes of limitation for the foreign creditor to file suit to collect from debtor assets in that country.

It must be noted that the FTC hit Beck, a real estate investment guru with a multi-hundred million-dollar judgment. 

He had become a person with enough money that offshore assets haven made sense for him if not his readers. He declared bankruptcy then disappeared. I suspect he is living in one of those asset havens using a false passport. I do not recommend that.



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