Just because you owe a debt, it doesn’t mean you should sacrifice your home. To protect homeowners, California legislatures created a series of California homestead real estate laws that are specifically designed to ensure that non-consensual creditors drive you away from your home, or that they take the money you made from selling a piece of property. It is worth noting that these laws only protect your home from non-consensual creditors, but not voluntary liens placed against your property.
Examples of voluntary liens include:
- Mechanic’s liens
- Federal tax liens
- Judgement liens (child support, spousal support)
- Deed of trust
Chapter Seven Bankruptcy
The best way to help erase your debt load and still maintain ownership of your home is filing for Chapter 7 bankruptcy. Even though Chapter 7 bankruptcy does require that you liquidate nearly all of your assets, one of the things that remains yours during the bankruptcy process is the equity you have built as a home owner. This means that if you keep up on your mortgage payments and consistently pay federal and state property taxes, you will continue to have a place to live, and there is nothing your creditors can do about it.
Protection from Lawsuits
California is one of the few states that has passed legislation that prevents the sale of your primary residence in order to meet debts owed to creditors, a law that allows you to keep your residence even if you lose a large civil lawsuit. The exception is, lawsuits that deals with either child support or spousal support.
It is important to note, that only your primary residence is protected by California’s homestead laws. If you own a secondary residence, you could be ordered to give it up. This is going to be true for both rental and vacation properties.
If you’re worried about creditors coming after either a primary or secondary residence, one of the courses of action you can take is gifting it to another family member. Not only does this keep the property out of the creditors hands, but often reduces estate tax liability. The trick is to make sure you gift the property to a family member that doesn’t have issues with creditors and who is willing to let you continue living on the property.