Whoa pardner! Not so fast!
If you have clients who are weighing the merits of leaving California for the income tax free, business friendly and unlimited homestead exemption refuge of Texas, they’re not alone. Depending on which article you read, in 2018 and 2019 the number of Californians that moved to the Lone Star State was in the 45,000 to 85,000 range. One big question the next batch of movers should consider long before they begin to pack is “Will I really receive the benefit of the unlimited homestead exemption once I move to Texas?”
There are several homestead related sections of the Bankruptcy Code that may impact your client’s decision on “when” or even “if” to make the move to Texas. These include, but are not limited to, 11 U.S.C. §§ 522(o), 522(p) and 522(a)(3). Section 522(o) puts a limitation on non-exempt property converted to home equity in the 10-year period prior to the filing of a bankruptcy case. Section 522(p) may limit a homestead exemption to $170,350 for a change of residence (out-of-state) for a bankruptcy filing within 1215 days. Section 522(a)(3) limits debtors claiming homesteads in the new state for a period of two (2) years. Other sections of the Bankruptcy Code should be considered as well if the moving parties foresee a bankruptcy filing in their near-term future.
The would-be movers should also be aware that there was a substantial increase in the California homestead exemption allowance as of January 1, 2021. The prior homestead exemption ranged from $75,000 to $175,000 (depending on the debtors’ circumstances.). Now the homestead exemption is not less than $300,000 and not more than $600,000, with the exact amount being tied to the median sales price for the county in which the debtor’s property is situated. California’s homestead increase, in conjunction with the above Bankruptcy Code sections, should be seriously considered by clients before they decide to pull up stakes and move to a new state.
In summary, if your clients intend to move to another state, ask them if a bankruptcy filing is on the horizon, even the distant horizon. If it is, they should consult a competent bankruptcy attorney to discuss how the move will affect their rights.