State law insulated a recorded judgment lien from future increases in the homestead exemption. However, bankruptcy law trumps that limitation, says the 9th Circuit in Barclay v. Boskoski.
[T]he Bankruptcy Code requires courts to determine the amount of the exemption to which
the debtor would have been entitled in the absence of the lien at issue
The issue was literally a half-million dollar question. When the judgment creditor recorded its abstract of judgment, the California homestead was $100,000 for a married couple. When the homeowner filed bankruptcy, the homestead exemption had been increased to $600,000.
By statute, California law insulated a judgment lien creditor from future increases in the homestead. Civil Procedure Section 703.050(a). When the debtor sought to avoid the lien as impairing the homestead in effect when he filed bankruptcy, the judgment creditor argued that the applicable homestead was the much lesser amount provided in 2014 when the lien was recorded.
Avoidance of liens impairing exemptions is authorized under 522(f) of the Code.
(1)Notwithstanding any waiver of exemptions but subject to paragraph (3), the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—
a judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 523(a)(5);
On direct appeal to the circuit, the circuit panel found the issue controlled by the Supreme Court decision in Owen v. Owen, 500 U.S. 305 (1991): the court looks to what the debtor would have been entitled to exempt, in the absence of the lien. In the case at issue, absent the 2014 judgment lien, the debtor would have been entitled to the current exemption of $600,000. Held for debtor.
Beyond California’s exemption increase
This case is eye catching because of the numbers involved in light of the huge California exemption increase.
But the principle of this case that the available exemption is the exemption then current should apply nationwide where exemptions have increased, grounded as it is in a Supreme Court decision.