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Washington State’s New Homestead Exemption

On May 12, 2021, Governor Inslee signed into law major changes to Washington’s homestead exemption statute found at RCW 6.13.030. Previously, a Washington resident could claim a homestead exemption of $125,000 to protect equity in that amount from creditor claims.


Under the new statute, the homestead exemption amount is the greater of:

· $125,000; or

· The county median sales price of a single-family home in the preceding calendar year; or


Median home prices are determined by the Washington center for real estate. 2020 median prices included the following:


· King County - $729,600

· Snohomish County - $549,400

· Pierce County - $424,300

· Thurston County - $383,600

· Skagit County - $421,800

· Kitsap County - $425,100


Complete listing of median home prices by county and calendar year can be found here.


The homestead exemption is a critical potential for homeowners struggling with debt. A debtor’s homestead is protected from a forced sale (e.g., foreclosure) by creditors up to the exemption amount. Creditors may otherwise wish to force a sale of the home and apply the proceeds to satisfy the debt. Creditors with certain secured, consensual liens (such as mortgage lenders with a mortgage against the home) may still pursue foreclosure of the home notwithstanding a homestead exemption and use the sales proceeds to pay off the mortgage.


Washington Homestead Act Impact on Bankruptcy Filings


In Washington state, a debtor filing bankruptcy can choose between Washington’s set of exemptions (assuming lived in Washington 730 days prior to filing bankruptcy) or the Bankruptcy Code’s exemptions found at Bankruptcy Code § 522. Section 522(d)(1) provides an exemption of no more than the base amount of $25,150 in real or personal property that the debtor uses as a residence. Thus, person’s filing bankruptcy in 2021 with equity in their home are likely to opt for Washington’s state’s more generous homestead exemptoipn amount that may reach $729,600 in King County.


In a bankruptcy case, the debtor’s exemption is determined on the date the bankruptcy petition is filed. if the value of the debtor’s interest in the homestead property on the petition date is less than or equal to the amount that can be exempted, then the debtor’s entire interest in the property is exempt. RCW 6.13.070.


This is significant for various reasons. First, in a Chapter 7 bankruptcy the trustee cannot seize any equity in an asset covered by an exemption. Second, in a Chapter 13, the debtor is required to pay unsecured creditors over the life the plan the amount of the debtor’s nonexempt equity in asset. By expanding the amount of equity one may exempt in his/her home you are also decreasing the amount that would otherwise be required to pay unsecured creditors in a Chapter 13.


Example 1: Debtor D owns a home in King County worth $500,000 with a $200,000 mortgage against it. D must file bankruptcy because Creditor C obtained judgment of $100,000 against him. Under the prior homestead law, where the homestead amount was capped at $125,000, if D filed Chapter 7 in 2020 (before the new homestead law went into effect) then the Chapter 7 trustee would be entitled to $175,000 of the debtor’s equity in the home ($500,000 value - $200,000 mortgage - $125,000 old exemption). If D filed Chapter 13 in 2020, he would have to pay this amount over to his unsecured creditors over the life of his chapter 13 case. If C was the only creditor, then bankruptcy wouldn’t make much sense because D would have to pay C in full in a Chapter 13.


Example 2: same as above except D filed chapter 7 bankruptcy after May 12, 2021 (the date the new homestead law went into effect). The homestead exemption amount of $729,600 would cover the entirety of D’s equity of $300,000 in his home. The chapter 7 trustee would have no claim to D’s equity in his home. If D filed chapter 13, D’s equity of $300,000 would not be counted towards the amount of D’s nonexempt equity that must be paid to D’s creditors over the life of his Chapter 13 plan.


Attorney, Chris Chicoine

www.chrischicoinelaw.com

Christopher R. Chicoine, PLLC

DISCLAIMER - THIS IS FOR INFORMATION PURPOSES ONLY; IT'S NOT LEGAL ADVICE. DON'T ACT OR REFRAIN FROM ACTING BECAUSE OF THIS. NO REPRESENTATIONS OR WARRANTIES OR ANY KIND ARE MADE. CONSULT AN ATTORNEY.




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