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The Homestead Exemption and Mobile Homes in California

When you file for Chapter 7 bankruptcy, you can use one of two California exemption systems. These procedures allow you to protect a certain amount of equity in various property. Some states allow residents to use the federal bankruptcy exemption system, but this is not allowed in California.

Under the first California system, you can exempt up to $75,000 of equity in your home under the homestead exemption, and this includes a mobile home, if that is where you live. The homestead exemption also includes other real or personal property where people live, such as a boat or a planned development or a community apartment. This exemption can be applied to the proceeds of a forced sale of your mobile home six months before bankruptcy. The amount you can exempt may be higher depending on various other factors, such as whether you live with another person, whether you are 65 or over, whether you earn less than $25,000 per year as a single person, or whether you have mental disabilities.

Under the second exemption system, you can exempt $25,575 of the equity in your home, whether it is a mobile home or any other personal property that you or your dependent uses as a residence. The reason some people choose System 2 is because it has a wild card exemption, with which you can exempt up to $1,350 of any piece of property plus the unused amount of the homestead exemption. There is no wild card exemption under System 2. Those who do not own their homes outright, or do not want to keep their homes, often choose System 2.

What if you are filing for Chapter 13 bankruptcy? In this process, you can usually keep all your property, including your mobile home, but you must develop a workable debt repayment plan and stick to it. In some cases, you can use the cramdown tool to save your mobile home from a secured creditor intending to repossess it.

A cramdown is so named because it allows you to reduce or “cram down” the principal balance of a debt to the value of the property that the loan is secured by. While cramdowns are not used for home mortgages, you can use a cramdown for a loan that is for a mobile home considered to be personal property. For example, if you bought a mobile home for $30,000, and now it is only worth $20,000, but you still owe $25,000 on it, you can cram down the loan to $20,000, but you must pay off the loan through the repayment plan.

If the mobile home is your primary residence and you still owe a mortgage on the real property it sits on, it may be more appropriate to try to renegotiate your loan terms to reduce your debt under Chapter 13. A mobile home can be repossessed in some Chapter 13 bankruptcies, if a debtor does not include payment of arrearages, as well as current payments, within the debt repayment plan.

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