In Washington state, debtors who want to file for bankruptcy are allowed to exempt (“protect”) up to $125,000 in equity in a primary home located in Washington under RCW 6.13 and up to $15k in property used as a homestead. Washington state is considered raising the homestead exemption in a proposed bill SB 5408. I had the chance to discuss whether the Washington state homestead exemption should be increased on 1150AM KKNW and you can listen to that segment here:
Typically in order to claim the Washington state homestead exemption, a debtor must live in a home as their primary residence and for bankruptcy purposes have lived in Washington 2 years ago to claim Washington state bankruptcy exemptions, as exemptions are typically based on where a debtor was living 2 years prior to filing a bankruptcy case.
This homestead exemption was last updated in 2007 and If you have been paying attention, the real estate market in Washington state and King County in particular has soared since 2007 and the current Washington state homestead exemption is not enough to protect most homes of debtors who want to file for chapter 7 bankruptcy. This either eliminates chapter 7 bankruptcy as an option or forces debtors to consider an expensive chapter 13 bankruptcy repayment plan or not qualify for bankruptcy altogether.
In a chapter 7 bankruptcy a bankruptcy, a trustee appointed to the case can seek to sell a home to make money for a debtors creditors if a home has more than $125,000 of equity. They can even leave a case open and wait for the home to appreciate in a hot market which may force many debtors to file for chapter 13 bankruptcy or not be able to file bankruptcy at all because they cannot afford a chapter 13 repayment plan. This is a big problem because many debtors may not realize the their home has appreciated significantly or that it could appreciate during the course of their case, even after they get a discharge of their debts.
The good news is that help may be on the way in the form of SB 5408 which proposes to raise the homestead exemption from $125,000 to the median value per county of a single-family home. It ensures bankruptcy filers won’t lose their homestead exemption due to property value increases after the date of filing. The Washington state homestead exemption is currently one of the lowest in the country and increases in home prices have dramatically reduced the value of the exemption throughout the state.
SB 5408 is currently making its way through the Washington state legislature and provides critical protection for homeowners outside the bankruptcy process. An effective homestead exemption protects a debtor’s home and makes it easier for debtors to negotiate with creditors outside of bankruptcy as creditors may not be able to get to equity in a home if the homestead is increased.
An increased Washington state homestead exemption helps build wealth in communities of color. Communities of color have been disproportionately impacted by Covid-19, and are more likely that White homeowners to default or ask for mortgage deferments.
An increase in the Washington state homestead exemption helps homeowners protect all manner of homeownership including small farms, RV’s and vehicles. A homestead consists of all real and personal property that the owner uses as their principal residence. The Bill will prohibit dollar value restrictions on the personal property.
SB 5408 also helps protects debtors who are already in a bankruptcy case. Currently, debtors who qualify can still lose their home if its value increases during the case as all equity goes to a chapter 7 trustee post filing. SB 5408 enables debtor to claim a future exemption in value as of the date of filing.
SB 5408 provides real, tangible relief to vulnerable working people and all homeowners without taxpayer money.
If you are interested in helping get this bill passed into law then you should contact your state senator here and let them know your story. Everybody’s voice working together can make a difference to help get this important law passed to help those most in need.
If you live in Washington State, and have questions about the Washington State Homestead exemption or are concerned about protecting your home in bankruptcy, give Symmes Law Group a call at 206-682-7975 or contact us to get the counsel you need.