Couple concludes bankruptcy and saves their home

By passing “Engrossed Substitute Senate Bill 5408” during the recent legislative session, the Washington State Legislature significantly changed the Washington homestead statute. The bill is expected to be signed by Governor Inslee on Tuesday, May 18th of this year.

What Changes Were Made to the Washington Homestead Statute?

According to a post on the United States Bankruptcy Court website for the Western District of Washington, released on April 20th of this year,

In general, homestead law contained in bill Engrossed Substitute Senate Bill 5408 provides for increases in homestead exemptions based on “the county median sale price of a single-family home in the preceding year.”

The Final Bill Report summarizes the impact of the new law as follows:

“Homestead includes real or personal property a dependent of the owner uses as a residence. A dependent has the same meaning as in [the] federal bankruptcy code. A dependent of a homeowner is not required to sign off on any documents needed to transfer the property.”

A forced sale is defined to include any sale of the homestead property in a bankruptcy proceeding. The reinvestment provisions do not apply to the proceeds. This change to the homestead law adopts the court’s holding in the decision of In re Good [588 B.R. 573 (Bankr. W.D. Wash. 2018)].

The homestead exemption amount is the greater of $125,000 or the county median sale price of a single-family home in the preceding calendar year. A court shall accept data on the county median sale price of a single family home from the Washington Center for Real Estate Research, or if the Washington Center for Real Estate Research no longer provides the data, a successor entity designated by the Office of Financial Management. This data can be found on the Washington Center for Real Estate Research site under the “Annual Median Price” tab here.

In a bankruptcy case, the debtor’s exemption shall be determined on the date the bankruptcy petition is filed. If the value of the debtor’s interest in homestead property on the petition date is less than or equal to the amount that can be exempted under the homestead law, then the debtor’s entire interest in the property, including the debtor’s right to possession and interests of no monetary value, is exempt. Any appreciation in the value of the debtor’s exempt interest in the property during the bankruptcy case is also exempt, even if it exceeds the statutory limit. This language is to address the case of Wilson v. Rigby [909 F.3d 306 (2018)].

What are Some of the Highlights of the Revised Homestead Law?

The amount of the homestead is dramatically increased and is different in each county.

The Homestead amount is the greater of $125,000 or the previous year’s median value of a single-family residence. The amount is tied to the “Annual Median Price by County” records kept and published by the University of Washington Center for Real Estate Research at https://wcrer.be.uw.edu/archived-reports/which is found on the last tab or on a site maintained by an officially designated successor to the Washington Center for Real Estate Research.

State law now provides that the exemption is determined on the date of filing and that appreciation after that date belongs to the debtor.

A sale of a homestead under Title 11 of the homestead statute in the Bankruptcy Code is termed a “forced sale.” The law now is that the homestead may be voluntarily sold, and the proceeds are exempt for one year to allow the homesteader to purchase a new property. When the new property is purchased, that property becomes the homestead.

Some courts have held that the homestead proceeds resulting from the trustee’s property sale are only exempt for one year and must be reinvested. That is not the case in Washington once the governor signs bill 5408. The bill passed by the Washington State Legislature has now codified that the proceeds of a sale under Title 11 remain exempt with no time limits.

What do these Changes Mean for Bankruptcy Filers in Washington State?

Despite the legislature’s well-intended efforts to clarify Washington Homestead law, bankruptcy filers will need the services of a competent Washington bankruptcy attorney to ensure compliance with the statute so that homestead property owned by bankruptcy filers are presented to the court accurately and completely. The bankruptcy trustee must have an accurate filing so that your case contains a correct claim for the exempt homestead amount. Competent Washington bankruptcy attorneys will not simply allow the bankruptcy case filing software to produce a dollar figure without guidance from the bankruptcy attorney. Instead, a competent Washington bankruptcy attorney like John Sterbick will carefully apply the guidelines in the new statute to ensure that Washington bankruptcy filers obtain the correct maximum homestead exemption that the new law allows.

What Actions Should Washington Bankruptcy Filers Take Now?

There are other laws that the Washington state legislature enacted during the 2021 legislative session that affect properties in foreclosure and capital gains taxes. The Law Offices of John Sterbick are uniquely qualified to assist Washington bankruptcy filers because of Mr. Sterbick’s expertise in both Washington bankruptcy and IRS tax cases. If you are having trouble paying debts or seem to be making no progress against your debts, you should consider filing for bankruptcy. There is no better day than today to begin to rebuild a sound financial future, free from crushing debt and worry. Let our professionalism and experience work for you to help you make a positive impact on your life. Don’t wait any longer to start rebuilding your financial future. Get your free consultation by contacting the Law Offices of John Sterbick today!