Recent California Exemption Law Changes (2024–2025): What Debtors Need to Know

Introduction — Why 2024–2025 changes matter now

California made several important statutory and procedural changes in 2024 that started taking effect in 2025. Together they change how much home equity and other property a judgment debtor can keep, alter the treatment of many retirement plans in state collection proceedings, and update the federal means‑test income thresholds bankruptcy filers use to determine Chapter 7 eligibility. These changes affect choices debtors make now — whether to negotiate, file bankruptcy, record a homestead, or delay distributions from retirement plans.

Key legal sources and effective dates to watch: the revised homestead exemption formula codified in Cal. Civ. Proc. § 704.730 (as amended following AB 1885 and updated in recent maintenance legislation); Assembly Bill 2837 (AB 2837), which revises enforcement and retirement-account exemption rules (chaptered 2024; many provisions effective January 1, 2025); updates to the bankruptcy means test (U.S. Trustee Program median income updates used in 2025 filings); and implementing guidance and form changes from the California Judicial Branch.

This article summarizes what those changes do, how they interact with bankruptcy options, and practical next steps for debtors (and their attorneys) in Los Angeles and elsewhere in California.

What changed for the homestead exemption (overview and mechanics)

California’s current homestead exemption uses a two-part formula: the exemption is the greater of (A) the countywide median sale price for a single‑family home for the prior calendar year (subject to a statutory cap), or (B) a statutory floor amount — and those amounts are annually adjusted for inflation. That formula was adopted via AB 1885 and the statutory section is now codified at Cal. Civ. Proc. § 704.730. The statute and its automatic CPI adjustment mechanism drive the year‑to‑year increases you’ve seen in 2024–2025.

How to read the numbers (practical example)

• If your county’s median single‑family sale price (for the prior calendar year) is higher than the statutory floor, the exemption equals that county median — up to the statutory maximum (the code sets the upper limit tied to policy and market data).
• Because the statute now adjusts annually for the CPI, many counties saw their homestead exemption amounts rise in 2024–2025; for high‑cost counties (Los Angeles, San Diego, Orange, San Francisco) the exemption may be at or near the statutory cap. Local law firms and California bankruptcy practitioners published county examples in early 2025 that illustrate these new dollar figures.

Practical takeaway: determine your county’s current median sale price and apply the statutory formula (and CPI adjustment) to estimate protected equity. If you own a home and are facing collection, review whether recording a homestead declaration (where appropriate) or negotiating with creditors makes sense given the new exemption level.

Retirement accounts and AB 2837: a major shift for collection law

Before AB 2837 took effect, many tax‑qualified employer retirement plans (401(k)s, many pensions and other ERISA plans) enjoyed broad protection from judgment enforcement under California law. AB 2837 (chaptered in 2024 and effective in key parts January 1, 2025) changed that. The statute and conforming revisions to Code of Civil Procedure § 704.115 limit or condition the exemption for certain tax‑qualified plans — requiring courts to evaluate whether funds or distributions are "reasonably necessary" for retirement and allowing creditors access to amounts deemed unnecessary.

Important nuance — ERISA anti‑alienation remains critically important: while funds remain inside a qualifying ERISA plan they are generally protected by federal ERISA preemption. The exposure typically arises when an ERISA plan distributes funds (a rollover or lump‑sum distribution) — once distributed, state exemption rules control and AB 2837 can limit the exempt amount. Commentators and bankruptcy lawyers noted this change sharply reduces the level of automatic protection that Californians previously assumed for employer retirement plans and increases the importance of timing.

Practical considerations for debtors:

• Avoid unnecessary distributions from ERISA plans if litigation or enforcement is pending — funds in a plan retain ERISA protection until distributed.
• If a distribution is imminent, consult counsel immediately: bankruptcy (Chapter 7 or 13) and other timing strategies can produce very different outcomes for retirement assets than state collection proceedings.
• When creditors have already levied accounts, AB 2837 imposes new notice, verification, and court procedures for exemption claims — courts and clerks have updated forms and guidance.

Means test updates, interplay with exemptions, and practical next steps

The federal means test (used to determine presumptive eligibility for Chapter 7) depends on the median family income for your state and household size; those medians are published by the Census Bureau and the U.S. Trustee adjusts them annually (and periodically during the year). Recent 2025 updates increased California median thresholds for many household sizes; debtors must use the version of the median that applies to the date their case is filed.

How the means test and state exemptions interact

• Passing the means test makes Chapter 7 more likely; failing the means test pushes the analysis toward Chapter 13 or further means‑test expense itemization. Exemption levels (homestead, vehicles, tools, retirement exemptions under state law) affect what property a trustee could administer — higher homestead protections reduce the risk a trustee will liquidate home equity in Chapter 7.
• Because AB 2837 reduces certainty around retirement exemption amounts in state collection settings, debtors with significant retirement balances should get early advice: bankruptcy may (depending on the assets and debts) preserve retirement savings that AB 2837 makes vulnerable in post‑judgment proceedings. Discuss timing, exemptions, and whether to use state or federal exemptions with counsel.

Practical checklist for California debtors (next steps)

1. Confirm current county homestead figure and calculate your protected home equity under Cal. Civ. Proc. § 704.730.
2. If you have retirement accounts, avoid distributions and get immediate legal advice — AB 2837 changes the exemption analysis.
3. Check the U.S. Trustee median income figure that applies on your filing date before assuming you’ll pass/fail the means test.
4. If a creditor is enforcing a judgment, expect new verification and notice requirements for enforcement and updated exemption claim forms in California courts; keep copies of addresses and service documents.
5. Talk to a bankruptcy attorney early — the interplay between state enforcement changes and bankruptcy options means timing and procedural choices substantially affect outcomes.

Bottom line: 2024–2025 amendments raise homestead protections in many counties via CPI indexing but also introduce important limits on retirement‑account exemptions and change enforcement procedures. Because outcomes now turn heavily on timing (in particular, whether retirement funds are inside a plan or distributed, and the filing date for means‑test calculations), personalized legal advice is essential before taking steps like withdrawing funds, recording or abandoning a homestead declaration, or filing bankruptcy.

If you’d like, we can help you: review your county homestead calculation, run a means‑test estimate using the correct 2025 median, and evaluate the risks to retirement accounts under AB 2837 so you can choose the best path forward.