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Washington Homestead Law Changes in 2021

In filing for bankruptcy, a debtor in Washington must choose whether to claim exemptions to protect their assets under either federal bankruptcy law or Washington law. A debtor cannot pick and choose between the two options of Washington and federal law. As of 2021, under the federal exemption the homestead exemption for someone’s primary residence is $25,150 in equity if filing alone and $50,300 in equity if filing married together. Under Washington law, until a recent change in 2021, the maximum homestead exemption was $125,000 in equity in real property used as someone’s primary residence.

On May 12, 2021, major changes were made to the Washington Homestead law. Under the changes effective May 12, 2021, the homestead exemption is based upon the greater of $125,000 or the median value of a single residence for the previous year for the county in which the real property is located subject to requirements. The median value for each county is based upon information from the Washington Center for Real Estate Research.

For bankruptcy filings in 2021, the median income in each of these counties is as follows:

  • Pierce County: $424,300
  • King County: $729,600
  • Kitsap County: $425,100
  • Thurston County: $383,600
  • Mason County: $319,600
  • Snohomish County: $549,400

The homestead exemption applies to real or personal property that is used by the debtor as their residence. The homestead exemption also applies if a dependent of the owner uses the property as their residence. Particularly given the amount of money at stake when a debtor in a bankruptcy case is claiming a homestead exemption to protect real or personal property, it is highly recommended that the individual seek the advice of an experienced bankruptcy attorney prior to filing a bankruptcy case.

Certain conditions need to be met to able to use the full amount of the county median value for the homestead exemption. If the debtor did not acquire the real property at least 1215 days prior to the bankruptcy filing, the debtor is not entitled to the fill amount of the exemption based upon the county valuation but instead is limited to a maximum of $170,360. However, if the debtor sold a previous residence in Washington state and applied the proceeds to the new residence less than 1215 days ago, the debtor should be able to use the Washington bankruptcy exemption (based upon the median value of the county).

In order to be able use the Washington exemptions to protect assets in bankruptcy case, the debtor must have lived in Washington for at least two continuous years before the bankruptcy filing. If the debtor did not live in Washington for at least the past two years, then the applicable state would be based upon the previous 180 days (meaning count back two years and an additional 180 days). If the debtor lived in two or more states during the 180 days, then the state that is the debtor’s “domicile” is whichever state the debtor lived during the 180 day period.

In addition to the requirement of acquiring the property at least 1215 days ago, the Washington homestead exemption may be limited in certain cases in which the debtor was convicted a felony, securities fraud, or due to “any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual in the preceding 5 years”. 11 U.S.C. §522(q).

Example 1: The debtor moved to Washington on January 1, 2020 and purchased real property as their residence in Pierce County on that same date and then filed for bankruptcy on June 1, 2021. The debtor would not be able to use the Washington exemption of $424,300 because they acquired the property less than 1215 days ago. The debtor also would not be able to use the Washington exemptions (the lower amount of $170,360) and would be limited to either the federal exemptions or the state exemptions from the state they relocated from depending on the state. Potentially, the debtor would be limited to the federal homestead exemption of $25,150 if single (as of 2021 laws), or possibly no homestead exemption whatsoever if the debtor is not allowed to use the federal exemptions. This issue can become very complicated and requires a careful analysis prior to filing.

Example 2: The debtor moved to Washington on June 1, 2018 and purchased real property as their residence in Pierce County on the same date and then filed for bankruptcy on June 1, 2021. The debtor would be able to use the Washington exemptions, including the Washington homestead exemption, because they resided in Washington at least two continuous years prior to the bankruptcy filing. However, the debtor did not satisfy the requirement of acquiring the real property at least 1215 days before the bankruptcy filing and would be limited to an exemption of $170,360.

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