The case against Mona Kirk and Daniel Panico has been reduced to misdemeanor charges, according to court documents.
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The move gives prosecutors "a bit more time to put their failing case together but we have won round one," Panico's attorney, Mike Kennedy, said in a statement.
"We remain distressed that there will still be delays in getting the family reunited, which has been our primary aim," Kennedy added, "but they no longer have the felony sword of Damocles hanging over their impoverished heads."
The children remain in the custody of San Bernardino County Children and Family Services. The mother and father appeared in court Wednesday for an arraignment on the lesser counts.
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Kirk and Panico were arrested in February after San Bernardino County sheriff's deputies discovered them living with their children in squalor in what investigators described as a large plywood box.
Neighbors and supporters of the couple called for the remaining charges to also be dropped, adding that the pair was only guilty of being poor.
"They really didn't do anything wrong besides having some trash in their yard," said Jackie Klear, a family friend. "There is no case here."