Many assume that when declaring bankruptcy, all assets are lost to creditors. That’s simply not true. In many bankruptcy cases, debtors are able to keep everything and lose nothing (other than their overwhelming debt). Some or all of the filer’s assets are exempt. Exemption means that the specified property cannot be taken and sold by the trustee to pay off creditors. Many states require that bankruptcy filers utilize the federal exemptions, but California opted out in favor of state exemptions.
Exemptions are a vital part of the bankruptcy equation. When filing for Chapter 7, exemptions determine how much property you get to keep. When filing for Chapter 13, exemptions determine how much debt you will be responsible for repaying.
California filers choose one of two systems: California Code of Civil Procedure Section 703 or 704.
California Code of Civil Procedure Section 704 offers exemptions for those with equity in their home. Exemptions under this section protect your home (value up to $75,000 cap for single, not disabled, $100,000 cap for married couples, and $175,000 cap for 65+ or disabled), your vehicle (value up to $2,725), household goods (ordinary and required), and jewelry/heirlooms/art (up to $5,000).
California Code of Civil Procedure Section 703 is often utilized by individuals with little or no equity in their property. It is advantageous because filers can take the unused portion of their homestead exemption and use it for other property. Many refer to it as the “wild card” exemption. The maximum dollar amount exemption can be used to protect any type of asset up to the specified value dollar amount.
In addition to 703 and 704, exemptions are available to protect IRA retirement plans, ERISA 401K plans, etc. In order to use California’s exemptions you need to have lived in the state for two years prior to filing for bankruptcy. If that’s not the case, you must follow the bankruptcy laws (and exemptions) in the state you lived in before moving to California.
Contact the experienced bankruptcy attorneys at Westgate Law to discuss exemptions that could be used to protect your assets during a Chapter 7 or Chapter 13 bankruptcy filing. California’s unique system of bankruptcy law and exemptions can get complicated. You’ll want to have a knowledgeable bankruptcy attorney looking out for your best interests.