Going through bankruptcy doesn’t necessarily mean losing all assets to creditors. Many time s debtors keep everything and lose nothing. Some or all assets are exempt, meaning that the Ch. 7 or Ch. 13 Trustee cannot take them in order to help pay off the bankruptcy filer’s debt. While bankruptcy filers in many states apply the federal system that protects certain property from the reach of the Ch. 7 or Ch. 13 Trustee, California opted out of that system in favor of its own state laws.
California has two systems that govern what property the Trustee can and cannot claim on behalf of the estate during bankruptcy; they are codified in the California Code of Civil Procedure Sections 703 and 704. Anyone going through bankruptcy must choose only one of the two systems.
A Brief Summary of Exemptions Under Section 704
If you have equity in your home, you may wish to use the exemptions provided under Section 704. Under this section, the following assets are among those exempt:
- Up to $75,000 in the value of real property if single and not disabled, $100,000 if married, and $175,000 if 65 years of age or older, or disabled
- Up to $2,725 in the value of a vehicle
- Ordinary and required household furnishings and clothing
- Up to $5,000 for jewelry, heirlooms and art
A Brief Summary of Exemptions Under Section 703
One of the benefits of Section 703 is the all important ‘wild card’, unlike Section 704. A Homestead exemption does exist for Section 703 but it is only $20,725. This is why homeowners with greater equity are likely to file under Section 704. However, for those with little or no equity in real property, Section 703 can be advantageous in that a bankruptcy filer can take the unused portion of the homestead exemption and use it for other property. The ‘wild card’ exemption is precisely as the name suggests, the exemption can be used to protect any kind of asset, up to the maximum dollar amount.
In addition to these exemptions, exemptions exist for reasonable IRA retirement plans and ERISA 401k plans are typically not property of the estate, and are protected..
Consult an Attorney to Determine Your Best Option
Exemption analysis is a complex matter, and one that can ‘make or break’ the success of a Ch. 7 or Ch. 13 Bankruptcy. California’s unique system of bankruptcy exemptions is just one example of some of the complicated laws that govern bankruptcy. The summaries included on this page are not complete. If you are considering filing for bankruptcy, you should speak with an experienced bankruptcy attorney in order to more fully understand how proper exemption elections may be able to help you protect your property from the Ch. 7 or Ch. 13 trustee.