When you are in debt and cannot settle it, filing for bankruptcy may be the only way to eliminate it or seek a fresh financial start. When you file for bankruptcy in California, the creditors cannot harass you or threaten to sue you for the amounts you owe. Although bankruptcy offers many benefits for individuals or businesses in debt, many people are reluctant to undergo the process for fear of losing their property or valued assets.

There is a common misconception that you have to give up all your property in exchange for bankruptcy status. Fortunately, you can keep most of your important property and assets through bankruptcy exemptions. Depending on the type of bankruptcy you file, you could keep a percentage of the equity in your home, vehicle, or benefits.

With Chapter 7 bankruptcy, you can erase your debt and use the exceptions to protect what you wish to keep. Chapter 13, on the other hand, protects your property by making the debt repayment plans more manageable. If you are contemplating bankruptcy and would want to secure your assets, you will require the guidance of a skilled bankruptcy attorney.

Understanding California Bankruptcy Exemptions

A debtor can keep a bankruptcy exemption when filing for bankruptcy in California. Bankruptcy is meant to help you eliminate some of your debts and not strip you of your assets and leave you homeless. If you were to surrender your clothing and other day-to-day assets to the bankruptcy trustee, you could be left with nothing. The law on exemptions guides you through protecting your property while receiving bankruptcy relief.

There are both federal and state exemption statutes. However, California residents can only explore the state exemptions. When filing for bankruptcy or considering the action to relieve your debts, you must understand how federal and state laws intersect so you can protect your interests.

You can file for bankruptcy in the district you reside in after you have lived there for 180 consecutive days---or for the longer part of the prior 180 days than any other district. However, you can only use the state exemptions if you have lived in the state for up to 730 days when filing. Another factor you must remember when you seek to protect assets in a bankruptcy is that the state exemptions have a minimum amount attached to each exemption. Therefore, California does not allow you to double the exemption by filing jointly with your spouse.

Types of Bankruptcy Exemptions

There are two main types of state Bankruptcy exemptions you can use when filing for bankruptcy in California. The type of exemption you use will depend on the property you seek to protect. The 704 exemption applies to individuals who want to protect the equity in their homestead. However, you can only protect the home in which you live. Under California Code Civ. 704.010, any investment property cannot be protected in the bankruptcy exemption. This exemption category will be the best for you if you have substantial home equity.

The 703 bankruptcy exemption, on the other hand, is applicable for debtors with less home equity, or no home ownership at all. With this exemption system, you can protect your personal property to a much higher extent than you could had you used the 704 exemptions. The following are some common bankruptcy exemptions in California:

Homestead Exemptions

With the homestead exemption, you can protect certain residential property equity. This could include a home, a community apartment, or a boat. This exemption can also cover any proceeds you received from a forced sale of your home before the bankruptcy begins. You can only claim the maximum homestead exemption if you have owned the property for up to 1,215 days before filing. Failure to meet this requirement causes a limitation.

In California bankruptcy proceedings, the homestead exemption is automatic. Therefore, you will not be required to declare the homestead with the county assessor. Instead, you should only list the homestead when filing the bankruptcy paperwork. You can exempt up to $600,000 of equity in your home depending on a few factors.

If you choose the 703 system, you can only protect up to $31,950 of the property in which you reside.

Vehicle Exemptions

A motor vehicle exemption protects your car, motorcycle, truck, or other vehicles that you own. With the 704 exemption system, you can protect up to $7,500 in vehicle equity. If you use the 703 exemptions, you will also have a $7,500 exemption of motor vehicle equity.

When you file for bankruptcy under Chapter 7, you cause the state exemptions to protect your equity in the vehicle. However, the trustee can sell the car when the exempt amount doesn’t cover the vehicle's equity. Suppose you want to know whether you can keep your vehicle in this type of bankruptcy. In that case, you can follow these steps:

  • Check the bankruptcy exemption amount depending on your chosen system.
  • Determine the value of your vehicle.
  • Calculate your equity to the vehicle. If you haven’t taken any loans against the vehicle, your equity is the car's actual value.
  • Compare your vehicle's equity to the bankruptcy exemptions.

If there is not enough exemption to help you keep the vehicle, the bankruptcy trustee can sell it, refund the exempt amount and distribute the balance to your creditors. Reaffirming your loan and purchasing the vehicle from your creditor are some other ways you can explore to retain the vehicle in such a situation.

Personal Property Exemptions

The bankruptcy exemption covers most of your daily items. Using system one exemption, you can protect Personal effects and household items, health aids, and personal injury or wrongful death recovery. Other properties that have limits to exemptions include:

  • Jewelry of a value up to $9,525.
  • Bank deposits amounting to $3,200 for a single payee and up to $4,800 for married individuals.
  • Residential home building materials of up to $3,200.

703 exemptions protect wrongful death recoveries, health aids, and the following limited properties:

  • $31,950 in injury recoveries.
  • Clothing, furnishings, appliances, and pets of up to $725 for each item.
  • $1,900 in jewelry.

Retirement and Pension Exemptions

703 and 704 bankruptcy exemptions can protect the money you set aside for later use. This could include public and private retirement benefits.

Public benefits Exemption

The exemption for public benefits helps you protect the money you receive from the government when you declare bankruptcy in California. The exempt benefits in the 704 system are:

  • Disability and unemployment benefits.
  • Union benefits resulting from labor disputes.
  • Relocation benefits.
  • Workers comp benefits.
  • Financial aid for students.

Under the 703 exemption, you can protect the following:

  • Social security benefits.
  • Public assistance.
  • Veterans benefits.
  • Crime victim compensation benefits.

Tools of Trade

When you file for bankruptcy, the state exemptions can help you keep the devices you use for business and to maintain your livelihood. You must prove that the equipment is necessary for your job.

When you use system one exemptions, you can exempt up to $9,525 for individually used tools and up to $19,050 if both spouses use the tools. However, set 2 exemptions will only cover $8,725 for the tools of the trade.

Insurance Bankruptcy Exemption

The bankruptcy exemption for insurance covers different types of insurance, including:

  • Life insurance benefits.
  • Homeowners insurance proceeds.
  • Health and disability insurance benefits.

Child Support and Alimony

This bankruptcy exemption protects the amount you receive for child support and alimony from a former spouse. You will have no exemption when using the 704 exemption system. However, the 703 exemption protects any amount necessary to provide support.

Wildcard Exemptions

The wild card bankruptcy exemption is a good protection tool that only applies to debtors who choose the 703 exemption system. This exemption protects up to $31,950 of your homestead equity.

In Chapter 13 bankruptcy, you don’t lose your vehicle in a bankruptcy liquidation. However, when you have a lot of nonexempt car equity on the balance of your car payments is high, it would not make sense to keep it. Another benefit of chapter 13 bankruptcy is the ability to give up a vehicle to the bank if the state exemptions do not protect it.

Federal non-bankruptcy Exemptions

Some states allow you to choose between state and federal bankruptcy exemptions to protect your property. However, individuals declaring bankruptcy in California can only use the available state exemptions. In addition to the state bankruptcy exemptions, you can explore federal non-bankruptcy exemptions which protect your assets.

Although the federal non-bankruptcy exemptions function the same as bankruptcy exemptions to protect your assets, they are only available for people in particular professions. This makes it more challenging to qualify. Additionally, you cannot use the non-bankruptcy exemptions unless you are eligible for 704 or 703 state bankruptcy exemptions. Common federal non-bankruptcy exemptions include:

Disability and Death Benefits

Your disability or death benefits will be exempted from bankruptcy if you are a government employee or harbor worker. Additionally, you will not be affected by bankruptcy if you receive death, injury, or hazard benefits.

Miscellaneous Non-bankruptcy Exemptions

  • Savings made by military members while on permanent duty.
  • Military life insurance.
  • Railroad worker unemployment benefits.
  • Debts accrued by seamen while on the
  • Seamen wages that are not used in child support or alimony.

Frequently Asked Questions on Bankruptcy Exemptions in California

Learning of bankruptcy exemptions is a relief for people worried about losing their assets in bankruptcy. However, bankruptcy can be very complicated, and a slight mistake could cost you your home, vehicle, or other benefits. Some commonly asked questions on Bankruptcy exemptions include:

  • What happens to the non-exempt property in bankruptcy?

The fate of the assets and properties not exempt by bankruptcy or non-bankruptcy exemptions depends on the type of bankruptcy you file. In Chapter 7 bankruptcy, you surrender all non-exempt assets to the bankruptcy trustee, who liquidates them to pay your debts for a bankruptcy discharge. On the other hand, if you file for bankruptcy under Chapter 13, the value of these assets is used to determine your bankruptcy repayment plan.

  • Do I keep the exempt properties automatically in bankruptcy?

No. When you file for bankruptcy and hope to keep your property and assets using any available exemptions, you must select the exemption you want. After selecting your exemption, you will list all your assets in the bankruptcy form and present it to the court along with other bankruptcy paperwork.

  • Will my exemptions be checked?

Yes. When you list a property as exempt, your bankruptcy trustee will review your documents to ensure that you have a right to protect the properties you listed as exempt. If the trustee disagrees with the exemptions, they can file an objection motion. The judge has the authority to determine whether you can keep the property.

  • What happens when I make a mistake in declaring my assets?

In most cases, the bankruptcy trustee will not object to your exemptions unless they have evidence to prove that you are trying to cheat the court. When filing for bankruptcy exemptions, you must provide accurate information. Therefore, making incorrect statements is treated as fraud which is punishable by up to twenty years in prison. However, the trustee will try to rectify your mistake before you face bankruptcy fraud accusations.

Find a Knowledgeable Bankruptcy Attorney Near Me

Before you seek relief through bankruptcy, you want to know what assets you can keep, especially your home. Most people file for bankruptcy to either eliminate their debts or make a good repayment plan to cover them. Unfortunately, the risk of losing some of your assets, especially in Chapter 7 bankruptcy, is real. California has some exemptions that can help you keep these assets.

However, bankruptcy exemptions are not for everyone. You must meet the residency requirements. There are two main exemptions systems you can explore. The system under 704 is common for homeowners with significant equity, while the 703 is common for non-homeowners. For a better understanding of the laws that affect your case, you must consult a skilled bankruptcy lawyer.

At Modesto Bankruptcy Attorneys, we will help you understand how bankruptcy exemptions apply in your case and guide you throughout the bankruptcy process. We serve clients undergoing bankruptcy in Modesto, CA, to ensure you protect as much property as possible. Contact us at 209-314-3010.