Bankruptcy Exemptions In California

June 10, 2011

One of the primary purposes of bankruptcy is to "relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes."

When you file for bankruptcy, all of your property becomes part of the "bankruptcy estate." To protect some assets from the trustee, Congress created exemptions for debtors in bankruptcy. These exemptions allow a debtor to "exempt" some of their assets from being recovered by the trustee for the benefit of the creditors.

California Opt Out

The Bankruptcy Code contains the federal exemptions in section 522(d). Congress has also allowed the states to opt out of the federal set of exemptions and create their own state specific exemptions. California and 33 other states have done so.

Which Set of California Exemptions?

California has two sets of exemptions: one provides exemptions that apply to judgment debtors generally and the other applies only to debtors in bankruptcy proceedings.

California's bankruptcy-only exemptions are more or less similar to the federal bankruptcy exemptions.

Section 703.140 provides debtors with eleven subsections detailing the specific exemptions and the maximum dollar amount available under each subsection. This section allows debtors to choose between these exemptions or use the other judgment debtor state law exemptions.

California Code of Civil Procedure Section 703.140
- $3,525 in value, in one motor vehicle.
- All household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.
- $1,425 in value, in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.
- $23,250 plus any unused amount of the exemption provided under paragraph (1), in any property.
- $2,200 in value, in any implements, professional books, or tools of the trade of the debtor or the trade of a dependent of the debtor.
- Any unmatured life insurance contract owned by the debtor, other than a credit life insurance contract.
- $11,800 in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent.
- Any qualified retirement plans.
- Professionally prescribed health aids for the debtor or a dependent of the debtor.
- The right to receive a social security benefit, unemployment compensation, or a local public assistance benefit, A veterans' benefit, A disability, illness, or unemployment benefit, alimony, support, and various other benefits.
- The right to receive an award under a crime victim's reparation law, some payments due to a wrongful death, life insurance, and some other types of lawsuits.

Section 704.730: The Amount of the Homestead Exemption

This set of exemptions applies to judgment debtors in California, but can be used by a bankruptcy debtor. The judgment debtor exemptions provide homestead exemptions of $50,000, $75,000 or $175,000 depending on the homeowner's age, income and family status.

Generally, homeowners choose the judgment debtor exemptions so that they can take advantage of the more generous homestead exemption.

Renters find the exemptions based on federal exemptions or more advantageous.

How Do You Choose?

If you are considering bankruptcy, you may be thinking, "How do I know what to do?" Choosing can be complex: You can file a Chapter 13, or depending on your circumstance, you may be eligible to file Chapter 7.

You then have to choose among the various California exemption schemes and changing one decision may alter your choices in another area. If you choose a Chapter 13, you have to put together a plan. This all makes the decision to file for bankruptcy far from simple.

A Bankruptcy Attorney Can Help

If your financial situation has deteriorated to the point where you think bankruptcy may be your only option, it is time to speak with an experienced bankruptcy attorney. They can review you finances and help you work through the different options.

They can assist with the means test (required for Chapter 7) and can explore the possible outcomes from the different options. This allows you to make an informed decision that can help you obtain the "fresh start" promised under the Bankruptcy Code.

Article provided by Bankruptcy Legal Group
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