Filing for a California Bankruptcy? Some Property is Exempt from Creditors

August 31, 2011 (Press-News.org) Filing for a California Bankruptcy? Some Property is Exempt from Creditors

For anyone contemplating filing for bankruptcy, anxiety regarding what property you can keep and what property you may lose is natural. The good news is that even after going through bankruptcy, some property is exempt, meaning that creditors cannot touch certain assets in exchange for a repayment of debt. This is true even for Chapter 7 bankruptcy, which many refer to as "liquidation" bankruptcy and involves selling assets to pay off debt.

While it is true a significant amount of property is subject to creditors in bankruptcy, not all property can be repossessed or sold. Below is a brief outline of bankruptcy exemptions in the state of California.

Two Separate Exemption Systems

California has opted out of federal laws in favor of its own exemption systems, codified in the California Code of Civil Procedure. A bankruptcy filer can choose one or the other, but cannot pick and choose exemptions from both systems. As a general rule, those with equity in their homes (i.e. the home is worth more than the mortgage) often choose Section 704 exemptions. For those receiving alimony and child support payments, exemptions under Section 703 may serve the filer better.

Section 704 Exemptions

The amount of real property exempt under Section 704 depends on the status of the person filing. If single, the amount is $75,000. If married, $100,000 is exempt. If disabled or over the age of 65, $175,000 of real property is exempt from bankruptcy. This means that creditors, even if you liquidate most of your assets, still cannot touch at least $75,000 in real property -- making bankruptcy a lot more palatable for those with equity in their homes.

Section 704 exempts more than just the value of a home. Also exempt are ordinary household furnishings and clothing, up to $2,725 of value in a car and $5,000 for jewelry, heirlooms and art.

Section 703 Exemptions

The homestead exemption (or real property exemption) is much different under Section 703. Importantly, the exemption is only $20,725. However, if you have little or no equity in your home, the unused portion of the homestead exemption can be used for any other property. Renters and those with homes underwater therefore may choose to use this system of exemptions.

An additional benefit to Section 703 exemptions is that child support and alimony payments are exempt, unlike Section 704.

Exemptions Are Just One Part of Bankruptcy

This is not a complete listing of bankruptcy exemptions in California. While considering what property and assets you can and cannot keep after bankruptcy is important, it is only one aspect of the overall decision to file for bankruptcy. Those thinking about filing for bankruptcy should contact a bankruptcy lawyer in their area to discuss exemptions and other matters relating to a bankruptcy filing.

Article provided by Patrick McMahon Attorney at Law
Visit us at http://www.bklawclinic.com