BANKRUPTCY EXEMPTIONS BY A CALIFORNIA BANKRUPTCY ATTORNEY
Exemptions are “protections” for value in certain assets (property) that you own or in which you have some ownership interest.
This is important particularly in a Chapter 7 case because if your property is not exempted, the Chapter 7 Trustee can sell it to pay creditors.
In a Chapter 13 or Chapter 11 case, you will not lose any of your property. BUT the exemptions taken by your attorney in your case will determine in part how much you will be required to pay out over time to your creditors through your repayment plan.
Each state has its own set of exemptions. And there are also Federal exemptions.
Which set of exemptions one uses in a bankruptcy case depends on where the debtor (person filing the bankruptcy) resided for the 2 years prior to filing the bankruptcy case. See the FAQ section below for more specifics on determining this. Only a bankruptcy lawyer can properly determine what exemptions can be taken in a case, since it requires a legal determination. Unlicensed professionals, such as petition preparers, are prohibited from practicing law.
Los Angeles Attorney Who Understands How Best to Take Exemptions in California Bankruptcy Cases
California has two sets of exemptions which can be used in a bankruptcy case by your attorney. They are codified in Code of Civil Procedure §703.140 et seq. (the 703 Series) and §704.010 et seq. (the 704 Series)
You can only use one or the other; not both. Deciding on which to use can be tricky.
There are differences in amounts and which assets are protected. But the main difference is that the 704 Series has a large homestead exemption, whereas the 703 series does not. However, the 703 series has a “wildcard” exemption of approximately $30,000 which can be used on any asset, which is useful if you have assets to protect beyond the standard exemption amounts.
There are many other differences and you can see the specific exemption amounts in the FAQs section at the end of this page.
Good bankruptcy planning often includes skilled shifting of assets from non-exempt to exempt forms to maximize your protection. Do this too aggressively and the exemption can be disallowed. Having an experienced bankruptcy attorney advise you on the proper steps to take can result in huge savings and avoid big problems. Our Los Angeles lawyer will assist you with maximizing exemptions. Contact us today to schedule an initial consultation.
The California 704 Series Homestead Exemption
The homestead exemption in California is currently between $300,000 and $626,400 depending on the median sales prices for the prior year in the area where the property is located.
This amount is limited to $189,040 if your interest in the property was acquired within 1,215 days prior to the bankruptcy filing or if the equity was created by an act that was intended to hinder, delay, or defraud creditors. This could include paying down your mortgage (more than normal monthly payments) from non-exempt funds in your bank account, for example.
Los Angeles Bankruptcy Attorney Who Will Determine and Explain Your California Exemption and Asset Protection Options
Asset protection and exemption planning are complex tasks. An experienced bankruptcy lawyer is needed to properly utilize the exemptions necessary to protect your assets in a bankruptcy case.
Mark J. Markus has practiced exclusively bankruptcy law since 1991 in the Greater Los Angeles Area. He has over 30 years’ experience filing bankruptcy cases and using the California exemptions to protect his clients’ assets and property. He is a Certified Specialist in Bankruptcy Law by the State Bar of California Board of Legal Specialization.
Schedule an appointment now to learn about your bankruptcy options and protection of your assets.
Our firm serves all cities and counties in California, including counties of Los Angeles, Orange, Santa Barbara, San Diego, Riverside, Fresno, Sacramento, San Bernardino, Ventura, San Luis Obispo, Tulare, Contra Costa, Shasta, Marin, Alameda, Kern, and San Francisco and cities including Burbank, Glendale, Sylmar, Panorama City, Simi Valley, San Fernando Valley, Irvine, Santa Clarita, Oxnard, Huntington Beach, Ontario, Rancho Cucamonga, Corona, Torrance, Agoura, Long Beach, San Fernando, Van Nuys, Sherman Oaks, North Hollywood, Anaheim, Hollywood, Riverside, San Bernardino, Lancaster, Palmdale, Pasadena, and many more.
Frequently Asked Questions (FAQ’S) About California Bankruptcy Exemptions
How Do I Determine Which State or Federal Exemptions Apply in my Bankruptcy Case?
Exemption laws in bankruptcy are determined by where the bankruptcy filer (the “debtor”) was domiciled (i.e., where they lived) for the 730 days prior to the filing of the bankruptcy case. If the domicile was in more than one state during that 730-day period, then it is determined by where the domicile was for the majority of the 180 days PRIOR to that 730-day period. This obviously makes it a moving target where the debtor has moved a lot in the 2 years prior to filing a bankruptcy.
In the event the exemption determination shows a state other than where you currently reside, then depending on the laws of that state, you can either use the exemptions of the determined state, or you can use the Federal exemptions. The Federal Exemptions are actually very similar to the California 703 Series exemptions, but a bit lower for each category.
An interesting situation arises where the debtor is domiciled outside of the USA for the exemption determination period. In that case, arguably no state law exemptions would apply and the federal exemptions should be used.
See my article on Filing Bankruptcy Outside the USA for more information on this last situation.
What Are the California 703 Series Exemptions?
The following amounts is a summary of the more often used exemptions. These amounts are adjusted every 3 years and may not be 100% updated here, so you should not rely on these numbers to be up to date. Interpretation of the exemptions and how they apply to your specific assets is complicated and should only be done by an experienced bankruptcy lawyer.
Contact me if you want to know how exemptions would apply to your assets in a bankruptcy case.
Homestead
The homestead exemption in this system only applies to a home you live in, up to $30,400 in equity.
Personal Property
- Ordinary household furnishings and clothing up to $800 per item.
- Up to $1,900 in jewelry
- $9,525 in tools of the trade
- Personal injury awards up to $31,950.
- Up to $17,075 in accrued value of a whole life insurance policy
The WILDCARD Exemption
The 703 series’ main feature is its “wildcard” exemption which allows you to take $1,550 PLUS any unused amount of the homestead exemption above, so in cases without the need for a homestead exemption, you can use up to $31,950 on any property.
Vehicle
Section 703 allows you to protect up to $6,375 of value in one or more motor vehicles. If your vehicle should exceed the exemption limit, you can utilize any available portion of the wildcard to exempt the rest.
Retirement/Pension
These are generally protected under any exemption scheme.
What Are the California 704 Series Exemptions?
The following amounts is a summary of the more often used exemptions. These amounts are adjusted every 3 years and may not be 100% updated here, so you should not rely on these numbers to be up to date. Interpretation of the exemptions and how they apply to your specific assets is complicated and should only be done by an experienced bankruptcy lawyer. Contact me if you want to know how exemptions would apply to your assets in a bankruptcy case.
The main benefit of the 704 series exemptions is the larger homestead exemption. However, there is no wildcard exemption available, so this can make protecting other property more difficult.
California 704 Homestead Exemption-CCP 704.730
As detailed above, the homestead exemption in California ranges between $300,000 to $626,400 depending on the median sales prices for real estate in the county where the property is located for the previous calendar year. This exemption amount can be reduced by any portion that was created by a “fraudulent transfer” of funds or other assets. It is also limited to $189,040 if the interest in the property was acquired within 1215 days prior to filing the bankruptcy case.
California 704 Motor Vehicle Exemption
The motor vehicle exemption protects equity in your car, truck, motorcycle, or another vehicle. The System 1 vehicle exemption is $3,625 – 704.010.
Personal Property
- Household items and personal effects up to ordinary and reasonable values – 704.020.
- Jewelry, heirlooms, and works of art up to $9,525 – 704.040.
- Health aids – 704.050.
- Bank deposits to $1,826 or to the extent needed for support – 704.220 and 704.225.
- Bank deposits arising out of Social Security payments up to $3,825 for a single payee ($5,725 for spouse payees) and unlimited if funds are not commingled; bank deposits from other public benefit payments up to $1,900 ($2,825 for spouses as joint payees) – 704.080.
- Personal injury and wrongful death claims and recoveries necessary for support – 704.140 & 704.150.
- Cemetery and burial plot – 704.200.
Wages
- 75% of wages paid within 30 days before filing bankruptcy – 704.070.
- Public employee vacation credits (at least 75% if receiving installment payments) – 704.113.
Retirement & Pensions
- Tax-exempt retirement accounts (including 401(k)s, 403(b)s, profit-sharing, and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans) – 11 U.S.C. § 522.
- IRAS and Roth IRAs (limits apply) – 11 U.S.C. § 522(b)(3)(C)(n). (This amount is set by federal law).
- Public retirement benefits – 704.110.
- Private retirement plans and benefits, including IRA and Keogh – 704.115.
Public Benefits
- Unemployment and disability benefits, and union benefits due to labor disputes – 704.120.
- Workers’ compensation benefits – 704.160.
- Public assistance benefits – 704.170.
- Relocation benefits – 704.180.
- Student financial aid – 704.190.
- FEMA benefits – 704.240.
Tools of Trade
- Tools, implements, materials, books, uniforms, instruments, one commercial vehicle, equipment, and furnishings up to $9,700 total, or up to $19,050 if used by both spouses in the same occupation – 704.060.
Insurance
- Matured life insurance benefits needed for support of unlimited value, or unmatured life insurance policy up to $15,250 – 704.100.
- Disability or health insurance benefits – 704.130.
- Homeowners’ insurance proceeds for six months after received, up the to amount of homestead exemption -704.720.
- Fidelity bonds – Cal. Labor Code § 404.
- Life insurance proceeds if policy prohibits use to pay creditors – Cal. Insurance Code § 10132, 10170, 10171.
Are Funds Money in My Bank Deposit and Brokerage Accounts Protected in California Chapter 7 Bankruptcy?
This depends of course on the amounts and which exemption series you elect and need to use. If you are using the California 703 Series exemptions, you can exempt up to approximately $31,000 of any assets, which includes money and stocks in bank and other accounts. However, if you use the California 704 series, you are limited to amounts you can have in deposit accounts. That amount is currently $1,826 plus any amount “to the extent necessary for the support of the debtor” and any dependents. Obviously, this is subject to interpretation and ultimately is up to the Judge in the case as to the amount.
Thus, it may be advisable in these situations to shift some of the bank account funds elsewhere before filing bankruptcy. For example, some could be used to buy Whole Life Insurance policy as the cash surrender value is protected up to $15,250.
There are many other ways of reducing the amounts in the accounts to protect them.
Again, asset shifting like this must be done very carefully and only under the supervision of an experienced bankruptcy attorney. Do it incorrectly, and the Trustee in a Chapter 7 case can take the entire amount and it could also be a basis for denial of discharge.
Will I Lose My Car if I File Chapter 7 Bankruptcy in California?
In most cases that are properly filed by a bankruptcy attorney, vehicles are fully protected.
As you can see from the above exemption allowances, the specific vehicle exemptions under both the 703 and 704 Series are relatively low in California. These amounts relate to the equity you have in the vehicle, which is calculated by taking the value of the vehicle (typically trade-in value for bankruptcy purposes) and subtract any amounts owed to lenders secured by your vehicle. These days, values of used vehicles have gone way up due to supply shortages of new vehicles. It is also important to note that the exemptions apply to the aggregate value of all vehicles you have; not a separate exemption for each vehicle. So, if you have more than about $4,000 of equity in your vehicles, you will likely want to use the 703 series where you can use both the vehicle exemption and the wildcard exemption to protect your vehicle. However, this won’t work if you have a home with a lot of equity and need to use the larger 704 series homestead exemption.
Contact me now for an analysis of your bankruptcy options and determination of what assets you can protect.