What Are Bankruptcy Exemptions?
Bankruptcy Exemptions are a specific Code Section that allows you to protect a certain amount of your assets when filing for Bankruptcy. Filing for Bankruptcy does not necessarily mean that the Debtor (i.e. person filing) will have to give up all of his/her assets and the way they accomplish this is by exempting the fair market value of said asset.
Many of the exemptions protect a specific type of asset, such as your retirement account or vehicle. Some exemptions, however, can be applied towards any asset and are not specific to any particular asset. These types of exemptions are known as “wildcard exemptions”. In some situations, you are able to protect the full value of the asset. Other times, the exemptions will only protect up to a certain dollar amount of that asset. If you are able to protect the full value of the asset, you do not need to worry about that asset being taken from you or affecting your bankruptcy. Moreover, if there is a secured loan against your home or car, the only portion of the value that needs to be exempt is the equity above and beyond the amount of the loan.
Contact Bains Legal by calling 916-800-7690 and our highly skilled Bankruptcy Attorney will be able to analyze your case and discuss with you your options.
How Do Exemptions Work?
Exemptions have different roles depending on which Chapter of Bankruptcy you are filing.
Chapter 7 Bankruptcy
A Chapter 7 Bankruptcy is a liquidation Chapter wherein the appointed Chapter 7 Trustee sells any assets that the Debtor is unable to exempt. The funds that are received from the sale of the assets are used to pay down your debts. However, if a Debtor was forced to give up everything they own (i.e. cars, money, clothes, furniture, etc.), filing for Bankruptcy could quite possibly put the Debtor in a worse position than prior to the filing. Thus, through the use of Bankruptcy Exemptions, the Trustee is not allowed to sell and liquidate any of your assets that are exempt in the Bankruptcy.
EXAMPLE 1 – Angela files for Chapter 7 Bankruptcy and owns a vehicle with a fair market value of $4,500.00. There is no loan secured to the vehicle. In the state that Angela lives, she is able to use a vehicle Exemption in the amount of $6,000.00. In this situation, Angela could protect the full value of her vehicle and the appointed Chapter 7 Trustee would not be able to sell it.
EXAMPLE 2 – Robert and Vicky file for Chapter 7 Bankruptcy as a married couple. The fair market value of their jewelry is $5,000.00. In the state that Robert and Vicky live, they are given a jewelry exemption of $2,000.00. Thus, applying the $2,000.00 jewelry exemption to their $5,000.00 of jewelry, Robert and Vicky are left with $3,000.00 worth of jewelry that is un-exempt. In this situation, the appointed Chapter 7 Trustee would liquidate the $3,000.00 worth of jewelry that is left un-exempt. That $3,000.00 would be used to pay down their unsecured debt.
Chapter 13 Bankruptcy
A Chapter 13 Bankruptcy is a Chapter of Bankruptcy wherein your debts are reorganized and you make payments on that debt for 3 to 5 years. Filing for Chapter 13 relief allows you to keep all of your assets. During this payment plan, there are certain debts that must be paid in full. For example, if you owe Federal Taxes for last year, they must be paid in full during the life of your Chapter 13 Plan. On the other hand, some debts (i.e. credit cards) only require a portion to be paid through the Chapter 13 Plan. Upon the Discharge at the end of your case, whatever portion of those debts that are left unpaid are eliminated.
One of the factors used in determining how much of your general unsecured debt must be paid during your Chapter 13 Plan is based on exemptions. The amount you must pay those creditors depends on how much property you can exempt. The value of the assets that are left in your case un-exempt must be paid to those certain creditors in your case.
EXAMPLE 1 – Michael files a Chapter 13 Bankruptcy and owns one vehicle with a fair market value of $10,000.00. Further, Michael has $20,000.00 of credit card debt. In the state Michael lives, he is given a vehicle exemption in the amount of $4,000.00. In addition, this particular state also provides a “wildcard” exemption in the amount of $2,500.00. A “wildcard” exemption can be used to protect any asset. Thus, using the vehicle exemption and the “wildcard” exemption together, Michael has exempted $6,500.00 of his vehicle. Based on the vehicle being un-exempt in the amount of $3,500.00, Michael will be required to pay $3,500.00 to his $20,000.00 of credit card debt through the life of his Chapter 13 Plan. The remaining $16,500.00 of credit card debt would be eliminated upon Michael receiving a Discharge.
EXAMPLE 2 – Rebecca files a Chapter 13 Bankruptcy and owns a home with a fair market value of $200,000.00. The home has a mortgage secured against it in the amount of $125,000.00. Moreover, Rebecca has $20,000.00 of credit card debt. In the state Rebecca lives, she is allowed to use a homestead exemption in the amount of $75,000.00 to exempt the equity in her home. Thus, using the homestead exemption and factoring in the mortgage, Rebecca is able to protect the full value of her $200,000.00 home. In this situation, Rebecca would not be required to pay anything to the $20,000.00 of credit card because she has no un-exempt assets. The full $20,000.00 would be eliminated upon Rebecca finishing her case and receiving a discharge.
Exemption Schemes In California
California is unique in the sense that residents of California get to choose from two different exemption schemes when filing for Bankruptcy. Each scheme has it’s own advantages and our skillful local Sacramento Bankruptcy Attorney will be able to analyze your particular situation and explain to you which scheme would be in your best interest. The two different schemes are commonly known as the “703” and “704” exemption schemes. Below you will find a summary of each scheme and the most commonly used exemptions in each scheme. For a detailed explanation as to how the bankruptcy exemptions can help you, please contact our office ASAP by calling 916-800-7690 and scheduling your free consultation!
703 Exemption Scheme (located in California Code of Civil Procedure § 703.140(b))
- Homestead Exemption – $25,575.00
(C.C.C.P. § 703.140(b)(1))
- Motor Vehicle Exemption - $5,100.00
(C.C.C.P. § 703.140(b)(2)
- Clothing, Household Goods, Appliances, Furnishings, etc. - $650.00 per item
(C.C.C.P. § 703.140(b)(3))
- Jewelry - $1,525.00
(C.C.C.P. § 703.140(b)(4))
- Wildcard Exemption - $1,350.00 + any unused amount of the Homestead Exemption
(C.C.C.P. § 703.140(b)(5))
- Tools of the Trade - $7,625.00
(C.C.C.P. § 703.140(b)(6))
- Unmatured Life Insurance Benefits - $13,675.00
(C.C.C.P. § 703.140(b)(8))
- Homestead Exemption
- Single - $75,000.00
(C.C.C.P. § 704.730(a)(1))
- Family and at least one family member has no interest in the homestead - $100,000.00
(C.C.C.P. § 704.730(a)(2))
- 65 or older or physically or mentally disabled - $175,000.00
(C.C.C.P. § 704.730(a)(3))
- Motor Vehicle Exemption - $3,050.00
(C.C.C.P. § 704.010)
- Unmatured Life Insurance - $12,200.00
(C.C.C.P. § 704.100(b))
- Tools of the Trade - $7,625.00 ($15,250.00 for joint filing)
(C.C.C.P. § 704.060)
- Wages – 75% of disposable earnings from the prior 30 days
(C.C.C.P. § 704.070(b)(2))
- Bank Deposits from Social Security Benefits - $3,050.00 ($4,575.00 for joint filing
(C.C.C.P. § 704.080)
- Personal Injury & Wrongful Death Recovery – Amount necessary for support
(C.C.C.P. § 704.140)
How Can We Help?
Our highly skilled Bankruptcy Attorney Pauldeep Bains has extensive knowledge in using exemptions to maximize a Debtor’s results. Filing Bankruptcy without a full understanding of how the exemptions function could put you in a situation where the Chapter 7 Trustee is liquidating your assets or a Chapter 13 Trustee is requiring you to pay 80% to your general unsecured creditors (i.e. credit cards, medical bills, etc.). Please contact our office by calling 916-800-7690 right away to speak with Mr. Bains, a top local Sacramento Bankruptcy Attorney.
We help clients in the following areas: Sacramento, Elk Grove, South Sacramento, West Sacramento, Natomas, Citrus Heights, Antelope, Fair Oaks, Gold River, Rancho Cordova, Roseville, Rocklin, Lincoln, Wheatland, Yuba City, Marysville, Woodland, Davis, and Lodi.