Filing for bankruptcy gives you a clean start. Not only can you offset most of your debts and build your credit reputation, but you also get to keep some property that can help you rebuild your life - property youwould have lost to your creditors had you not filed for bankruptcy.
Thanks to California bankruptcy exemptions, you can keep some of your valuable property and prevent your creditors from selling it. You can take advantage of these exemptions to keep your most precious assets, which can help you rebuild your life after bankruptcy.
This blog will explain comprehensively how California bankruptcy exemptions work and how you can use them to protect your property.
What is a Bankruptcy Exemption?
Most people believe that if you file for bankruptcy, you stand to lose all your property. This belief is not true.
In fact, filing for bankruptcy can help you protect your assets from being sold off by creditors. You can get to keep all or most of your assets after you have filed for bankruptcy.
If you don't file for bankruptcy and are in debt, your creditors can easily attach and sell your property. Filing for bankruptcy helps prevent this. Thanks to bankruptcy exemptions, you can prevent all or most of your property from being sold.
As the term suggests, bankruptcy exemptions allow you to 'exempt' certain types of property from sale. You get to keep the exempted property and obtain a chance to start your life afresh and rebuild your credit reputation.
How California Bankruptcy Exemptions Work
California bankruptcy exemptions allow you to keep certain types of property and protect them from being sold. California bankruptcy law specifies what type of property you can keep.
As you may know, you can file for either chapter 7 or chapter 13 bankruptcy. California bankruptcy exemptions will let you keep your property regardless of the type of bankruptcy you’ve chosen.
You can use bankruptcy exemptions to protect yourself from losing the property you consider valuable. When filing for bankruptcy, you can list what property you've exempted. The bankruptcy trustee will not use any property in your exempted list to repay your creditors.
Do you Qualify for California Bankruptcy Exemptions?
However, not all individuals qualify for California bankruptcy exemptions. To qualify for California bankruptcy exemptions, you must fulfill certain residential requirements.
First, it is noteworthy to state that you can only file for bankruptcy in California after you have lived there for 180 days or at a minimum, 91 of the prior 180 days. To qualify for California bankruptcy exemptions, you must have lived in California for 730 days prior to filing for bankruptcy. If you don’t fulfill these residential requirements, you can use your previous state’s exemptions when filing for bankruptcy.
Suppose you have never lived in any state for more than 180 days and would like to file for bankruptcy to take advantage of bankruptcy exemptions. In that case, you will file for bankruptcy and use the exemptions of the state where you've lived most of the 180 days---or the federal exemptions.
Joint Filers cannot Claim Double Exemptions
If you are filing for bankruptcy with your spouse, you may wonder if you may jointly claim double exemptions. Sadly, this is not the case.
Remember, California bankruptcy law lists what type of property you can exempt. California bankruptcy law also specifies the maximum value of the property you are allowed to exempt. You can only exempt property to that specific value.
On the contrary, other states and federal laws may allow you and your spouse to claim double exemptions. In such a situation, you and your spouse can exempt the same type of property, regardless of whether the property's value is twice as much.
Types of California Bankruptcy Exemptions
There are two types of California bankruptcy exemptions: 704 and 703. Whether you have filed for chapter 7 or chapter 13 bankruptcy, you will be required to choose between these exemptions. Below, we discuss each of these exemptions comprehensively:
California 704 Bankruptcy Exemptions
If you are a homeowner with substantial homestead equity, it would be best to opt for California 704 bankruptcy exemptions. Particularly, California 704 bankruptcy exemptions cover the following types of property:
Homestead – You can protect your home’s equity for between $300,000 - $600,000.
Motor vehicle – You can protect your vehicles provided their value does not exceed $3,625.
Personal and household goods – You can exempt all personal and household goods. However, you cannot exempt an item deemed to be of 'extraordinary value.'
Repair or home improvement tools or appliances – You can exempt repair or home improvement tools or appliances to a maximum value of $3,825.
Artworks, heirlooms, and jewelry – Jewelry, artworks, and heirlooms are exempt for up to $9,525.
Health appliances – All health appliances are exempt, as long as you can prove you or your loved ones fully rely on them for their survival or medication.
Items used in a trade, business, or profession – You can exempt any item you use in a trade, business, or profession to a maximum value of $9,700. You and your spouse can also claim double exemption of these items if you are in the same profession, business, or trade.
Wages – You can exempt money paid to you as wages 30 days before you file for bankruptcy.
Pensions – All pensions, including annuities and private and public retirement accounts, are exempt.
Public benefits – You can exempt up to $1,750 worth of public benefits. If you file for bankruptcy jointly with your spouse, you can claim double exemptions for public benefits.
Social security benefits – You can exempt your social security benefits for up to $3,500. If you and your spouse have jointly filed for bankruptcy, you can exempt up to $5,250 of social security benefits.
Life insurance – You can exempt all your unmatured life insurance policies.
California 703 Bankruptcy Exemptions
This type of exemption is also referred to as the 'wildcard exemption.' If you are more interested in protecting your personal property than your home, you can opt for this exemption.
The California 703 bankruptcy exemption allows you to exempt your home for up to $31,950. However, you can use this exemption amount to protect your other valuable property if you don't own one. Besides your home, the California 703 bankruptcy exemption allows you to protect the following categories of property:
Motor vehicle – You can protect your motor vehicles provided their value does not exceed $6,375.
Household and personal goods – You can exempt your household and personal goods for up to $800.
Jewelry – You can protect your jewelry provided its value does not exceed $1,900.
Health appliances – All professionally prescribed health appliances are exempt.
Items used in a trade, business, or profession – These items are protected for up to $9,525.
Pensions – All pension accounts are exempted.
Public benefits – All public benefits are exempt.
Life insurance – All unmatured life insurance policies are exempt.
Also, the wildcard exemption allows you to exempt certain categories of property that have not been specifically included in the exemption list or whose value exceeds that prescribed in the exemption list. This wildcard exemption is in excess of $30,000!
Choosing a Suitable Exemption List: California 703 Versus California 704 Bankruptcy Exemptions
Remember, you are only permitted to choose one set of exemptions. California bankruptcy law does not permit you to use two sets of exemptions simultaneously when filing for bankruptcy.
Also, as explained earlier in this article, the California 704 bankruptcy exemptions are ideal for individuals with substantial home equity. If you don't own a home and are more interested in protecting your other personal property, it would most likely be best to opt for California 703 bankruptcy exemptions.
However, depending on your situation, choosing an ideal exemption list may not be easy. If you are in such a situation, it would be best to consult a bankruptcy attorney who can advise you on the best way forward.
California does not allow Federal Bankruptcy Exemptions
Unlike other states, California does not allow federal bankruptcy exemptions. This means that if you have filed for bankruptcy in California, you are only restricted to using either the 704 or 703 exemptions to protect your property.
Luckily though, California bankruptcy exemptions are more generous than federal exemptions. With the help of California bankruptcy exemptions, you can protect yourself from losing most of your valuable assets.
Taking Advantage of Federal Non-bankruptcy Exemptions
Remember, California does not allow federal bankruptcy exemptions. However, you can use certain federal exemptions to protect property not covered by California bankruptcy exemptions. These exemptions are not listed in the U.S. Bankruptcy Code, which is why they are normally referred to as 'federal non-bankruptcy exemptions.'
These exemptions apply only to certain professionals or individuals receiving certain public benefits. You can use federal non-bankruptcy exemptions if you are a beneficiary of the following:
Disability or death benefits
Social security benefits
You can also make use of federal non-bankruptcy exemptions if you belong to any of the following professions:
If you believe you fall in any of these two categories, it would be best to check whether you can use federal non-bankruptcy exemptions. These exemptions will protect you from losing property not exempted by California bankruptcy exemptions.
What Happens to Property you Cannot Exempt in a California Bankruptcy?
Remember, regardless of whether you have filed for chapter 7 or chapter 13 bankruptcy; you can use California bankruptcy exemptions to protect most of your assets. However, you may be wondering what may happen to your non-exempted assets.
The fate of your non-exempt assets depends on the type of bankruptcy you choose. If you file for chapter 7 bankruptcy, the bankruptcy trustee will sell your non-exempt assets. Then, he/she will use the proceeds from the sale to repay your creditors.
On the other hand, if you filed for chapter 13 bankruptcy, you will still keep your non-exempt assets. However, the court will require you to pay an amount of money equal to the value of your non-exempt assets in your disposable income or repayment plan.
Will Someone Check your Exemptions?
Note that you do not get to keep your property after you've filed for bankruptcy automatically. You will have to wait for the bankruptcy trustee to review your bankruptcy application.
When reviewing your bankruptcy application, the bankruptcy trustee will check your list of exempted assets. If the bankruptcy trustee finds any anomalies with this list, he/she may raise an objection. The judge will hear and determine this objection.
However, in most cases, if the bankruptcy trustee finds minor mistakes in your exemptions list, he/she may invite you over to the courthouse for an amicable settlement. There, the Bankruptcy Trustee will allow you to rectify the exemptions list---in other words, amend it.
Note that it is a criminal offense to be dishonest when listing your exemptions in a bankruptcy application. Upon conviction, you may face a lengthy imprisonment term, or the judge may order you to pay a huge amount of money as a fine.
Navigating your Bankruptcy Journey: Get Professional Legal Advice from a Bankruptcy Attorney
Filing for bankruptcy is a complicated process. Besides being lengthy and time-consuming, you will have to complete a lot of paperwork. Part of the paperwork will include listing down the property you may want to exempt.
Note that if you make any mistake in your bankruptcy application, the court may decline it. This means you will not get the chance to start your life anew and rebuild your credit worthiness. Also, if you make any errors when listing your exempted assets, you may lose some of your property.
This is why it is crucial to hire a bankruptcy attorney to help you navigate your bankruptcy journey. This way, you can successfully file for bankruptcy, protect most of your assets, and get a chance to rebuild your life.
Find a Sacramento Bankruptcy Attorney Near Me
We at Sacramento Bankruptcy Lawyer have the technical know-how and skill to help you successfully file for bankruptcy. We are well versed in California bankruptcy exemptions and can help you protect most of your assets. Call us today at 916-800-7690 for a free consultation.