California Bankruptcy Exemptions Explained

One of the most important questions bankruptcy filers in California have is what property they can keep throughout the bankruptcy process — particularly their car and home. The main point of bankruptcy is to give people a fresh start. That’s only possible if the filer has something to start with. This is where bankruptcy exemptions come in.

What are the California bankruptcy exemptions, and why are they important in a Chapter 7 bankruptcy? 

Bankruptcy exemptions are the laws that determine the property, such as a motor vehicle or household items you may keep after filing a Chapter 7 bankruptcy in California. A majority of Chapter 7 bankruptcy cases are known as no-asset cases, meaning you don’t have to give up anything to your bankruptcy trustee. The bankruptcy exemption system in California is designed to help people get debt free.

Does California allow the use of federal bankruptcy exemptions?

If you are a California resident, you can’t protect your possessions, like bank deposits and commercial vehicles, under the Bankruptcy Code’s exemptions. So, Californians filing bankruptcy have to use California exemption law. Some states permit filers to choose between a set of federal bankruptcy exemptions and the state exemption system. However, California isn’t one of them. California is called an “opt-out” state, which means federal bankruptcy exemptions are not available to filers in the state. 

Note that you will have to decide between the bankruptcy exemptions in section 703 and section 704 of the California Code of Civil Procedure if you have lived in California for two years or more. However, the good news is that the California state exemptions are generally better than their federal counterparts. Also, you can use the federal nonbankruptcy exemptions, if you have any assets covered by them.

California Bankruptcy Exemptions

California laws allow you to choose from two lists of exemptions when you are filing for bankruptcy in the state, which gives you more options. Note that both of these lists will allow you to claim bankruptcy exemptions for different types of clothing, furniture, tools, pensions, cars, homesteads, and other valuable items. 

Under the California bankruptcy law, you may choose to use one bankruptcy exemption list or the other – but you can’t use both. It’s important that you keep this in mind. And this is where a good California bankruptcy attorney comes into play. Note that part of their job, for instance, is to help you decide which of two sets of exemptions is the most suitable for you, depending on your financial situation.

Real Property - The California Homestead Exemption

The bankruptcy exemptions in California allow you a generous homestead exemption. The bankruptcy exemption allows filers to exempt and keep a sizable amount of equity in their home. The term home includes a mobile home, stock cooperative, boat, and community apartment. 

Depending on your circumstances, you can protect between $300,000 and $600,000 in equity in your California homestead. The exact amount varies as it depends on the median sale price for a single-family home in your county.

Wild Card Exemption

You can use the wildcard exemption in California. Under Section 703, this exemption allows you to exempt up to $1,280 in any item that you would like to keep in the bankruptcy.The wildcard exemption is increased when you don’t use the homestead protection in order to protect the equity in your home.

Personal Property Exemptions

Note that the California bankruptcy exemptions are a bit deficient with regard to other assets.  These exemptions don’t allow filers to keep much other property, like vehicles, household items, and money in their bank accounts. Filers get a modest amount of motor vehicle exemption and minimal amounts of other bankruptcy exemptions, like funds in their bank accounts.

Motor Vehicle

Under 703 Bankruptcy Exemptions

Vehicle Exemption - This motor vehicle exemption will allow you to protect up to $3,525 in equity in your vehicle. You can use this exemption on a single vehicle and can’t divide it between two vehicles.

The wildcard exemptions allow you to protect up to $23,250 in any asset that you choose. You can use this amount to protect any property up to the exemption amount. This means that if your motor vehicle has more equity than what the motor vehicle exemption protects, you can use the wildcard exemption in order to protect any remaining equity in your vehicle.

You have another option.

Tools of the Trade - You may be able to use the tools of the trade bankruptcy exemption of up to $2,200 if your motor vehicle is used for a business or trade.

Under 704 Bankruptcy Exemptions

Motor Vehicle Exemption- If you choose section 704, this exemption allows you to protect the equity in multiple vehicles in the aggregate amount of $2,725. You can apply this exemption to more than one motor vehicle, unlike the motor vehicle exemption available in Section 703.

Tools of the Trade- This exemption allows you to protect your commercial vehicle in the amount of up to $7,175, provided it is actually used and is reasonably necessary for the trade, business, or profession through which you earn your living.

Other Personal Property 

Section 704

You can protect the following personal property if you choose Section 704.

• Residential building materials for repairing or improving a home. The value is up to $3,500 under Section 704.030.

• You can also protect heirlooms, jewelry, and work of art worth up to $8,725 under Section 704.040.

• Health aids that are necessary to enable you or your spouse or dependents to work or sustain health, and orthopedic and prosthetic appliances, are completely exempt under the law.

• Items, such as food, appliances, clothing, and furnishings, are exempt if they are reasonably and ordinarily necessary to and personally used by you or members of your family. However, these items might not be exempt if they have “extraordinary value.”

• Bank deposits that arise out of Social Security payments are exempt up to $3,500 for one payee ($5,250 for payees who are spouses), and the amount is unlimited if funds aren’t commingled. 

• And bank deposits from any other public benefit payments are exempt up to $1,750 (or $2,600 for payees who are spouses ) under the law.

• Tools of the trade, such as tools, instruments, implements, materials, furnishings, uniforms, books, a single commercial motor vehicle, and other personal property that is used in a business or trade are exempt up to $8,000. However, keep in mind that in a joint bankruptcy in California, if both spouses are in the same occupation, then the limit is $15,975. (Note that the commercial motor vehicle is amount is limited to $4,850 or $9,700 in case both spouses are in the same occupation.)

• Cemetery and burial plot are exempt under the law.

• Personal injury, as well as wrongful death causes of action or recoveries (so, claims that can be filed or judgments you’ve already obtained) that are necessary for support, are also exempt.

Section 703

• Tools of the trade, such as implements, instruments, and professional books, are exempt up to $8,000 under the law.

• You will get an exemption of up to $725 per item on clothing, appliances, household goods, furnishings, books, animals, musical instruments, and crops under Section 703.140(b) (3).

• Jewelry used mainly for personal, household, or family use is exempt up to $1,750 under Section 703.140(b) (4).

• Health aids are exempt under Section 703.140(b) (9).

• Personal injury recoveries are exempt up to $29,275 under Section 703.140(b)(11).

• Wrongful death recoveries deemed necessary for support are exempt under Section 703.140 (b) (11).

Money Benefits

Section 704

Pensions

All tax-exempt retirement accounts, such as 401(k)s and 403(b)s, money purchase and profit-sharing plans, Simple IRAs and SEP, and other defined benefit plans) are protected- 11 U.S.C. § 522.

IRAs and Roth IRAs are exempt to the maximum amount. And the amount is set forth by federal law —11 U.S.C. § 522(b)(3)(C).

• Public retirement benefits are exempt under Section 704.110.

• Private retirement benefits, such as IRA and Keogh, are exempt under Section 704.115.

• California Government Code 21255 covers public employees.

• California Government Code 31452 covers County employees.

• California Government Code 32210 covers County firefighters.

• California Government Code 31913 covers County peace officers.

Insurance

Note that matured life insurance benefits you need for support are fully exempt, while an unmatured life insurance policy is exempt up to a value of $13,975 under Section 704.100 of the law.

• Fraternal unemployment benefits are covered under Section 704.120.

• Disability or health benefits are covered under Section 704.130.

• Fraternal benefit society benefits are covered under Section 704.170.

Section 703

Pensions

All tax-exempt retirement accounts, such as 401(k)s and 403(b)s, money purchase and profit-sharing plans, Simple IRAs and SEP, and other defined benefit plans) are protected -11 U.S.C. § 522. 

Roth IRAs and IRAS are exempt to a certain amount. And the amount is set forth by federal law — 11 U.S.C. § 522(b)(3)(C)(n).

ERISA-qualified benefits that are deemed necessary for support are exempt under Section 703.140(b)(10).

Insurance

Unmatured life insurance policies are exempt under Section 703.140(b) (7).  Life insurance proceeds that are needed for support are exempt under Section 703.140(b)(11).

Disability benefits are covered under Section 703.140. 

Other California Exemptions

Section 704

Public Benefits

Note that unemployment benefits, as well as union benefits because of a labor dispute, are covered under Section 704.120. And workers' compensation is exempt under Section 704.160. Aid to elderly, blind, and disabled or other types of public assistance is exempt under Section 704.170. Relocation benefits are exempt under 704.180. And financial aid to students is exempt under 704.190.

Miscellaneous

• Trust funds of an inmate are exempt up to $1,750 (provided spouses don’t double) under Section 704.090.

• Business partnership property is fully exempt - Corp. 16501.

• You can use any applicable California federal non-bankruptcy exemptions.

Section 703

Public Benefits

Unemployment compensation, Veterans' benefits, Social Security, and public assistance are exempt under Section 703.140(b)(10) of the law. Compensation for crime victims is exempt under Section 703.140 (b) (11).

Retirement

Section 703.140(b)(10(E) exempts payments under a stock bonus, annuity, profit-sharing, or similar plan or a contract on account of disability, illness, death, length of service, or age, to the degree reasonably necessary for your support or the support of your dependent. 

Miscellaneous

You can use any applicable California federal non-bankruptcy exemptions.

Filing Chapter 7 Bankruptcy? 

If you are considering filing Chapter 7 bankruptcy in California, but have property that you don’t think is covered by any of the available exemptions, a good first step is to speak with a California bankruptcy lawyer. An attorney will analyze your situation in detail under the 703 and 704 schemes, and then help you make a decision on what is best for you. They will educate you on how you can protect most of your property by filing Chapter 7 in California. In most cases, filing Chapter 7 bankruptcy in California is better than filing Chapter 13. However, depending on your specific financial situation, Chapter 13 may be a better fit in some circumstances.