What Are the California Bankruptcy Exemptions?

It’s a common misconception that you have to give up all of your property when you file for bankruptcy. In fact, most Californians who file get to keep all or most of their day-to-day property using the California bankruptcy exemptions.

There are the three important things to keep in mind about the California bankruptcy exemptions:

1. Even though California doesn’t allow for federal bankruptcy exemptions, you can use the federal nonbankruptcy exemptions to exempt property.

2. California doesn’t allow joint filers to use double exemptions

3. California has two sets of exemptions: Set 1 and Set 2

There are a few distinct features of the California exemptions. They’re divided into two sets of exemptions: Set 1 and Set 2. If you’re filing bankruptcy in California, you’ll have to choose either Set 1 or Set 2 of the California exemptions. 

This article will help you understand some of the ways the California bankruptcy exemption system operates and the things to keep in mind when filing.

First things first. . .

The Residency Requirement

Before settling on California’s bankruptcy exemptions, it’s important to be sure that you meet the residency requirements. If you’ve lived in California for at least 2 years (730 days) when you file bankruptcy, you have to use one of California’s sets of exemptions and can’t use the federal bankruptcy exemptions.

Now that you’ve figured out which state exemptions apply to you, let’s discuss how they might compare to the federal exemptions.

California Doesn’t Allow the Federal Bankruptcy Exemptions

Unlike other states, California doesn’t not allow you to choose between the state or federal bankruptcy exemptions. If they apply to your property, you can also claim federal exemptions that aren’t in the Bankruptcy Code. These are called the federal nonbankruptcy exemptions. You can use the federal nonbankruptcy exemptions if you belong to a specific group of people or work in a particular profession. These exemptions can be applied if you have special circumstances with:

• Retirement benefits,

• Death or disability benefits, or

• Survivor’s benefits.

Some of the professions it applies to are:

• Military service members

• Government employees

• Seamen

• Railroad Workers and

• Individuals who receive Social Security

It’s important to know whether or not these special cases apply to you. If you’re eligible, the federal nonbankruptcy exemptions can help you protect property that otherwise wouldn’t be protected under California bankruptcy exemptions.

California Does Not Allow Joint Filers to Claim Double Exemptions.

At times, both the California bankruptcy exemptions and and federal exemptions have a maximum dollar amount attached to an exemption. Exempt property is protected only up to the exemption amount. 

Federal exemptions double the exemption amount for married couples filing jointly. This means that each person or spouse is able to protect the amount allowed under the exemption. This is not the case in California.

California does not let you double the exemption amount, even if you’re filing jointly. All the property being claimed as exempt needs to fall within the exemption amount allowed by the California Code of Civil Procedure.

There are Two Types of California Bankruptcy Exemptions: Set 1 and Set 2

The biggest thing to consider when choosing between the two sets of exemptions is what kind of property you want to protect.

Set 1, also known as the “704 exemptions,” is generally the better fit if you own a home and have a lot of equity built up. The homestead exemption in Set 1 has tiers that protects significantly more equity than Set 2.

Set 2, also known as the “703 exemptions,” is generally a better fit if you don’t own real property.

Exemptions:

Homestead

This California bankruptcy exemption is important for homeowners and - good news - it’s about to go up. This summer, the governor of California signed a new bill into law that increases the homestead exemption under the 704 exemptions to at least $300,000, though depending on the median sale price for homes it can be as much as $600,000. 

This new law is set to take effect on January 1, 2020. Any bankruptcy case filed before that date must use the current homestead exemption: 

Set 1 (704 exemptions) 

If single: Up to $75,000 (in equity)

If family: $100,000 (at least one family member doesn’t have an interest in the homestead)

If 65 or older: $175,000 (or have a physical or mental disability)

If you’re at risk of a forced sale of your home : $175,000 

Set 2 (703 Exemptions)

$26,80 (in equity)

Motor Vehicle Exemption

The California vehicle exemption covers cars, mobile homes, etc. 

Set 1 (704 exemptions) $3,050 (in equity)

Set 2 (703 Exemptions) $5,350 (in equity)

Personal Property

This California bankruptcy exemption covers most of your day-to-day items. This likely includes items like clothing, appliances, animals, household goods, electronics, etc. 

Set 1 (704 exemptions)

Exempt:

• Household items and personal effects

• Cemetery and burial plot

• Health aids

• Personal injury and wrongful death recovery needed for support

Exempt up to a certain amount:

• Jewelry, heirlooms and works of art - up to $8,000

• Bank deposits from Social Security payments up to:

  • $3,200 for a single payee

  • $4,800 for husband and wife payees

  • unlimited if funds are not commingled;

• Bank deposits from other public benefit payments up to:

  • $1,600 (if single); $2,375 (for husband and wife filing jointly)

• Residential building materials to repair or improve home - up to $3,200

Set 2 (703 Exemptions)

Exempt:

• Health aids

• Wrongful death recoveries needed for support

Exempt up to a certain amount:

• Personal injury recoveries - up to $26,800

• Burial plot up to $26,800 (instead of the homestead exemption)

• Clothing, household goods, appliances, furnishings, animals, books, musical instruments and crops - up to $675 per item

• Jewelry - up to $1,600

Wages

Set 1 (704 exemptions)

75% of wages (must have been paid to you within 30 days prior to filing bankruptcy)

Public employee vacation credits (at least 75% if receiving installment payments) 

Set 2 (703 Exemptions) [No exemption]

Retirement & Pensions

The California bankruptcy bankruptcy exemption for insurance includes the money you set aside for later in life.

Set 1 (704 exemptions) Exempt:

• 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)

• IRAS and Roth IRAs (limits apply. This amount is set by federal law. See The Federal Bankruptcy Exemptions for updates on this dollar amount.

• Public retirement benefits

• Private retirement plans and benefits, including: IRA, Keogh

• Public employees

• County employees

• County peace officers

• County firefighters

Set 2 (703 Exemptions)

Exempt:

• 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)

• ERISA: qualified pension, annuities, and benefits necessary for support.

Public Benefits

The California bankruptcy exemption for public benefits covers money that you receive from the  government. These are things such as Social Security, unemployment, veteran’s benefits, etc.

Set 1(704 exemptions)

Exempt:

• Unemployment and disability benefits

• Union benefits due to labor disputes

• Workers’ compensation benefits

• Public assistance benefits

• Relocation benefits

• Student financial aid

Set 2 (703 Exemptions)

Exempt:

• Unemployment compensation

• Social Security

• Veterans’ benefits

• Public assistance

• Crime victims’ reparation benefits

Tools of Trade

The California bankruptcy exemption for tools of the trade covers equipment that you need for your business or livelihood. This could include tools, factory equipment, and business vehicles. The item must be necessary to your specific trade or job in order to be exempt. 

Set 1 (704 exemptions)

Exempt up to $8,000

(or $15,975 if used by both spouses in the same occupation). Includes:

• Tools

• Implements

• materials,

• books,

• uniforms,

• instruments,

• one commercial vehicle,

• equipment, and

• furnishings

Set 2 (703 Exemptions)

Exempt up to $8,000

Includes:

• tools,

• books, and

• implements of trade

Insurance

The California bankruptcy exemption for insurance includes different types of insurance such as life and disability.

Set 1 (704 exemptions)

Exempt:

• Matured life insurance benefits needed for support

• Disability or health insurance benefits

• Fidelity bonds.

• Life insurance proceeds if policy prohibits use to pay creditors

Exempt up to a certain amount:

• Unmatured life insurance policy — up to $12,800

• Homeowners’ insurance proceeds for six months after received — up the to amount of homestead exemption

Set 2 (703 Exemptions)

Exempt:

• Unmatured life insurance policy, other than credit

• Disability benefits

• Loss of future earnings payments needed for support

Exempt up to a certain amount:

• Unmatured life insurance accrued interest, dividends, loan, cash or surrender value — up to $14,325

Alimony & Child Support

This California bankruptcy exemption covers the amount that you receive for alimony or child support from a former partner or spouse.

Set 1 (704 exemptions) [No Exemption]

Set 2 (703 Exemptions) Amount necessary for support

Misc (704)

This California bankruptcy exemption operates similarly to the Wildcard exemption in Set 2. It is an important and useful resource for protection property that is either: 1) over the amount maximum of another exemption or 2) doesn’t quite fall under another exemption category.

Set 1 (704 exemptions) 

Business or professional licenses Trust funds of inmates (up to $1,600) 

Property of business partnership Set 2 

(703 Exemptions) [No “Miscellaneous” exemption]

Although there isn’t a “Miscellaneous” exemption in Set 2, it’s important to note that Set 2’s Wildcard Exemption operates very similarly.

The Wildcard exemption is what you would assign to any property that you want to keep but doesn’t fall under any of the other available exemptions.

Wildcard (703)

This California bankruptcy exemption is an important and useful resource for protection property that is either: 1) over the amount maximum of another exemption or 2) doesn’t quite fall under another exemption category.

Set 1 (704 exemptions) [No Exemption]

Set 2 (703 Exemptions) If homestead exemption is used:

• $1,425 plus any unused amount of burial or homestead exemption in any property If homestead exemption is not used:

• $28,225 in total

Conclusion

As you can see, when you’re filing for Chapter 7 bankruptcy, the California bankruptcy exemptions can help you keep most of the property that you own. Chapter 7 bankruptcy is a powerful social safety net. By erasing your debts and using the property exemptions to protect your stuff, you can get the debt relief you need without losing your most important belongings.