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Exemption of Property in California Bankruptcies, System 2

krusnade from morguefile.comA bankruptcy case often involves the sale of a debtor’s assets in order to pay substantial amounts of debt. This has led to some popular misconceptions that a bankruptcy case will leave a person homeless and destitute. Bankruptcy law allows debtors to claim exemptions, up to a certain monetary amount, on their home, their vehicle, personal property, and other assets, in order to ensure that they can emerge from bankruptcy and still be able to live their lives. Federal bankruptcy law allows each state to use exemptions defined in the federal code, or to enact exemptions at the state level. California has chosen to use state exemptions, and it has two different exemption systems, known as “System 1” and “System 2.” A debtor should carefully review and understand these systems when preparing for a bankruptcy filing. The assistance of a skilled bankruptcy attorney who understands California’s exemption laws is indispensable.

Advantages of Using System 2 Exemptions

System 2 exemptions apply exclusively to bankruptcy cases, while System 1 is derived from California’s law relating exemption of assets in the enforcement of money judgments. Its homestead exemption is small compared to that of System 1, but it offers larger exemptions for other assets, such as vehicles. System 2 also allows a “wild card” exemption, which could apply to any asset the debtor chooses.

Homestead Exemption

A debtor using System 2 exemptions can claim up to $24,060 of value in their residence, defined in the statute as real or personal property, or a part of a cooperative. Cal. Civ. Pro. Code § 703.140(b)(1). The statute applies the same general rules regarding the homestead exemption, which involves the property used as the debtor’s primary residence.

Automobile Exemption

Up to $4,800 in value of a debtor’s automobile is exempt from bankruptcy. Cal. Civ. Pro. Code § 703.140(b)(2). This could apply to one vehicle or multiple vehicles, provided the total value does not exceed $4,800.

Personal Property Exemption

Personal property, including furniture, clothing, appliances, household goods, and animals or crops, are exempt in amounts up to $600 per item. They must be used primarily by the debtor or a dependent in order to qualify for the exemption. Cal. Civ. Pro. Code § 703.140(b)(3).

Wage Exemption

No exemption is available for a debtor’s wages under System 2.

Wild Card Exemption

The wild card exemption allows a debtor to select “any property,” up to a total value of $1,280, for exemption. Cal. Civ. Pro. Code § 703.140(b)(5). This could apply to any asset not covered by another exemption, and can therefore be a very useful tool in a personal bankruptcy.

Bankruptcy offers relief to people who do not have enough income to continue servicing their debts. They may be able to create a plan that enables them to pay debts on a manageable schedule, sell some assets to pay off debts, and obtain a discharge of their remaining debts once they have completed the bankruptcy process. Bankruptcy attorney Devin Sawdayi has practiced in the Los Angeles area since 1997, helping countless clients through Chapter 7 and Chapter 13 cases. Please contact us today online or at (310) 475-9399 to schedule a free and confidential consultation to discuss your case.

More Blog Posts:

Payroll Debts Ruled Nondischargeable in Chapter 7 Bankruptcy, Los Angeles Bankruptcy Lawyer Blawg, July 23, 2013

Court Addresses Grounds for Granting Relief from Automatic Stay in Chapter 7, Los Angeles Bankruptcy Lawyer Blawg, July 2, 2013

More than Just a Sweet Ride: A Car May Be Exempt from Bankruptcy Estate Under California’s “Wildcard” Exemption, Appellate Court Holds, Los Angeles Bankruptcy Lawyer Blawg, June 11, 2013

Photo credit: krusnade from morguefile.com.