Filing for bankruptcy, particularly Chapter 7, does not mean losing everything you own. While liquidation is undoubtedly a challenging and difficult process for a debtor, state and federal law allow the exemption of some property from the bankruptcy estate, like a debtor’s home, motor vehicle, or essential personal property. In California, state law governs the types and amounts of exemptions that a debtor may claim. It allows a debtor to choose between two systems of exemptions, each offering advantages depending on the debtor’s circumstances. Understanding the available exemptions and exemption systems is critical to preparing for a bankruptcy filing. California’s “System 1” may work for some debtors, while others may prefer “System 2.”
Advantages of System 1 Exemptions
System 1 exemptions are derived from general rules regarding exemptions in the enforcement of money judgments, while System 2 exemptions apply exclusively in bankruptcy proceedings. System 1 allows exemptions for higher monetary values of certain types of property, so it may appeal to debtors who have large amounts of equity in their home or have other high-value items of property. A bankruptcy attorney with knowledge of California’s rules can guide you through the various exemptions.
California defines a “homestead,” for the purposes of exemption from a money judgment, generally as the dwelling in which a debtor, or the debtor’s spouse, lived on the date a judgment lien attached to said dwelling. Cal. Civ. Pro. Code § 704.710(c). A “dwelling” may include a house and the land to which it is attached, a mobile home, a condominium, a boat, or other single- or multi-family structures commonly used as places of residence. Id. at 704.710(a). California law allows exemption of a homestead in bankruptcy, with the maximum exempted amount based on the debtor’s circumstances:
– Single debtor, not disabled: $75,000;
– Family with only one homestead: $100,000;
– Disabled debtor, or debtor age 65 or older: $175,000; or
– Debtor, age 55 or older, earning less than $15,000 per year if single or less than $20,000 if married: $175,000, but only if creditors are seeking involuntary sale of the dwelling. Id. at 704.730(a)(3)(C).
A debtor using System 1 exemptions may exempt motor vehicles up to a total value of $2,300. If a motor vehicle owned by the debtor has been damaged, destroyed, or lost, the debtor may exempt up to $2,300 of an auto insurance payout. Cal. Civ. Pro. Code § 704.010(a).
Personal Property Exemption
Personal property, such as furniture, appliances, and clothing, are exempt from bankruptcy if they are “ordinarily and reasonably necessary to” the debtor at the debtor’s residence, regardless of value. Cal. Civ. Pro. Code § 704.020(a).
Any wages or other earnings that are already subject to a withholding order, such as for child support, are automatically exempt from bankruptcy. Up to seventy-five percent of all other wages are also exempt. Cal. Civ. Pro. Code § 704.070(b).
When an individual’s debt is greater than their income enables them to pay, a bankruptcy filing may bring them some relief. They may be able to restructure their bills to create a manageable payment system, liquidate assets to pay debts, or even discharge certain debts entirely. Bankruptcy attorney Devin Sawdayi has helped clients in the Los Angeles area through the bankruptcy process for over fifteen years. To schedule a free and confidential consultation to discuss your case, contact us today online or at (310) 475-9399.
More Blog Posts:
Bankruptcy Courts Disagree on “Chapter 20″ Procedures Used to “Strip” Liens from Debtors’ Residences, Los Angeles Bankruptcy Lawyer Blawg, August 6, 2013
Debtor’s Retirement Annuity is Not Excludable from Disposable Income in Chapter 13, Los Angeles Bankruptcy Lawyer Blawg, June 24, 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