California Bankruptcy Exemptions & Estimating Chapter 13 Payments

1. California Bankruptcy Exemptions (Asset Protection)

California offers two exemption systems that protect assets in bankruptcy. Debtors must choose one system; they cannot mix and match exemptions.

🛠 Option 1: (704 Exemptions) – Best for Homeowners

• Protects a certain amount of home equity, making it suitable for those with significant property value.
• Key Exemptions:
  • Homestead Exemption (Protects home equity):
    • Up to $722,502 (based on county median home price)
    • Motor Vehicle Exemption: Up to $8,625
    • Household Goods & Furnishings: Fully exempt
    • Retirement Accounts (401k, IRA, Pensions): Fully exempt
    • Tools of the Trade: Up to $21,900
    • Jewelry: Up to $10,950
    • Wages: 75% of disposable income protected

🔹 Best for: Homeowners wanting to protect equity.

🏦 Option 2: (703 Exemptions) – Best for Cash & Personal Property/non-homeowners

• Protects more liquid assets like bank accounts, personal items, and cash.
• Key Exemptions:
  • Miscellaneous Exemption: Up to $38,700
  • Motor Vehicle Exemption: Up to $8,625
  • Household Goods & Furnishings: Up to $925 per item
  • Jewelry: Up to $2,175
  • Cash value life insurance: $19,625
  • Retirement Accounts: Fully exempt

🔹 Best for: Non-homeowners and those with more cash and assets.

2. Estimating Chapter 13 Payments in California

Chapter 13 payments are based on:

1. Disposable Income – What you can afford after necessary expenses. Analysis of past and present income and expenses.
2. Debt Amount – Arrears on certain secured debts (mortgages, car loans) must be paid in full; other secured debts (recent taxes) must be paid in full, unsecured debts (credit cards, medical bills) may be partially paid or even not paid at all.
3. Non-Exempt Assets – If an asset isn’t fully protected, the debtor must pay creditors an amount equal to the unprotected value over time.

🔹 Basic Formula for Estimating Monthly Payments:

(Total Priority Debts + Secured Arrears + Any Non-Exempt Assets) ÷ Plan Duration (36-60 months)

📌 Example Payment Calculation

Scenario: A California Homeowner with Debts

• Income: $6,000/month
• Expenses: $5,000/month → Disposable Income: $1,000/month
• Missed Mortgage Payments: $15,000
• Credit Card Debt: $40,000
• Recent Tax Debt: $5,000
• Car Loan Balance: $10,000
• Exemption Chosen: Option 1 (704) – Protects home equity
• Non-Exempt Assets: $5,000 in stocks not covered by exemptions

Estimated Chapter 13 Plan:

• Priority Debts (Taxes, Child Support, etc.): $5,000
• Secured Debts (Mortgage Arrears + Car Loan): $25,000 ($15,000 mortgage + $10,000 car)
• Non-Exempt Assets (must pay at least this amount to unsecured creditors): $5,000
• Total Minimum Required Plan Payments: $35,000

💰 Monthly Payment (over 60 months) = about $600/month

3. Key Takeaways

Choose the Right Exemption System:

• Own a home? → Option 1 (704) protects more equity.
• Renting or have more cash/investments/car equity? → Option 2 (703) offers a miscellaneous exemption.

Debts are Prioritized:

• Mortgage arrears, recent taxes, child support must be fully paid.
• Credit cards and medical debt may be reduced or totally eliminated.

Payments Depend on Income & Asset Value:

• More non-exempt assets = Higher payments.
• More disposable income = Higher payments.

Contact David A. Arietta, Esq. at (925) 472-8000 for more information or if you have any questions.