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: System 1 (704 Exemptions) – Best for Homeowners

• Protects more home equity, making it suitable for those with significant property value.
• Key Exemptions:
  • Homestead Exemption (Protects home equity):
    • Single: Up to $300,000
    • Families or low-income seniors/disabled: Up to $678,391 (based on county median home price)
  • Motor Vehicle Exemption: Up to $3,625
  • Household Goods & Furnishings: Fully exempt
  • Retirement Accounts (401k, IRA, Pensions): Fully exempt
  • Tools of the Trade: Up to $9,700
  • Personal Injury Awards: Up to $29,275
  • Wages: 75% of disposable income protected

🔹 Best for: Homeowners wanting to protect equity.

🏦 Option 2: System 2 (703 Exemptions) – Best for Cash & Personal Property

• Protects less home equity but more liquid assets like bank accounts, personal items, and cash.
• Key Exemptions:
  • Homestead Exemption: Up to $31,950 (low compared to System 1)
  • Motor Vehicle Exemption: Up to $6,375
  • Household Goods & Furnishings: Up to $800 per item
  • Jewelry: Up to $1,900
  • Wildcard Exemption (can be used for cash, bank accounts, other property): Up to $33,650
  • Retirement Accounts: Fully exempt

🔹 Best for: Renters or those with little home equity but 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.
2. Debt Amount – Secured debts (mortgages, car loans) must be paid in full; unsecured debts (credit cards, medical bills) may be partially paid.
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.

🔹 Formula for Estimating Monthly Payments:

(Total Priority Debts + Secured Arrears + 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
• Car Loan Balance: $10,000
• Exemption Chosen: System 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) = $583/month

3. Key Takeaways

Choose the Right Exemption System:

• Own a home? → System 1 (704) protects more equity.
• Renting or have more cash? → System 2 (703) offers a higher wildcard exemption.

Debts are Prioritized:

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

Payments Depend on Income & Asset Value:

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

Contact us at (925) 472-8000 for more information or if you have any questions.