California Bankruptcy Exemptions & Estimating Chapter 13 Payments

1. California Bankruptcy Exemptions (Asset Protection)

California offers two exemption systems that protect assets in bankruptcy. Those contemplating bankruptcy must choose one of the exemption sets. Mixing and matching exemptions is not allowed.

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

• Protects a certain amount of home equity, making it suitable for those with a certain amount of equity in a residence.
• Key Exemptions:
  • Homestead Exemption (Protects home equity):
    • Up to $746,375 (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 liquid assets.

2. Estimating Chapter 13 Payments in a California bankruptcy

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 (un-exempt amount) over time.

🔹 Basic Formula for Estimating Monthly Payments:

(Priority Debts + Secured Debt Arrears) ÷ 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

Estimated Chapter 13 Plan payment:

• Priority Debts (Taxes, Child Support, etc.): $5,000
• Secured Debts (Mortgage Arrears + Car Loan): $25,000 ($15,000 mortgage + $10,000 car)
• Total Minimum Required Plan Payments: $30,000

💰 Monthly Payment (over 60 months) = about $500/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 more general exemption.

Some Debts are Prioritized:

• Mortgage arrears, recent taxes, child support must be fully paid over the life of the Chapter 13 Plan.
• Credit cards, online loans, and medical debt may be totally forgiven or just receive pennies on the dollar.

Payments Depend on Income & Asset Value:

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

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