What Can I Keep If I File Bankruptcy? A Look at Your California Exemptions

Whether you file for chapter 7 bankruptcy relief or for chapter 13 bankruptcy relief, bankruptcy law allows you to keep certain assets (called “exempt assets”).

Non-exempt assets need proper pre-bankruptcy planning to avoid them being sold for the benefit of your creditors in a chapter 7 or alternatively making you pay more than you want to in a chapter 13.   Most people considering bankruptcy should have some general idea about what they are allowed to keep. The most common questions are:  Can I keep my house? or Can I keep my car? The exemption laws in California give people filing bankruptcy the option of selecting from two sets of exemptions.   A debtor must choose one set or the other; no mixing of exemptions between the sets are allowed.  As such, proper planning and selection are critical.

Set One – 703 Exemptions

These exemptions are generally for debtors who do not own a home, or for homeowners with little or no equity in their home.  These exemptions are commonly referred to as the “703” Exemptions, a term derived from the number of the Code section in the California Code of Civil Procedure in which they are enumerated (C.C.P. §703.140).   Here are some common exemptions under this Set:

1. Miscellaneous Personal Property (“Wildcard”) – Up to $38,700 in any property owned. If you do not own a home or have no equity in your home, then the Wildcard exemption will protect up to $38,700 worth of your assets. Importantly, the Wildcard exemption may be combined with the other categorized exemptions below, such as the vehicle exemption, for example, in order to protect a car worth far more than the vehicle exemption would otherwise allow.
2. Household Goods and Furnishings (for example clothing, furniture, appliances, books, instruments, sporting goods, etc.) – are protected so long as any one item does not exceed $800.
3. Jewelry – Up to $1,900 is protected.
4. Motor Vehicle(s) – Up to a total of $7,500 for one or more vehicles. For a vehicle that is not paid for, only the equity in the vehicle, if any, must be exempted.
5. Life Insurance with a Cash Surrender Value (a whole life policy) – Up to $17,075 in cash value.  Cash value is not the same as the death benefit.
6. Retirement Accounts – These are exempt in their entirety so long as the retirement is an IRA or an employer sponsored plan like a union pension, 401(k), or 403(b).  Self-employment retirement plans like SEP IRAs have special rules and must be properly administered to be exempt. In addition, there are some caps on the amounts in an IRA.

Set Two – 704 Exemptions

These exemptions are generally for debtors who do own a home and the home has some equity.   These exemptions are commonly referred to as the “704” Exemptions, a term derived from the number of the Code section in the California Code of Civil Procedure in which they are enumerated (C.C.P. §704.110 et. seq).   Here are some common exemptions under this Set:

1. Homestead – Covers equity in a primary residence of up to $722,502 in the greater Bay Area.  If you live outside the Bay Area, the exemption may be less depending on your local real estate values.
2. Motor Vehicle – Up to $7,500 in one or more vehicles.
3. Jewelry, Heirlooms, and Art – Up to $9,525 combined value for all items.
4. Life Insurance with a Cash Surrender Value (a whole life policy) – Up to $15,250 or $30,500 if a husband and wife file bankruptcy together.
5. Retirement Accounts – Are exempt in their entirety so long as the retirement is an IRA or an employer sponsored plan like a union pension, 401(k), or 403(b).  Self-employment retirement plans like SEP IRAs have special rules and must be properly administered to be exempt. In addition, there are some caps on the amounts in an IRA.

Failure to properly select exemptions can result in you losing your property.   Contact a certified bankruptcy specialist like David A. Arietta, Esq. at (925) 472-8000.