Bankruptcy
How Do Bankruptcy Exemptions Work In California?
The federal bankruptcy code contains a long list of exemptions that pertain to all types of property. However, it is important to understand that the State of California offers a unique choice: filers can select either federal bankruptcy exemptions or California state exemptions. This flexibility in California law makes it important to speak with an attorney who has experience with California bankruptcies, as the choice between state and federal exemptions can significantly impact what property you keep.
California offers two different exemption systems under state law (System 1 and System 2), and you can also choose federal exemptions. What’s more, married couples that file jointly for bankruptcy can double the exemptions outlined in their chosen system for property that is owned by the couple.
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What Property Is Exempt In California?
Here are some of the most commonly used exemptions under California Law:
Homestead
Typically the largest and most important exemption you might use in your bankruptcy is the homestead exemption. California’s homestead exemption varies based on which exemption system you choose and ranges from approximately $31,950 to $700,000 depending on the system and your circumstances. Equity is the value of your home above and beyond what you currently owe on it. For example, if your home is worth $500,000 and you owe $450,000 on your mortgage, you have $50,000 of equity in your home.
There are some exceptions that apply to the homestead exemption. For starters, a couple that joint files may only claim one homestead exemption. That exemption must be for your primary residence and cannot be used on commercial real estate or rental property. It’s also worth mentioning that this exemption will only protect you from unsecured creditors attempting to reach the equity in your home. The homestead exemption does not nullify your mortgage debt.
Personal Property
California has a number of personal property exemptions which carve out protections for individual items of personal property that you may own. Some common personal property exemptions include:
- Funds held for funeral services
- Keepsakes, photographs, and mementos
- Criminal restitution
- Household goods and furnishings (amounts vary by system)
- Personal injury awards (amounts vary by system)
There are some exceptions to these personal property exemptions. The specific amounts you can exempt depend on whether you choose California System 1, System 2, or federal exemptions. You can exempt jewelry, art, and other items up to certain dollar amounts, but anything above that amount can be reached by your creditors.
Motor Vehicle
Another major exemption that is frequently used may cover your car. California offers vehicle exemptions that vary by system, ranging from approximately $3,325 to $6,750 of equity in your vehicle. The equity in your vehicle works just like it does with your home, in that it is the value of your car minus your outstanding loan. It’s common for vehicles to be worth less than what is owed on the note, so the vehicle exemption covers the entire car for many California debtors. There is also a special exception for disabled persons; California law provides additional vehicle exemptions for them.
Retirement Accounts
Federal retirement accounts are exempt under federal law. But California law has some exemptions of its own that relate to retirement accounts. Retirement accounts like 401(k)s, IRAs, and Roth IRAs generally receive strong exemption protection under both state and federal systems. For more information, discuss your retirement accounts with an experienced California bankruptcy attorney.
Wages
California bankruptcy exemptions also protect your wages, but with some important exceptions. Under California law, you can exempt the greater of:
- 75% of your weekly disposable income, or
- 50 times the state minimum wage
The amount of your exemption is the total amount each week that cannot be garnished from your wages. Unfortunately, it is possible for creditors to reach the remainder of your paycheck. The court has some leeway when it comes to wage exemptions for low-income debtors.
Tools Of The Trade
There is also an exemption for tools of the trade that you would need to keep in order to perform your job. Some examples of tools of the trade that are exempt include:
- Professional tools, instruments, and books (up to certain dollar amounts)
- Equipment and supplies necessary for your trade or profession
- Commercial vehicles used for work
- All uniforms and accessories required for your job
The specific dollar amounts vary depending on which exemption system you choose.
The “Wild-card” Exemption
Finally, California law offers some flexibility for property that doesn’t qualify for any other exemptions. Known as the “wild-card exemption,” you can exempt any property that is otherwise not exempt up to certain dollar amounts depending on your chosen system. This can be for cash or equity in non-exempt personal property like additional vehicles or other assets.
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Have Your Exemptions Questions Answered By A California Bankruptcy Attorney
There are a lot of conditions and exceptions when it comes to exempt property in a California bankruptcy. It’s no simple task keeping track of it all, and an untrained eye might miss an important exemption. The possibility of losing property that could potentially have been exempt is reason enough to discuss your circumstances with a California bankruptcy attorney.
Los Angeles attorney Rory Vohwinkel has a wealth of experience representing debtors in California bankruptcy proceedings. To discuss your options for getting the financial fresh start you need, contact Vohwinkel Law today to schedule your free consultation.
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