Bankruptcy Exemptions
How we protect your assets
Bankruptcy exemptions permit you to be able to keep some of your property and assets safe from being liquidated. Exemptions will either protect the entire value of the asset or up to a certain monetary amount. If an asset qualifies for an exemption, it will remain untouched and unaffected by your bankruptcy.
In a Chapter 7 bankruptcy, any property that can be exempted will not have to be liquidated in order to pay off debts to creditors. Bankruptcy exemptions are able to help you protect your assets in this case. The bankruptcy trustee assesses the value of your property to determine whether it will be something that can satisfy the debts that you owe. If you surrender a property to pay your creditors and you have loans securing your property, the trustee will be responsible for paying the amount of the loan to the creditor.
In a Chapter 13 bankruptcy, the trustee will not sell any assets. You are responsible for paying the portion of the property you are unable to exempt to your creditors as part of the payment plan.
How much property you’re able to hold on to depends on the value, and the state that you live in. Most states also have a wildcard exemption, which can be used to exempt any piece of property.
In California, debtors are able to file their case under one of two different exemption schemes. One scheme (CCP 703) is used when the debtor has limited (or no) equity in a home, which allows for the protection of property types and values which would not be protected if the debtor has much more home equity that he/she needs to protect (CCP 704).
Generally in California, the following are examples of bankruptcy exemptions under the CCP 704 scheme:
Homestead
The homestead exemption protects a certain amount of equity in your principal residence. In System 1, you can exempt real or personal property you reside in at the time of filing for bankruptcy, including a mobile home, boat, stock cooperative, community apartment, planned development or condominium, up to: $300,000 – 704.730.
Motor Vehicle
The motor vehicle exemption is designed to protect a certain amount of equity in your car, truck, motorcycle, or other vehicle. Under System 1, your motor vehicle exemption is $3,625 – 704.010.
Personal Property
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- Household items and personal effects – 704.020.
- Residential building materials to repair or improve home up to $3,825 – 704.030.
- Jewelry, heirlooms and works of art up to $9,525 – 704.040.
- Health aids – 704.050.
- Bank deposits arising out of Social Security payments up to $3,825 for a single payee ($5,725 for husband and wife payees) and unlimited if funds are not commingled; bank deposits from other public benefit payments up to $1,900 ($2,825 for husband and wife as joint payees) – 704.080.
- Personal injury and wrongful death causes of action and recoveries that are necessary for support – 704.140 & 704.150.
- Cemetery and burial plot – 704.200.
Wages
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- 75% of wages paid within 30 days prior to filing bankruptcy – 704.070.
- Public employee vacation credits (at least 75% if receiving installment payments) – 704.113.
Retirement & Pensions
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- Tax exempt retirement accounts (including 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans) – 11 U.S.C. § 522.
- IRAS and Roth IRAs to $1,245,475 – 11 U.S.C. § 522(b)(3)(C)(n).
- Public retirement benefits – 704.110.
- Private retirement plans and benefits, including IRA and Keogh – 704.115.
- Public employees – Cal. Gov’t Code § 21255.
- County employees – Cal. Gov’t Code § 31452.
- County peace officers – Cal. Gov’t Code § 31913.
- County fire fighters – Cal. Gov’t Code § 32210.
Public Benefits
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- Unemployment and disability benefits, and union benefits due to labor disputes – 704.120.
- Workers’ compensation benefits – 704.160.
- Public assistance benefits – 704.170.
- Relocation benefits – 704.180.
- Student financial aid – 704.190.
Tools of Trade
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- Tools, implements, materials, books, uniforms, instruments, one commercial vehicle, equipment, and furnishings up to $9,700 total, or up to $19,050 if used by both spouses in the same occupation. Commercial vehicle up to $4,850, or $9,700 if used by both spouses in the same occupation – 704.060.
Insurance
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- Matured life insurance benefits needed for support of unlimited value, or unmatured life insurance policy up to $15,250 – 704.100.
- Disability or health insurance benefits – 704.130.
- Homeowners’ insurance proceeds for six months after received, up to amount of homestead exemption -704.720.
- Fidelity bonds – Cal. Labor Code § 404.
- Life insurance proceeds if policy prohibits use to pay creditors – Cal. Insurance Code § 10132, 10170, 10171.
Miscellaneous
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- Business or professional licenses – 695.060.
- Trust funds of inmates up to $325 – 704.090.
- Property of business partnership – Cal. Corporations Code § 16501
Generally in California, the following are examples of bankruptcy exemptions under the CCP 703 scheme:
Homestead
Under System 2, California’s homestead exemption is $31,950 for real or personal property used as a residence – 703.140(b)(1).
Motor Vehicle
In System 2, you can exempt up to $6,375 of equity in your motor vehicles.
Personal Property
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- Burial plot up to $31,950 instead of homestead – 703.140(b)(1).
- Clothing, household goods, appliances, furnishings, animals, books, musical instruments and crops up to $800 per item – 703.140(b)(3).
- Jewelry up to $1,900 – 703.140(b)(4).
- Health aids – 703.140(b)(9).
- Wrongful death recoveries needed for support – 703.140(b)(11).
- Personal injury recoveries up to $31,950 – 703.140(b)(11).
Retirement & Pensions
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- Tax exempt retirement accounts (including 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans) – 11 U.S.C. § 522.
- IRAS and Roth IRAs up to $1,245,475 – 11 U.S.C. § 522(b)(3)(C)(n).
- ERISA-qualified pension, annuities, and benefits necessary for support – 703.140(b)(10).
Public Benefits
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- Unemployment compensation, Social Security, Veterans’ benefits, and public assistance – 703.140(b)(10).
- Crime victims’ reparation benefits – 703.140(b)(11).
Tools of Trade
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- Tools, books and implements of trade up to $9,525 – 703.140(b)(6).
Alimony & Child Support
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- Alimony and child support necessary for support – 703.140(b)(10).
Insurance
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- Unmatured life insurance policy, other than credit – 703.140(b)(7).
- Unmatured life insurance accrued interest, dividends, loan, cash or surrender value up to $17,075 – 703.140(b)(8).
- Disability benefits – 703.140(b)(10).
- Life insurance proceeds needed for support – 703.140(b)(11).
Wildcard
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- $1,700 plus any unused amount of burial or homestead exemption in any property (currently $31,950 in total if no homestead exemption is used) – 703.140(b)(5).
It might be wise to reorganize your assets to take advantage of as many exemptions as possible. For example, any extra finances that are available could be spent on exemptions prior to filing for bankruptcy. It is important to be cautious of doing this – excessive exemption planning may be construed as fraud by the court.