Choose between two different California bankruptcy exemption systems
- Exempt assets. Under the bankruptcy code, you are allowed to keep personal property and other assets, such as your home or car, up to a certain value by claiming them as “exempt.” Exempt assets cannot be touched by creditors.
- Two California asset exemption systems. California has two different systems of bankruptcy asset exemptions. For most people filing Chapter 7 bankruptcy, one exemption system or the other will be enough to protect virtually all of their property from creditors. California’s System 1 allows a large homestead exemption, so it is generally chosen by people who own their homes. System 2 allows people to apply the homestead exemption amount to other property instead of a home.
- Choosing the system best for you. Our bankruptcy attorneys can advise you whether California System 1 or System 2 would be best for your particular financial situation. A choice must be made; you cannot “mix and match” exemptions from the two systems.
- California Residency. You can use California System 1 or System 2 if you have been a California resident for the 730 days just before you file for bankruptcy. If you do not meet this requirement, you can use the exemptions for the state where you resided for the 180 days before California’s 730-day pre-filing period.
Below is a comparison of the most important exemptions in California’s System 1 (CCP sec. 704 et seq.) and System 2 (CCP sec. 703 et seq.). There are other, less common exemptions; your bankruptcy attorney will review them with you to see if any apply to your situation.
Homestead (Personal Residence) Exemption: What is a Personal Residence?
System 1
Real estate or personal property where you live. This includes a house (attached or not), mobile home, boat, condo, and any outbuildings on the same property. A husband and wife may not double the exemption amount, but they can jointly file a homestead declaration.
System 2
Same as System 1
Homestead (Personal Residence) Exemption: Amount of Total Exemption for your home equity (the value left after the mortgage is subtracted)
System 1
- $75,000 for single person
- $100,000 for families with no other homestead
- $175,000 for persons age 65 or older, or physically or mentally disabled persons
- $100,000 for persons 55 or older and either earning under $15,000 (if single) or $20,000 (if married). If creditors force the sale of the home, the sale proceeds up to the amount of the applicable exemption are exempt for 6 months after the sale.
System 2
Up to $22,075, minus any portion of the homestead exemption that you use for other items you own
Motor Vehicle Exemption
System 1
$2,725 in equity (value after auto loan subtracted), total for all vehicles
System 2
$3,525 in equity (value after auto loan subtracted) for 1 vehicle
Life Insurance Proceeds Exemption
System 1
Life Insurance proceeds paid to a beneficiary on the death of the insured, up to the amount the bankruptcy court rules are reasonably necessary for the support of the debtor & his or her dependents.
System 2
Same as System 1
Insurance & Health Benefits Exemption
System 1
- Disability or health benefits – all
- Fraternal unemployment bonds – all
- Fidelity bonds
- Homeowners’ insurance proceeds for 6 months after received, up to to the homestead exemption amount
- Unmatured policy loan value of all life insurance, up to $11,475. Husband and wife may double this.
System 2
- Disability or health benefits
- Unmatured life insurance contract that accrues a cash value, up to the accrued amount of $11,800. Exception: no exemption allowed for credit life insurance, such as mortgage life insurance & credit card life insurance, which pay only the amount owed at death
Public & Private Pension Exemption (System 1) / ERISA Pension Exemption (System 2)
System 1
- Pensions of county employees, firefighters, & peace officers – all
- Public retirement benefits of public employees – all
- Private business retirement benefits – all
- Self-employed retirement benefits – Keogh, SEP-IRA, IRA: exempt to the extent necessary for support
System 2
ERISA-qualified benefits, up to the amount needed for support.
Miscellaneous Exemption
System 1
- Property of a business partnership
- A business or professional license, except for a liquor license
- Inmates’ trust funds, up to to $1,425 (not doubled for a husband and wife).
System 2
Alimony and child support, up to the amount needed for support.
Personal Property Exemption
System 1
- Household goods, appliances & personal items the bankruptcy court rules are “reasonable and necessary.”
- Bank deposits from the Social Security Administration, up to $2,875 (or $4,300 for both spouses together).
- Building materials up to $2,875 to repair or improve your home (not doubled for a husband and wife)
- A burial plot
- Prescription health aids, such as wheelchairs, hearing aids, etc.
- Jewelry, heirlooms and art up to a total of $6,750 total (not doubled for a husband and wife)
- Personal injury or wrongful death settlements or court awards needed for support; if paid in installments, at least 75%
System 2
- Any personal item up to $550, with no limits on the number of items.
- Burial plot up to $22,075, instead of a homestead exemption
- Prescription health aids, such as wheelchairs, hearing aids, etc.
- Jewelry, up to $1,425
- Personal injury settlements or court awards, up to $20,775 – this does not include money for pain and suffering or for money loss.
- Settlements and court awards made for wrongful death of a family member, up to the amount reasonably needed for support of debtor & dependents
Public Benefits Exemption
System 1
- Government benefits paid to aid blind, aged, or disabled persons, or AFDC (Aid to Families with Dependent Children) benefits
- Student financial aid
- Job relocation benefits
- Union benefits paid because of a labor dispute
- Unemployment benefits
- Worker’s compensation insurance benefits
- Social Security benefits – all. However, if the benefits are deposited directly into an account, there are limits on the amount of the account that is exempt.
System 2
- Government benefits paid to aid blind, aged, or disabled persons, or AFDC (Aid to Families with Dependent Children) benefits
- Government compensation to crime victims.
- Social Security benefits
- Unemployment benefits
- Veterans’ benefits
Tools of a Trade Exemption
This includes tools, implements, materials, instruments, uniforms, books, furnishings, equipment, vessel, motor vehicle used in a trade or business.
System 1
- For one person, exempt up to $7,175 total, but commercial motor vehicle is limited to $4,850)
- If both spouses work in the same occupation, exempt up to $14,350 total (commercial motor vehicle limited to $9,700).
- A motor vehicle cannot be claimed under both the “tools of trade” exemption and also under the “motor vehicle exemption.” You have to choose.
System 2
$2,200
Wages Exemption
System 1
- 75% of wages earned within 30 days of filing bankruptcy
- Vacation credits paid to public employees only; if paid by installments, only 75% of credits are exempt
System 2
None
“Wild Card” Exemption
System 1
None
System 2
$1,175 in any type of property the debtor chooses, plus any unused portion of the homestead or burial exemption; the total “wild card” exemption is limited to $22,075
Please remember: this list only includes the most important bankruptcy exemptions. There are other exemptions that are not as common, and your bankruptcy attorney will go over them with you to see if any apply to your situation.
Call San Diego Law Firm for bankruptcy help
Our attorneys are experienced in handling cases under the new bankruptcy laws. We know how to protect your property from creditors and the bankruptcy trustee.
- We’re knowledgeable about how to maximize your bankruptcy exemptions.
- We’ll develop a strategy for handling your individual case rather taking a one-size-fits-all approach.
- We’ll review reaffirmation agreements and negotiate with creditors.
