A 12-part Series On All You Need To Know About The Process of Filing for Chapter 7 Bankruptcy
Part Four – Exemptions
California has some of the most generous exemptions when filing for bankruptcy. A game is played when a Chapter 7 Bankruptcy is filed. The game is how much property can we remove from the Bankruptcy Trustee. As soon as your Chapter 7 Bankruptcy is filed a Trustee is assigned and virtually all your property goes into an estate to be liquidated and dispersed to your creditors. If property is exempt, then the trustee does not get to touch that property.
You can file Chapter 7 Bankruptcy in California after residing in California for over 180 days. However, to use the California Exemptions you must have resided in California for at least two years.
Exemptions are broken up into two sections, California Code of Civil Procedure §703 and §704. Both have similar exemptions for things like household goods and the like. The catch is a debtor must choose between the exemptions at California Code of Civil Procedure §703 or the exemptions at California Code of Civil Procedure §704. It’s one or the other…. But never both. Most of the time it’s the choice between the Wild Card Exemption or the Homestead Exemption.
The Wild Card Exemption located at California Code of Civil Procedure §703.140(b)(1) and (b)(5) allows a debtor to exempt $33,650 (through March 31, 2025, as it will be adjusted) worth of property as the debtor sees fit. The Homestead Exemption found at California Code of Civil Procedure §704.730(a) allows a debtor to exempt between $300,000 and $600,000 (which is adjusted so it can be more) of equity in the debtor’s residence depending on the county the residence is located. You cannot have both. If you use the Homestead Exemption, you CANNOT use the Wildcard Exemption.
When a debtor files for bankruptcy the debtor must list ALL assets. This includes money in the bank and any other property the debtor owns. Most of what the debtor owns as assets goes into the Bankruptcy Estate. Some property is excluded from the Bankruptcy Estate like Social Security benefits, some collateral for loans, Education IRA’s, and contributions to a Pensions or a Health Benefit Plan. Unless the assets in the Bankruptcy Estate are exempt, they get liquidated.
The impact of this is a debtor will have a limited ability to exempt assets using the exemptions at California Code of Civil Procedure §704 (other than the debtor’s residence) and may find that some property will have to be liquidated.