chapter-7-bankruptcy

Chapter 7 Bankruptcy in California: Exemptions and What You Should Know about Them

What is a Chapter 7 bankruptcy California CAExemptions2020? Exemptions are assets that the bankruptcy  trustee does not take to sell in order to pay creditors part of what is owed during the bankruptcy. The Chapter 7 bankruptcy exemptions you choose make an important difference in the outcome of your bankruptcy.

What are the Chapter 7 bankruptcy California exemptions (property you can keep)?

There are two groups of exemptions – 704 exemptions and 703 exemptions. The right one for a debtor depends on the types of property they own.

Under California law, you are allowed to choose which set of Chapter 7 exemptions suit your situation better. This is an important decision because the bankruptcy trustee will sell property you are not able to exempt and apply the funds toward your unsecured debts including personal loans, credit cards, and overdue utilities.

If you own a home and have equity you want to protect, 704 exemptions are probably the best choice for you, however, you should discuss your personal situation with a knowledgeable bankruptcy lawyer in Los Angeles as this decision is important.

Married couples have the same exemptions as a single person – they do not get a higher exemption than single individuals in most categories.

bankruptcy exemptions

What is the 704 Homestead Exemption?

The 704 homestead exemption in California varies by age, disability status, ownership interest, and whether your creditors are attempting to force the sale of your home. The 704 homestead exemption protects up to a specified amount of equity in your home.

AGE

  • Over age 65 – Up to $175,000 of equity is protected
  • Over age 55 with a low income – Up to $175,000 of equity is protected

OWNERSHIP

  • If the person filing bankruptcy and at least one other family member have an interest in the homesteaded property – Up to $100,000 of equity may be protected.

DISABILITY STATUS

  • If the person filing bankruptcy is not disabled – California 704 exemption protects up to $75,000 of equity
  • If disabled – Up to $175,000 may be protected

If Creditors want to force the sale of your home

In some cases, a creditor or group of creditors are able to force the sale of your home in order to pay your debts. The California 704 exemption will protect up to $175,000 of equity if you are older or disabled as noted above. It will also afford this much protection to single individuals who are age 55 who earn less than $25,000 per year and married couples who make less than $35,000 a year.

What is included in a 704 homestead exemption?

A homestead exemption is not limited to your house. It may include condominiums, mobile homes, planned developments, stock cooperatives, community apartments, and even a boat.

2020 704 Exemption Changes

California added new exemptions in 2020 that provide greater protections for deposit accounts and FEMA Benefits.

As of January, an exemption is available that will exempt deposit account balances that are necessary to support the debtor and the debtor’s spouse and dependents. Beginning September 1, 2020, $1,724 is automatically protected against a bank levy. The amount is considered the “minimum basic standard” needed to care for a family of four. If a debtor wants a higher exemption, the debtor must assert it in order to receive the higher exemption.

Additionally, as of January 1, 2020, if a debtor has received Federal Emergency aid through FEMA, the funds received from FEMA are automatically exempted. FEMA funds are typically in response to losses that occur in connection with a declared disaster, such as some of the wildfires that have ravaged California residents.

What are Chapter 7 bankruptcy personal exemptions in in California?

  • Your transportation, including a car, truck, motorcycle, RV, or other transportation is exempt up to $3,325 of equity in the vehicle.
  • Your household items and personal effects are exempt.
  • Health aids are exempt (this can include a variety of health aids such as hearing aids, oxygen equipment, glasses, walkers, canes, etc.).
  • Residential building materials for the repair or improvement of your home of up to $3,500.
  • Works of art, jewelry, or heirlooms of up to $8,725 are exempt.
  • Social Security payments of up to $3,500 for a single person ($5,250 for a married couple). This exemption is unlimited if the Social Security funds are not commingled with other funds.
  • Public benefit payments other than Social Security are exempt up to $1,750 ($2,600 if married and paid jointly).
  • If necessary for support, personal injury and wrongful death causes of action and compensation are exempt.
  • A cemetery burial plot.

Does a 704 Exemption protect wages, pensions, or retirement savings?

Yes, a considerable amount of assets may be protected.

  • IRAs and ROTH IRAs are protected up to $1,362,800.
  • 75% of the wages received during the 30 days prior to filing are exempt.
  • Tax-exempt retirement accounts are exempt. This includes 401(k), 403(b), ESOP, SEP, SIMPLE IRAs, Keogh, money purchase plans, profit sharing plans, and defined benefit plans.

Public Employee 704 Exemption Protections

Public employees are afforded extensive protections including:

  • Vacation credits (a minimum of 75% if payments are on installment)
  • Public retirement benefits

Public Benefits 704 Exemption Protections

Individuals who are receiving public assistance are also allowed exemptions to protect those benefits including:

  • Disability income benefits
  • Unemployment
  • Union benefits paid as the result of a labor dispute
  • Worker’s compensation benefits
  • Public Assistance
  • Relocation Benefits (for displaced individuals – not job-related relocation expenses)
  • Student financial aid

bankruptcy california

Tools of the Trade 704 Exemption Protections

The purpose of bankruptcy is to afford honest creditors a fresh start. It would not make much sense to deprive them of their ability to make a living as that would hinder their ability to get the fresh start. As a result, items considered the “tools of the trade” are exempt. These items generally include tools, uniforms, instruments, a commercial vehicle, and furnishings. The exemption is $8725 for an individual and double that if both spouses work in the same occupation.

704 Protections for Insurance (proceeds and policies)

Protections for insurance contracts and proceeds from insurance contracts are complex. It is best to discuss issues with life insurance, disability insurance, health insurance, homeowner’s insurance, and Fidelity bonds with your bankruptcy attorney.

Miscellaneous 704 Exemptions

  • If the debtor is a partner in a business, the partnership assets are not considered the debtors’ property and are therefore exempt.
  • Business and professional licenses.
  • For incarcerated individuals, trust funds of up to $1,600 are exempt for inmates

What is the 703 Homestead Exemption?

The homestead exemption under 703 is only $29,275, but it may be applied to either equity in real estate or personal property that is used as a residence.

Additional 703 Chapter 7 Bankruptcy Exemptions

  • Up to $5,850 equity in a motor vehicle
  • A burial plot in lieu of the homestead exemption for up to $29,275
  • A “per item” exemption of up to $725 for clothes, books, musical instruments, animals, appliances, crops, or household goods.
  • Jewelry of up to $1,750
  • Health aids (see 704 exemptions for more detail)
  • As needed for support – wrongful death recoveries
  • Personal injury recovery of up to $29,275

Does a 703 Exemption protect wages, pensions, public benefits, alimony, child support, or retirement savings?

If 703 exemptions are chosen, the amount of numerous benefits is limited to the amount “necessary for support.” This is more restrictive than many 704 exemptions and should be discussed with your bankruptcy attorney prior to choosing the exemptions you want to use.

What is the 703 Wildcard Exemption?

The wildcard exemption allows an exemption for otherwise unprotected assets of $1,550 and any unused portion of the homestead or burial plot exemption.

Can a second mortgage be discharged in Chapter 7 bankruptcy?

A second mortgage (home equity line of credit – HELOC, or other second mortgage) cannot be discharged in a Chapter 7 bankruptcy.

Can you settle a second mortgage after a Chapter 7 bankruptcy?

After your Chapter 7 bankruptcy is discharged, you may be able to eliminate your second mortgage by immediately filing a Chapter 13 bankruptcy. If there is no equity available to satisfy the second mortgage, it can be discharged by filing a Chapter 13 bankruptcy.

Filing Chapter 7 bankruptcy in California is complicated. Contact a knowledgeable bankruptcy attorney to protect your rights and assets.