Thinking about filing for bankruptcy but don’t know what you get to keep, and what you’ll have to give up?
Is you live in California, you’re in luck – there are lots of things you can keep when you file for Chapter 7 bankruptcy.
If there’s something you’d lose in Chapter 7 bankruptcy, you have a choice of either not filing for bankruptcy and looking at other options OR filing for Chapter 13 bankruptcy. In Chapter 13 bankruptcy, you get to keep everything you own.
For people who live in the Los Angeles area, there’s always the concern about keeping a car or house in bankruptcy. After all, without a car in Los Angeles you’re pretty much stranded – you don’t see many people walking to work on the 405, after all.
What Are Bankruptcy Exemptions?
When you file for bankruptcy, everything you own becomes property of the bankruptcy estate. Unless the item can be protected, the trustee assigned to your case is able to take the item, sell it and distribute the funds to your creditors.
Some property, however, can be taken back from the trustee’s reach and protected. The legal term for this process is exemption, and it means that the property can’t be taken.
California Bankruptcy Exemptions Come In Two Flavors
California residents are allows to exempt has not one, but two, lists of exemptions for people who file for bankruptcy. Both of these lists allow you to claim exemptions for various types of furniture, clothing, tools, pensions, homesteads, cars, and other items of value.
Under the California scheme, you can choose to use one exemption list or the other for your bankruptcy – but not both. That’s where a good bankruptcy lawyer comes into play – part of my job, for example, is to help decide which exemption list is the best for you.
Can You Use The California Exemptions
How long have you lived in California? the answer to that question determines whether you are eligible to use either of the exemption schemes.
Under the bankruptcy laws, you can use the exemptions of a particular state only if you have lived there for two or more years as of the date on which you bankruptcy case is filed. If you have not lived in California for at least that long, we need to look to the state in which you have lived for the longest period in the 180 days prior to filing bankruptcy.
Complicating matters, there are some states that allow you to use their exemptions only if you currently live there. If that would normally be your state exemption scheme, you’ll need to use the Federal exemptions.
Though some bankruptcy lawyers in California may not be familiar with the Federal exemptions, that’s not the case with us. We also practice bankruptcy law in New York, which uses the Federal exemptions – so we’re comfortable talking about both the state laws as well as the Federal ones.
Exemption Scheme 1 – 703
California Civil Code 703.140 is used specifically for bankruptcy cases. Most people will end up using these exemptions if they file for Chapter 7 bankruptcy and do not own a house that they need to protect from the trustee.
Under this California exemption scheme, you can protect:
- a home in which you live, up to equity of $25,075;
- cars with a total amount of equity of up to $5,100;
- household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments of up to $600 in value each;
- jewelry of up to $1,425 in value;
- tools of your trade with a value of up to a total value of $7,175;
- your rights to receive a social security benefit, unemployment compensation, a local public assistance benefit, a veterans’ benefit, a disability, illness, or unemployment benefit, alimony, support, or separate maintenance;
- personal injury recoveries of up to $24,060; and
- various other items.
If you do not own a home, or if your home has less than $25,075 in equity, you can use the remainder to exempt anything you choose. This catch-all, or grubstake, exemption can help you protect anything of value, so it’s tremendously valuable for California residents.
Exemption Scheme 2 – 704
The value of the 703 exemption scheme is that there’s a terrific wildcard that allows you to protect lots of personal property.
The downside is that the homestead exemption is pretty small. Though the housing downturn in 2008-2012 wiped out much of the equity in most California properties, historically real estate prices are high enough that you’d have a problem protecting your home in bankruptcy if you used only the 703 exemptions.
Thankfully, there’s the 704 exemption scheme to the rescue. This list is the one most people use to protect their homes when they file for bankruptcy.
Under the 704 exemptions, you can protect the following:
- Equity in your primary residence of up to:
- $75,000 for a single person under 65;
- $100,000 for a married couple or the head of a household; and
- $175,000 for persons over age 65, disabled persons, or certain low-income individuals over the age of 55.
- A motor vehicle of up to $2,900 in equity;
- Jewelry, family heirlooms, and art with a value of up to $7,175;
- Tools of your trade with a value of up to $7,175;
- Whole Life insurance of up to $11,475; and
- Various other items.
Let Us Help You Keep Your Property
When you work with Shaev & Fleischman LLP you can rest assured that we’ll do our best to keep your property where you want it – with you. We’ll analyze your situation under the 703 and 704 schemes, and help you make a decision on what’s best for you.
The only property you’ll lose in a Chapter 7 bankruptcy is the stuff you’re willing to give up. And if you want to keep everything, we’ll work out a solution that lets you do that.
After all, our job is to help you.