Winter Law Group July 28, 2020

Many people hesitate to file for bankruptcy for fear of losing their possessions. They believe their homes, cars, furniture, and savings to be at risk. However, the court has no interest in making people live in poverty in order to pay off debt. Bankruptcy laws were designed to leave you with what you need to make a fresh start. Bankruptcy doesn’t have to mean failure — for you, your family, or your property. You have rights and options under the law.

If you are overwhelmed by debt and worried about repossession, we at the Winter Law Group can help you understand what possessions you can keep in bankruptcy under California exemption laws. Our goal is to help you successfully get through the bankruptcy process so you can move on with your life. Proudly serving Fresno, California, and neighboring areas of Madera County and Merced County, we offer knowledgeable legal counsel to help you understand your options.

Bankruptcy in California

What many don’t realize is that bankruptcy law includes certain exemptions for personal property. Under these laws, in California or elsewhere, you can “exempt,” or protect, certain property that is necessary for living from bankruptcy proceedings. This means that, contrary to what some may believe, your bankruptcy trustee is not going to come and collect all your belongings to satisfy your debts. Typical items protected under bankruptcy exemption laws might include: 

  • A home

  • A car, or cars depending on their values

  • Most furniture and appliances, including your TV and family computer

  • A limited value in jewelry and heirlooms

  • Retirement accounts, including pensions

Bankruptcy in California is unique in that you are given two choices of exemption systems. You are allowed to choose the system that works best for you and your situation.

Exemption System 1 (704) 

Debtors with substantial home equity often prefer System 1 (referred to as “704” exemptions, named after section 704 in California Code of Civil Procedure), while those with more value tied to other forms of property usually take advantage of System 2 (“703” exemptions). Exemption System 1 is also referred to as “Homestead Exemption,” as it benefits those seeking to protect a certain amount of equity in their principal residence. The following list details some — but not all — of the 704 Exemptions, including new 704 Exemptions as of 2020.

  • Homestead - Equity up to $75,000 for a single person under the age of 65; equity for a married couple of up to $100,000; and equity up to $175,000 for those over 65, disabled, or low-income persons over the age of 55.

  • Motor Vehicle - Up to $3,325 total may be applied

  • Personal Property - Jewelry, heirlooms, and works of art up to $8,725; health aids that reasonably enable the debtor or a dependent to work or sustain health; food, clothing, appliances, and furnishings that are ordinarily and reasonably used

  • Retirement & Pensions - Private and public retirement accounts

  • Public Benefits - Unemployment and disability benefits, and student financial aid

  • Insurance - Disability or health insurance benefits

  • New 704 Exemptions in 2020:

    • FEMA benefits, effective January 1, 2020

    • In one deposit account, effective September 1, 2020, a debtor can protect “…an amount equal to or less than the minimum basic standard of adequate care for a family of four…,” or $1,724 as of writing. A minimum balance of $1,724 must remain in an account when a creditor seizes funds.

Exemption System 2 (703)

The second system of exemptions is often known as “Wildcard Exemption.” If you have no equity in a home, you may be able to exempt many other things of your choice using the 703 Exemption. The term “Wildcard” refers to this system’s flexibility in allowing a debtor to protect miscellaneous forms of property up to a certain dollar amount. Most of the same types of items detailed in 704 Exemption also apply to 703 Exemption (with certain restrictions and variations, of course), but take special notice of the wildcard exemption:

  • Wildcard exemption can be used for any property. It is limited to $1,550, plus any unused amount from personal property exemption. If no property exemption is used at all, this comes out to more than $30,000.