Declaring bankruptcy in California can help relieve debtors and have a fresh start in their life. Many think bankruptcy involves the creditor taking away all personal properties, including vehicles and homes. However, the law in California allows the debtor to keep certain types of properties when declaring bankruptcy.
In California, the bankruptcy exemption laws are more complicated than in the other states because the law groups the exemptions under two sets of exemptions. Federal exemptions are not available in California. If you have stayed in the state for more than 24 months, you will need to decide on the exemptions outlined under section 704 and section 703 of the California code of civil procedure.
Your item only remains vulnerable when the extent of its value is over the outstanding loan balance. To understand the California bankruptcy exemption laws, you require the legal help of a competent and experienced bankruptcy attorney. The attorney will guide you throughout the legal process.
How California Bankruptcy Exemption Works
If you are a debtor and wish to file bankruptcy, you want to contact your attorney to guide you throughout the legal process. The attorney will also help you learn bankruptcy exemptions. As you go through the exemption laws, you want to know whether claiming property or an item as exempt means claiming equity as exempt.
For example, you might own a vehicle worth $40,000, but it has an outstanding loan balance of $50,000. Under this case, you have nothing to exempt. The creditors and the trustees cannot attack negative equity. The bankruptcy exemption allows the debtor to keep property that could be sold to pay the creditors. According to chapter 7 of bankruptcy laws, all debtors' property is liquidated to pay the creditors.
The debtor will not sell the alleged property if the item's value exceeds the exemption amount. Working with a bankruptcy attorney is important when declaring bankruptcy in California. The attorney will help you understand more about bankruptcy exemption laws.
Requirements of a Claim for the Exemptions
Before you declare bankruptcy in California, you must meet the residency requirement. So, you must have lived in the state for 24 months before filing for bankruptcy. If you lived in more than one state during the 24 months, you want to speak with your bankruptcy attorney. Speak with your bankruptcy attorney to help you learn all the requirements before you declare bankruptcy.
California 703 Vs. 704 Bankruptcy Exemptions
California is the only state with two varied types of exemptions in the US. However, the law requires the debtors to choose only one kind of bankruptcy. Seven hundred-four exemptions are a better option for debtors with huge home equity. Alternatively, the 703 exemption is the best option for debtors without real property or limited home equity. In California, the property is usually exempt to a specific dollar amount as outlined by bankruptcy laws.
- 704 Exemptions
The California 704 exemptions are the most used by homeowners with huge home equity. The following are examples of California bankruptcy exemptions outlined under 704 exemptions:
Homestead Exemptions
Under California homestead exemptions, a debtor is entitled to preserve their equity in their home. According to the law, the debtor can protect their home when it is valued at between $300,000 and $600,000 based on the homestead's location.
The newly revised homestead exemption ensures the debtors remain in their homestead to avoid losing the home because of bankruptcy. You do not require to file a homestead declaration in California to claim a homestead exemption in bankruptcy. According to California laws, the homestead exemption is automatic.
If you voluntarily sell your homestead, an undeclared homestead will not protect you. The exemption only protects you from the forced sale of your homestead. The law doesn't protect equity if you wish to sell the homestead. When you make a formal declaration, you have at least six months of protection to sell your home.
Household Furnishings, Personal Effects, and Apparel
The items are exempt when they are reasonably and ordinarily necessary, procured, or used by the debtor's family. However, an item could not be exempt if it is not found in the home or its value is extraordinary.
Motor Vehicle
Under California 704 exemptions, vehicles valued below $3,325 are protected. Speak with your bankruptcy attorney to help you assess whether your vehicle meets the exemption requirement under this statute.
Health Aids
According to California 704.050, the statute exempts health aids necessary to enable the debtor and their family to sustain health, including orthopedic and prosthetic appliances. So, the medical appliances used to alleviate medical ailments or handicaps are exempted from California bankruptcy exemption. Qualifying health aids are the kind of medical appliances as opposed to recreation devices.
Tools of Trade
What are the tools of the trade in California? You can exempt up to $8,725 in books, tools, equipment, or one commercial vehicle if the vehicle is reasonably used for your trade, profession, or business. When both purposes are in profession, business, or trade, the law allows each an exemption. You can exempt a vehicle provided you carry business purposes not exceeding $9,700.
Building Materials
The law exempts any material used to improve or repair your residence. The material, however, must be at most $3,500. You can speak with your bankruptcy attorney to help you know the building materials exempted by the California bankruptcy exemptions when declaring bankruptcy.
Life Insurance
Any policy with no cash value is exempted from California bankruptcy exemptions. The maximum exemption for the policy is $13,975 for married partners. The benefits from annuity policies or life insurance are exempted to the level reasonable for the debtor to support their dependents or spouse.
Personal Injury Claim
A right to sue another person or file a lawsuit against them is an asset before the law. When the person you have sued in a lawsuit is yet to redeem the payments, the general claim becomes exempted. When you have received money from a personal injury lawsuit, the money is exempt but only to a reasonable degree necessary to support your dependents. When the settlement or award is redeemable in installments, each installment is exempt except in cases where the money is subject to wage garnishment.
Private Retirement Benefits
The benefits paid or payable under union retirement arrangements, private retirement accounts, or profit-sharing plans and applied for retirement are exempt under California bankruptcy exemptions. The statute only exempts retirement arrangements maintained or established by employee organizations or private employers like unions to use the assets for retirement benefits.
The money in individual retirement accounts and annuities can be exempted if they are designed for retirement benefits. The funds are subject to further limitation when exempted only for the debtors' support and support to their dependents during retirement. The supreme court in America can hold any retirement plans containing spendthrift or is ERISA qualified regardless of the amount outlined in the plan.
Pre Petition Wages
Any wages earned a month before the declaration of bankruptcy remain exempt. The statute protects three-quarters of any amount received during this period. When the funds are subject to garnishment, they remain exempt.
Jewelry
Heirlooms, jewelry, and other works of art are exempted from California bankruptcy exemptions. The statute covers jewelry that does not exceed $8,725. If you want to declare bankruptcy and you own ornamental items, you want to discuss with your attorney to let you know whether they are exempted under the statute.
Unemployment, Disability, and Health Insurance Benefits
Benefits from an insurance policy and health programs remain exempt under the law. During the payment of disability benefits, the local child support or the creditor may seek to apply for the benefit payments to satisfy their judgment. However, the law exempts these benefits.
- The 703 Exemption
If you are a debtor in California, you want to file for bankruptcy exemption. California has a set of exemptions to protect your property, like your home, retirement account, and car. 703 is also referred to as wildcard exemption. It tends to be better for debtors without much home equity. The debtors use the large wildcard to protect their valuable property.
If you live in California, you want to examine your state bankruptcy exemption and decide the one that would allow you to keep more of the property you possess. Below are Exemptions commonly used by California bankruptcy filers:
Primary Residence
California bankruptcy exemptions are deficient regarding other assets. The exemption does not allow filers to keep other properties like household items, vehicles, and money in their accounts.
A $29.75 exemption is allowed in real property or personal property. The exemption also includes a mobile home that the debtor or dependant used as a residence.
Motor Vehicle
Vehicle exemption allows you to protect $3525 in equity of your vehicle. You can use the exemption for only one vehicle and not two vehicles. If you feel your motor vehicle has more equity than what motor vehicle exempts, you can use the wildcard exemption to protect any remaining amount in your vehicle.
Household Furnishings, Apparel, Personal Effects
The items are exempt when they are reasonable, ordinarily, and personally used or procured by the judgment debtor. Again, the personal effects want to be used by the judgment debtor's family members at the debtor's place of residence.
Where the judgment debtor lives in a different location with their spouse, household items are exempted if reasonably and personally used by the spouse and members of the spouse's family at the spouse's principal residence. To determine whether an item is reasonable, ordinary, and necessary, the court considers the following:
- The extent to which a type of item is ordinarily found in a household.
- Whether the item has extraordinary value compared to other items of the same type in the house. For example, if an item is sold at a higher price, the court decides the amount is reasonable and enough to purchase a replacement of ordinary value. Therefore the court decides replacement of the item is reasonably necessary.
Materials Used for Repair
Materials purchased in good faith to repair a principal residence may be exempt. The materials are examples when their value is at most $3500. Again, the exempt materials are purchased in good faith for repair and maintenance if the judgment debtor's principal residence or his spouse's residence if they live separately and apart.
Public Benefits
You will enjoy various non-bankruptcy exemption benefits regardless of your state. The debtor had the right to receive unemployment compensation, veteran benefits, illness, disability, and unemployment benefits. Again, the debtor has the right to receive information, resources, and financial assistance. Public benefits include other crime-related costs like medical treatment, loss of income, funerals, counseling, etc.
Life Insurance
Life insurance is a contract signed between the policyholder and an assurer. Unmatured life insurance policies are exempt. Again, life insurance covers disability benefits. To qualify for disability benefits, you want a mental or physical impairment that limits you from walking, seeing, breathing, speaking, etc. Again, you want to submit an award letter to SSDI. If the letter states the disability is permanent, there will be no need to refile the evidence when applying for exemption renewal.
WildCard
Wildcard refers to the ability to protect different forms of property that are not protected under PC 703 exemptions. The exemptions are better for those interested in protecting personal property and not owning a home. Wildcard protects most of your assets, although it does not cover your homestead and your vehicles. Other exemptions cover items like clothes, household appliances, and work tools. You must note that you cannot mix your federal and state exemptions. For example, you cannot claim a state homestead exemption using a federal wildcard exemption.
Wildcard allows you to save property you would not ordinarily protect. Wildcard Exemptions allow you to choose the property you want to protect. Meaning you may choose any property you want to protect. For example, you may choose your car, money in the bank, or other assets. Again, the wildcard covers
multiple assets. Therefore you can choose multiple assets and combine them with other exemptions. Wildcard exemption is $15425 of any used amount of the homestead exemption.
Pensions
You may keep pension benefits covered under the federal employee retirement income security act. You may use bankruptcy exemption to protect your home, car, and belongings. You protect your property with the aid of ERISA, a qualified retirement account, and a pension plan.
The ERISA excludes your funds from bankruptcy. The entire amount is protected if it is $1512350 and less. If your retirement account has more funds, the bankruptcy court can take the excess and pay your creditors. If you receiv if your retirement account has more fundse a monthly payment from your pension, the bankruptcy court will not take your retirement benefits as they are necessary for your support. The court will take the amount above your needs and support and use it to pay creditors.
Retirement Account
In California, the court considers retirement accounts as marital property. The court considers their marital property even when the accounts were opened before marriage. When dividing the marriage funds, In case of a divorce, the court will consider the date you created the account. In bankruptcy, the court will exempt the contribution made before your marriage.
Tools of Trade
Tools of trade refer to books, implements, or other tools relating to someone's vocation. For example, a mechanic used power tools and an air compressor. Therefore tools of trade depend on your vocation or trade. Examples are machinery, equipment, books, furniture, vehicles, trade libraries, and animals. When filing bankruptcy, tools of trade worth over $ 8725 are exempted depending on the exemption scheme you choose.
Importance of Hiring a Bankruptcy Lawyer
If you are looking to file bankruptcy and you have a property that you think may be covered by any of the above exemptions, you want to seek the help of a bankruptcy lawyer. The attorney will analyze your situation under 703 and help you make the best decision. The following are the advantages of an attorney
- The attorney will educate you on how you may protect your property when bankrupt.
- The lawyer will help you know your rights and options.
- Educate you to know what you expect as your case progresses.
- Ensure successful filing so that mistakes don't arise.
- Help you Learn potential risks and likely outcomes.
Contact a Bankruptcy Attorney Near Me
Although the two sets of exemptions are similar, there are essential distinctions between them. Deciding on which set is best for you depends on your circumstance. Before you declare bankruptcy, you must seek legal help from an aggressive California bankruptcy attorney. He knows your case.
At Los Angeles Bankruptcy Attorney, we have decades of experience in various bankruptcy and other cases of financial hardship. When you are our clients, we pursue the best available options for your case. So, if you seek legal services in Los Angeles, CA, we are ready to work with you. Contact us today at 424-285-5525, and our competent attorneys will offer a preliminary assessment and free consultation.
