Bankruptcy helps people struggling with debt lessen their burden by liquidating unsecured assets to pay the debt or developing a repayment plan to pay the creditors. This offers debtors a fresh financial start and protects them from adverse debt collection measures.
Many struggling debtors fear declaring bankruptcy because they believe they will lose everything. Fortunately, you can use state or federal bankruptcy exemptions to protect your assets. The exemptions help you keep part of your residential property, vehicle, and retirement benefits, among other primary assets.
Paying creditors is an essential consideration during the bankruptcy process. Therefore, you cannot use the exemptions to keep luxury items. You must follow the procedure to exempt your property to speed up your bankruptcy case and avoid the harsh consequences of attempted bankruptcy fraud.
At Sacramento Bankruptcy Lawyer, we understand bankruptcy's impact on your life. Our skilled attorneys will guide you through the bankruptcy process and help you explore the proper exemptions. We serve clients seeking legal guidance and representation to navigate the bankruptcy process in Roseville, CA.
Overview of Bankruptcy Exemptions in California
A common misconception is that you must give up all your assets when you file for bankruptcy in California. Most people who file for bankruptcy can apply to keep most of their primary assets and properties through bankruptcy exemptions. The exemptions allow the filer to keep some equity in their home, vehicles, and anything else needed for maintaining the home and employment.
You can explore the bankruptcy exemption when you file for Chapter 7 or Chapter 13. The following are some of the essential things that you must understand before you claim bankruptcy exemptions:
You Must Meet the Residency Requirements
Bankruptcy exemptions are not available for all filers. Before you start the bankruptcy exemption process, you must meet the residency requirements. You must have lived in California for at least two years before filing your bankruptcy petition.
Generally, you must live in California for up to 180 days to file a bankruptcy in the state. You must meet the residency requirements for the exemptions to protect your property. There are no specific documents used to prove residency. However, if the bankruptcy trustee challenges your eligibility for exemptions, you can use your apartment lease or utility bills to prove your residency.
California Does Not Allow Federal Bankruptcy Exemptions
In other states, you can choose between federal and state bankruptcy exemptions. However, bankruptcy filers in California have no choice for federal exemptions. Instead, the state provides two different categories of exemptions from which you can choose.
Although you cannot use the federal bankruptcy exemptions, you can explore non-bankruptcy to protect assets that the state exemptions cannot cover. These exemptions can protect:
- Retirement benefits.
- Survivors benefits.
- Disability and death benefits.
- Social security benefits.
Additionally, you may be able to use the non-bankruptcy exemptions if you belong to any of these professions:
- Seamen.
- Military service members.
- Railroad workers.
- Government employees.
California does not Allow Double Exemptions
You can file for bankruptcy as an individual or jointly with your spouse. However, there is a maximum dollar amount for which you can exempt each property. This means that the exemption will protect a certain amount of equity in the property. For states that allow the use of federal exemptions, you and your spouse can each protect an allowed amount under the exemption.
The double exemptions do not apply in California. If you and your spouse file for bankruptcy jointly, you can only exempt the maximum amount allowed for state exemptions. This means you will not keep more property than a single bankruptcy filer.
Types of Bankruptcy Exemptions
There are two main types of bankruptcy exemptions in California. The main factor that you must consider when choosing a suitable set of bankruptcy exemptions is the type of property you seek to protect. System 1 bankruptcy exemptions (704 exemptions) are the most common form of exemption used by bankruptcy filers.
If you own your home or have a lot of equity in your residential property, choosing the 704 exemptions is the right option. This is because this category of exemption protects more equity in the home.
On the other hand, individuals with no real property will benefit from the Set 2 exemptions (703 exemptions). Most people use this category of exemptions when they have substantial equity in their property. If you want to use the bankruptcy exemptions in your case, you must compare your property to the exemptions and the protection available for each type of property. You can protect the following assets with 704 and 703 exemptions:
Homestead Exemption
With the homestead exemption, you can protect a certain amount of equity in your primary home. This exemption helps you keep the house where you reside when declaring bankruptcy. In this case, a home could be a community apartment, a boat, a planned development, or a mobile home. The 704 exemptions allow you to keep up to the following amount of equity:
- $75,000 of your home if you are single.
- $100,000 of the home for a family.
- $175,000 if you are over sixty-five years old or have a mental or physical disability.
- $175,000 for bankruptcy filers at risk of a forced sale.
With the 703 bankruptcy exemptions, you can keep up to $31,950 of your real property. You must have owned the property you seek to exempt for more than 1,215 days before filing for bankruptcy in California. Under Chapter 7 bankruptcy, you could lose your home even when the exemptions apply to your case. This could occur when the exempt amount is insufficient to cover your home equity.
In this case, the bankruptcy trustee will sell your home, give you the homestead exemption amounts, and use the balance to pay your creditors. When you file Chapter 13 bankruptcy, you can keep the home by continuing to pay the monthly mortgage installments.
Motor Vehicle Exemption
When you choose the 704 exemptions for your bankruptcy, you can keep up to $3,625 of equity in your vehicle. The vehicle could be a motorcycle, truck, or another vehicle used for daily activities or work.
In System 2 of the bankruptcy exemptions, you can exempt up to $6,375 of your vehicles. When your motor vehicle exemption amount is insufficient to cover the equity in the car, you could lose it through Chapter 7 bankruptcy liquidation.
In this case, you will need to follow these steps to help you keep the vehicle:
- Check the exemption amount. If the California bankruptcy code indicates the amount, you can exempt vehicle equity under 703 exemptions. In addition to the vehicle exemptions, you could check the wildcard exemption, which can be used to protect the asset of your choice.
- Determine your vehicle's value. When filling out your bankruptcy paperwork, you must indicate the value of each asset that you own. You can determine the value of your vehicle depending on its age and current market value.
- Calculate the equity of your vehicle. The equity you have in your vehicle is its value when you have no loan. If you have a loan for the vehicle, your equity is the amount remaining when the vehicle is sold and the loan is paid.
- Compare the exemption to vehicle equity. Whether or not you can keep your vehicle by exploring the state bankruptcy exemptions in California will depend on how your vehicle equity compares to the exemption.
Pension and Retirement Benefits
Insurance bankruptcy exemptions include protection for money you have set aside for use later in life. 704 exemptions can help you protect:
- Roth IRAs and IRAs The federal law establishes the amounts you can exempt under these benefits.
- Public and private retirement benefits.
- County employee benefits.
- County peace officers and firefighter benefits.
You could exempt the following benefits under System 2 exemptions:
- A qualified pension and other benefits you need for basic support.
- Tax-exempt retirement accounts, which include the 401(k)s.
Personal Property
You can protect your day-to-day items using the bankruptcy exemption. This includes fundamental items like animals, electronics, and household items. Items you can exempt under 704 exemptions include:
- Personal effects and household items.
- Health aids.
- Residential repair and building material of up to $3,825.
- Heirlooms, jewelry, and artwork of not more than $9,525.
- Bank deposits for your social security payments.
- Up to $1,826 of bank deposits for basic support.
- Tools of trade include books, materials, uniforms, commercial vehicles, and furnishings.
- Trust funds of up to $325.
- Burial plot.
For bankruptcy filers who choose 703 exemptions, they can keep the following personal items:
- Wrongful death recoveries.
- Health aids.
- Up to $26,800 in burial plots.
- Household goods, clothing, musical instruments, and animals.
Public Benefits
California bankruptcy exemptions allow you to protect the money you receive from the government. Public benefits exemptions under Set 1 exemptions include:
- Disability and unemployment benefits.
- Union benefits arising from labor disputes.
- Student financial aid.
- Relocation benefits.
- Workers Comp benefits.
703 exemptions can help you keep:
- Social security benefits.
- Crime victim compensation benefits.
- Social security benefits.
- Unemployment compensation.
Child Support and Alimony
This type of bankruptcy exemption is set to protect the money you receive as a child or spousal support after a divorce in California. In this case, the amount protected is enough for essential support.
Wildcard Exemption
The wildcard exemption will only apply when you choose two bankruptcy exemptions. This exemption is helpful to cover properties whose equity exceeds their exempt amounts. Additionally, you can use it for items that do not fall under the exemptions. The total amount you can explore in wildcard exemptions is $28,225.
Frequently Asked Questions about Bankruptcy Exemptions in California
Individuals undergoing bankruptcy in California can use state bankruptcy exemptions to protect essential assets. However, the correct procedure must be followed to claim the exemptions successfully. If you are on the verge of bankruptcy, you may have many concerns about the rights of bankruptcy exemption for your case. The following are frequently asked questions on bankruptcy exemptions:
1. Can I use bankruptcy exemptions from a previous state?
Bankruptcy filers in California cannot use federal bankruptcy exemptions. Instead, you must choose from the state exemptions for asset protection. If your move to California is the first one you have made in a long time, you could be allowed to use the exemptions from your previous home state. However, this does not mean that the bankruptcy exemptions will be automatic.
Whether or not you can use the exemptions from a previous state will depend on whether the previous state allows individuals to use their exemptions after moving. Seeking legal guidance to navigate your bankruptcy exemptions is critical to following the right procedures.
2. Do I need an attorney for my bankruptcy case?
Filing for bankruptcy is a complicated process. This is because you must determine your eligibility for the type of bankruptcy you want to file. Additionally, you must follow the right procedures to ensure a favorable outcome. Several factors impact your ability to explore state bankruptcy exemptions in California. This could include the residency requirements and the specific assets you seek to protect with your exemptions.
For this reason, hiring and retaining bankruptcy lawyers is critical. Your attorney will help you gather all the paperwork needed for the bankruptcy. Additionally, they can guide you through the exemptions that best suit your needs and protect your assets.
3. What happens to property that cannot be protected with the bankruptcy exemptions?
The fate of property you cannot exempt in California will depend on the type of bankruptcy you file. If you file Chapter 7 bankruptcy, the bankruptcy trustee will liquidate the assets you cannot exempt to pay your creditors. However, if you have filed under Chapter 13, you will pay your creditors for the non-exempt property in a repayment plan.
The bankruptcy repayment plan allows you to pay your debts within three to five years. This will enable you to keep the property. Your ability to keep a property in such a situation will be determined by how current you are with your debt payments.
4. What happens when I make a bankruptcy exemption error?
When you file for bankruptcy in California, the court will appoint a bankruptcy trustee. The role of the trustee is to ensure that you provide the correct information when filing the bankruptcy paperwork. Additionally, the trustee ensures that you do not leave out creditors when covering your debts.
Before your exemptions are forwarded to the court, the trustee will review them to ensure you have the right to claim them. If the trustee disagrees with the information you provided, they could file an objection and leave it to the judge to decide if you can keep the property.
Before filing an objection, the trustee will attempt to resolve the error by discussing it with creditors at the 341 hearing. If your mistakes were intentional and aimed at bankruptcy fraud, you could face severe legal consequences, including prison time and fines.
5. Can I keep my vehicle by paying for the non-exempt equity in liquidation bankruptcy?
When you file for Chapter 7 bankruptcy in California, you risk losing your vehicle through liquidation by the bankruptcy trustee. However, some people can keep the vehicle using the 703 or 704 bankruptcy exemptions available for California residents. Unfortunately, your property could still be liquidated when the exempt amount is insufficient to cover the vehicle equity.
You could be allowed to pay the non-exempt value of your vehicle and keep it under the following circumstances:
- The trustee lets you buy the vehicle. If you can afford to cover the nonexempt vehicle value, your bankruptcy trustee could allow you to buy the vehicle from them.
- The trustee abandons the car. If the trustee determines that no money will be left to pay your creditors after liquidating the vehicle, they could abandon it. You can keep the car if you are currently on your vehicle payments.
Find a Reliable Bankruptcy Lawyer Near Me
If you struggle to pay your debts, filing for bankruptcy may be the ideal option to clear your debts. You can file for bankruptcy under Chapter 13 or 7, depending on your income. In Chapter 7 bankruptcy, your assets will be liquidated, and the proceeds will be used to pay your creditors. On the other hand, a Chapter 13 bankruptcy allows you to repay your creditors using a reasonable repayment plan.
The fear of losing valuable assets discourages many people from filing for bankruptcy. Unfortunately, this could result in the accumulation of more debt. In California, bankruptcy exemptions allow a person filing for bankruptcy to protect assets needed to maintain a home and employment. Since federal bankruptcy exemptions are unavailable for bankruptcy files in California, you can explore the 703 or 704 exemptions.
The process of exempting your property from bankruptcy liquidation is complex. Therefore, you will require legal help to navigate these exemptions. If you or a loved one is on the verge of bankruptcy in Roseville, CA, you will benefit from the expert legal insight we offer at Sacramento Bankruptcy Lawyer. Call us at 916-800-7690 for a bankruptcy case review.
