The California bankruptcy law governing exemptions is different from that in other jurisdictions. One of the benefits of filing for bankruptcy is that it allows you to keep some property and use other property to pay off creditors. In previous posts on this blog, we have discussed how different types of bankruptcy can be used to help protect your house, car, and other assets.
Bankruptcy exemptions allow you to protect some property from the bankruptcy process. However, exactly what property is exempt from bankruptcy can be confusing and will require the help of a California bankruptcy attorney. In California, filers must choose between two systems of state exemptions, System 1 (California Code of Civil Procedure Section 704) and System 2 (Section 703).
There are many differences between System 1 and System 2 exemptions, only a few of which are highlighted below:
System 1 has a much more generous “homestead exemption” than System 2. A homestead exemption protects value that a debtor has in their home, so System 1 may be preferable for debtors who own their homes. For single filers, the homestead exemption is $75,000. For families in which all live in one homestead, the exemption is $100,000. And for several other classes of filers, such as those 65 or older, persons who are disabled, or persons who are 55 and older who fall under a certain income threshold, the exemption is $175,000. System 2 only allows a $25,575 homestead exemption.
System 2, on the other hand, has a “wildcard exemption,” whereas System 1 does not. System 2’s wildcard exemption can be used on $1,350 of any property that a bankruptcy filer owns, in addition to the homestead exemption for System 2, which is $25,575. This means that System 2 allows $26,925 of wildcard exemptions to cover a variety of types of property that are not covered in System 1, thus System 2 is often preferred by filers who do not own their home.
System 2 also has a more generous vehicle exemption, and allows debtors to exempt motor vehicles up to $5,100, whereas System 1 only allows $2,900.
For married couples, System 1 and System 2 are quite different. System 1 allows couples who are married to file for bankruptcy jointly. This means that under System 1, a married couple can double some, but not all of their exemptions, sometimes called “doubling.” Married couples cannot double their homestead exemption or vehicle exemption, but they can, for example, double the value of their life insurance policy exemptions and their “tools of the trade” exemption. The tools of the trade exemption includes uniforms, implements, books, furnishings, and equipment that is used for work, and a couple can double the exemption if they are in the same occupation.
The exemption amounts are changed periodically. All of the above dollar figures are current as of November 2013. In general, System 1 is preferred by married couples and homeowners, and System 2 is preferred by persons who do not own their homes. California bankruptcy exemptions can be tricky, and if you are considering filing for bankruptcy you should consult a bankruptcy attorney on what exemptions will be best for you.
The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code
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