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Using the Wildcard Exemption in Your Chapter 7 Bankruptcy

A Chapter 7 Bankruptcy is sometimes called a “liquidation bankruptcy.” This is because Chapter 7 Bankruptcy liquidates all of a debtor’s nonexempt assets in order to pay as much of their debts as possible. However, this term can be somewhat misleading in that not all of the debtor’s property is sold in a Chapter 7 Bankruptcy. Instead, significant exemptions protect certain categories of the debtor’s property from creditors throughout the bankruptcy.

California’s system of property exemptions can be complicated, and a mistake as to what property is exempt or nonexempt can have severe consequences, such as a debtor losing their house or car. If you are considering Chapter 7 Bankruptcy, an experienced Chapter 7 Bankruptcy Attorney in the San Francisco Bay area can help advise you on what property you have that may be exempt.

California allows debtors to choose between two sets of property exemptions, commonly called “System 1” and “System 2.” Because of its generous protections for home equity, System 1 is typically favored by debtors who want to keep their home. On the other hand, System 2 exemptions are more flexible and are typically favored by debtors who have other assets that they want to keep, such as a car or cash.

What is the Wildcard Exemption?

One of the features that makes System 2 property exemptions so flexible is called the wildcard exemption. The wildcard exemption is an exemption that can be applied toward any property that the debtor chooses.

One way to think about this is that an exemption is the amount of value in an asset that the debtor is allowed to keep. For example, System 2 has a “tools of the trade” exemption for $7,175. If a debtor has professional books, tools, or other implements that he or she uses for work, they are allowed to keep $7,175 worth of them. If, for example, a debtor had $8,000 worth of tools, they would have to sell $825 in Chapter 7 Bankruptcy to satisfy their creditors.

Unlike the tools of the trade exemption, which can be used only for a specific category of asset, the wild card exemption can be used for whatever asset the debtor wants to keep. If, for example, the debtor has a boat or a car, the wildcard exemption can help them keep that asset.

The value of the wildcard exemption ranges from $1,350 to $26,925, depending on how much of an exemption the debtor claims in home equity. If the debtor claims no home equity exemption, they can receive the full wildcard exemption.

How can the Wild Card Exemption Help Me Keep My Car?

Under California Code Section 703.140, a Chapter 7 Debtor can exempt only $5,100 in the value of a motor vehicle. However, many persons who declare bankruptcy will have a car that is worth more than $5,100. For these persons, losing their car can mean they will have difficulty going to a job or finding a job. This is where the California Wild Card exemption can help.

Say, for example, that a debtor who files for Chapter 7 Bankruptcy had a car worth $10,000. Without the wildcard example, they could potentially have to sell the car and give $4,900 of the proceeds to their creditors. However, the debtor can allocate $4,900 of their wildcard exemption to their car, making that asset wholly exempt and ensuring they get to keep the car.

What about a Luxury Car?

Typically in bankruptcy, a debtor does not get to keep luxury items. This is because those items are generally worth more than the property exemptions in Section 703.140. However, using the wildcard exemption, a debtor can exempt up to $32,025 of value in their vehicle. This is enough to cover the value of many luxury cars, particularly if the car is several years old.

In In re: Garcia (Ninth Circuit, 2013), a debtor did just that. Mrs. Garcia used her wildcard exemption to cover her Mercedes sedan. Although the District Court held that she could not exempt her luxury car, the Ninth Circuit upheld her exemption and noted that the phrase “any property” in 703.140(b)(5) allows a debtor to use the wildcard exemption on whatever property they so choose.

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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