Individuals who are evaluating whether the filing of a
Chapter 7 bankruptcy would be appropriate have a lot to consider including the type of debt
(e.g., credit card, mortgage, etc.) they have and the impact of a
bankruptcy filing on their personal and business lives, and both are important issues
to be assessed. But there is another part of the bankruptcy puzzle that
deserves careful analysis, and that is which of the debtor's assets
will be protected and what personal property will become a part of the
The rules that govern what property a debtor may retain and what must be
turned over to the bankruptcy trustee are referred to as “exemptions.”
If you file a Chapter 7 – or “liquidating” bankruptcy
– the court-appointed trustee will take legal possession of your
“non-exempt” assets and administer them for the benefit of
your creditors. If you file a
Chapter 13 – or a “wage earner” bankruptcy – exemptions will
determine what amount you are required to pay to your creditors as a part
of the “Chapter 13 plan.”
California Bankruptcy Exemptions
While federal law establishes certain “exemptions,” California
law requires debtors who are subject to California law to utilize the
exemptions established under state law. To make matters even more complicated, California law actually provides
two sets of exemptions, generally referred to as “System 1”
and “System 2.”
Some commentators say that System 1 is the better choice when a debtor
has substantial home equity and that System 2 offers more protection for
debtors who have substantial liquid assets such as investments and savings.
But only a lawyer who is experienced in such matters can analyze the facts
of your particular case to determine which set of exemptions is more likely
to protect property that you really want to keep.
That said, here is a brief look at some of the exemptions provided by System 1.
Subject to various qualifiers including your age and income, System 1 exemptions
can protect up to:
- $175,000 of equity in your principal residence
- $2,900 in auto equity
- $7,625 in jewelry, heirlooms, and artwork
- $4,575 in bank deposits that arose out of payments from Social Security
(for married debtors)
Also exempt is that amount that is 75% of the wages paid within 30 days
of the filing of the bankruptcy case.
Depending on the occupation of the debtor (or debtors, if the case was
filed by both spouses as a “joint petition”), between $7,625
and $15,250 of the value of related implements, tools, uniforms, books,
equipment, instruments and furnishings, as well as a commercial vehicle,
may be exempt.
Moreover, the value of tax-exempt retirement accounts like Section 401(k)
accounts, SEPs, IRAs and Roth IRAs, is generally exempt under California
state law pertaining to exemptions.
Speak with a Bankruptcy Attorney in the South Bay Today
Since the filing of a bankruptcy case has significant, long-term effect
on your financial life and generally results in the debtor losing some
of his physical assets, anyone considering such a filing ought to meet
with experienced bankruptcy practitioners.
Contact us to consult with experienced bankruptcy lawyers who can guide you through
the complex decisions that have to be made.