Many people assume that they will lose all their property when filing bankruptcy. Yet, this worst-case scenario rarely occurs. If you’re filing Chapter 13 bankruptcy, you will likely keep most of your assets, so long as you can cover your debt on a repayment plan. During Chapter 7 proceedings, your bankruptcy trustee will sell some of your assets to repay your creditors. But other assets may receive protection through California’s exemption laws.
Depending on your circumstances, you will follow one of two exemption paths. If you own your personal residence, you will want to follow the guidelines laid out in Section 704 of California’s Civil Code. This path allows a significant homestead exemption. If you’re single and under 65, you can protect your home if you have up to $75,000 of equity in it. If you’re single and over 65, you can keep your home if your equity is below $175,000. If you’re married – or a head of household for tax purposes – you can keep your home if your equity is below $100,000. You can also keep:
- Vehicles with less than $3,325 in total equity
- Up to $8,725 in art, jewelry or heirlooms
- Up to $8,725 in work equipment
- Tax-free retirement accounts, individual retirement accounts (up to the federal limit) and public or private retirement benefits
- Furniture and home goods
If you rent – or want to protect other assets more than your residence – you may want to follow the guidelines in Section 703 instead. The homestead exemption is less substantial – your residence will only qualify for exemption if you have less than $29,275 of equity in it. Yet, like Section 704, Section 703 permits you to keep up to $8,725 in work equipment. Beyond these assets, Section 703’s guidelines allow you to retain:
- Vehicles with less than $5,850 in total equity
- Clothing and household furnishings valued at less than $725 per item
- Tax-free retirement accounts, individual retirement accounts (up to the federal limit) and retirement plans covered by ERISA
- Up to $1,750 in art, jewelry or heirlooms
- A wildcard exemption valued up to $1,550, or up to $30,825 if the homestead exemption goes unused
When considering which exemption system to follow, it’s crucial that you take stock of your assets. By doing so, you can choose the option that best protects them during bankruptcy proceedings.