What Is an Exempt Property or Asset? When a debtor files bankruptcy with help from a Sacramento Chapter 7 lawyer, his or her assets and personal belongings become part of what is known as the “bankruptcy estate.” The bankruptcy court designated to handle the filer’s case – which is typically the U.S. Bankruptcy Court for the Eastern District of California, Sacramento Division for residents of the Sacramento area – will appoint a trustee to administer (manage) the bankruptcy estate. In Chapter 7, which is also called “liquidation bankruptcy,” the trustee’s role involves:
Assessing the value of the debtor’s assets, which must be itemized on the debtor’s bankruptcy forms.
Selling nonexempt assets to help certain creditors recoup their financial losses.
Distributing proceeds from the sale amongst creditors. Nonexempt assets are assets which are not protected by bankruptcy exemptions, whereas exempt assets are assets which are protected by bankruptcy exemptions. A trustee cannot sell or liquidate exempt assets. Moreover, even if the asset is nonexempt, it may still be safe from liquidation if:
The debtor is able to purchase the nonexempt property from the trustee, who may be amenable to an installment agreement.
The trustee decides to abandon the nonexempt property. This may occur if the asset or property is upside-down (meaning the loan exceeds the property’s market value), or if proceeds from the sale would be so insubstantial as to render the sale process pointless.
Chapter 7 Federal Exemptions Speaking broadly, there are two sets of exemptions in bankruptcy:
Federal bankruptcy exemptions
State bankruptcy exemptions There can be wide variations in bankruptcy laws by state, including those pertaining to bankruptcy exemptions. For instance, only some states permit debtors to choose between (though not blend) state and federal exemptions. Unfortunately, California filers are somewhat limited in that California prohibits debtors from using the federal bankruptcy exemptions. However, California filers still have a choice. Debtors in California may choose between two different sets of California bankruptcy exemptions:
System 1 Exemptions (also called “704 exemptions”)
System 2 Exemptions (also called “703 exemptions”) Exemption amounts are uniform throughout the state of California. In other words, the California Chapter 7 exemptions which are available to Sacramento filers are the same as those available to Roseville filers, Folsom filers, and so on. Additionally, exemption amounts are the same regardless of whether the debtor files Chapter 7 or Chapter 13, though exemptions play very different roles in each chapter of bankruptcy. While the main purpose of exemptions in Chapter 7 is to protect property from liquidation, the primary function of exemptions in Chapter 13 is determining how much money the debtor will need to pay back as part of his or her reorganization plan. When you contact The Bankruptcy Group for a free consultation, our California Chapter 13 attorneys can help you better understand the complex relationship between Chapter 13 exemptions and monthly payments in reorganization bankruptcy. Continue reading to see a list of current System 1 and System 2 bankruptcy exemptions in California.
2017 Chapter 7 Exemptions in California: System 1 vs. System 2 Debtors should be advised that bankruptcy exemptions are periodically updated to account for inflation in the economy. The following California Chapter 7 bankruptcy exemptions are current as of 2017. The following list is non-exhaustive, and additional exemptions may be available depending on factors like:
What types of possessions you own
What, if any, benefits you are receiving
Which types of insurance you have
California System 1 Bankruptcy Exemptions
Homestead Exemption
If single, not disabled – $75,000
If family, one member with no interest in homestead – $100,000
If age 65+ or physically/mentally disabled – $175,000
Motor Vehicle Exemption – $3,050
Tools of the Debtor’s Trade – $8,000 to $15,975
Personal Property Exemptions
“Health aids reasonably necessary to enable the to work or sustain health,” including “prosthetic and orthopedic appliances” (California Code of Civil Procedure § 704.050)
“Household furnishings, appliances, provisions, wearing apparel, and other personal effects” (California Code of Civil Procedure § 704.020(a))
Home improvement materials – $3,200
Jewelry, artwork, family heirlooms – $8,000
Other
Student financial aid (“inancial aid for expenses while attending school provided to a student by an institution of higher education,” California Code of Civil Procedure § 704.190(b))
Worker’s compensation benefits (“ claim for workers’ compensation or workers’ compensation awarded or adjudged,” California Code of Civil Procedure § 704.160(a))
California System 2 Bankruptcy Exemptions
Homestead Exemption – $26,800
Motor Vehicle Exemption – $5,350
Tools of the Debtor’s Trade – $8,000
Personal Property Exemptions
“ousehold furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor” (California Code of Civil Procedure § 703.140(b)(3)) – $675 per item
Health aids
Jewelry – $1,600
Wildcard – $1,425