One of the biggest concerns people have before filing for bankruptcy is losing their belongings. The good news is that California’s exemption laws are designed to protect many essential assets, allowing most filers to keep the property they need to maintain their daily lives. Here’s what you should know about how exemptions work.
What Are Bankruptcy Exemptions?
Exemptions are legal protections that allow you to keep certain property out of your bankruptcy estate, meaning it can’t be sold by a trustee to pay creditors. California offers its own set of exemptions, and filers must choose between two different exemption systems, often referred to as System 1 and System 2. Each system protects different types and amounts of property, so choosing the right one for your situation matters.
Common Types of Property Protected by Exemptions
While the exact dollar amounts vary depending on which exemption system you choose, California generally allows filers to protect:
- Home equity. A significant amount of equity in your primary residence can be protected, helping many homeowners keep their homes during bankruptcy.
- Vehicles. A portion of the equity in your car or truck is typically exempt, which often allows filers to keep their vehicle, especially if there’s still a loan on it.
- Household goods and furnishings. Everyday items like furniture, appliances, and clothing are generally protected.
- Retirement accounts. Most retirement savings, including 401(k)s and IRAs, are protected from creditors in bankruptcy.
- Tools of the trade. If you use certain tools or equipment to earn a living, a portion of their value may be exempt.
- Wages already earned. A portion of unpaid but already-earned wages may also be protected.
What Happens to Property That Isn’t Exempt?
In a Chapter 7 case, any property that isn’t covered by an exemption may be sold by the trustee, with the proceeds used to pay your creditors. However, many people who file Chapter 7 in California are considered “no-asset” cases, meaning all of their property is covered by exemptions and nothing is sold at all.
In a Chapter 13 case, exemptions work a little differently. Rather than determining what gets liquidated, they factor into how much you may be required to pay creditors over the course of your repayment plan.
Does It Matter Which Exemption System I Choose?
Yes. California’s two exemption systems protect different amounts of property, and the right choice depends on your specific assets. For example, one system may offer a larger homestead exemption for home equity, while the other may provide more flexibility for other types of property, such as cash or vehicles. An attorney can help you compare both systems based on what you own to determine which one gives you the strongest protection.
Protecting What Matters Most
Every filer’s situation is different, and the property you’re able to keep depends on the specific assets you have and which exemptions apply. At Law Offices of Terrence Fantauzzi, we help clients throughout California understand their exemption options and build a filing strategy designed to protect as much of their property as possible. Call (909) 552-1238 today to speak with an experienced bankruptcy attorney about what you can expect to keep.
