Only about 178 years ago Americans were imprisoned by creditors for debts. Imprisonment for debt was abolished in New York in 1831; the rest of the country soon followed. In some countries, e.g., Dubai, debtors still are imprisoned. We have decided as a society that not only are debtor’s prisons barbaric, but that being relegated to destitution by creditors is unfair and not in the best interest of society at large. In modern times this seems self evident, but it wasn’t always, and the pendulum does swing between creditors and debtor’s rights from time to time. Our modern exemptions in California evolved with the political compromises that were necessary in a modern consumer driven economy.
“Exemptions” are the laws that protect your property from the
bankruptcy. Trustees act on behalf of creditors. Trustees are supposed to sell property
that is not protected by exemptions (non-exempt property). It is the Debtor’s
attorney’s job to help you plan which exemptions you choose to effectively
protect your property.
While bankruptcy is based upon federal law and occurs in a federal court, each state passes laws that the bankruptcy court uses to assess whether property is protected from creditors. These are the “exemptions” mentioned above. The California exemptions are very generous. California has two different exemption systems, the C.C.P. 703.140 series of exemptions, and separately and alternatively the C.C.P. § 704 series of exemptions.
The 703 exemptions are desirable if you need flexibility. They not only
relate to specific types of property, like insurance, household goods,
automobiles, etc., but one can also exempt up to about $21,000 of anything,
The 704 exemptions are usually used for debtors who have substantial equity in the real estate they live in. Presently, that is $75,000 for an individual, $100,000 for a married couple or family, and $175,000 for those over 65 or who have a disability or are considered within low income if over 55. There may be other reasons to choose this series of exemptions, but the higher residential exemption is by far the most usual reason for choosing this set of exemptions. Also keep in mind that in a Chapter 7 the Chapter 7 Trustee would have the same sales costs as you, about 8% of the total sales price in addition to the homestead exemption before even $1 of equity would be realized for the benefit of creditors.
Married Couple, Single Parent, Caregiver
(1) Persons 65 & Older
(2) Disabled Persons
(3) Persons 55 & Older IF:
The principle behind exemptions is that regular middle class folks should be able to keep their middle class stuff such as their dwelling if there is not too much equity in it, furniture and car and all the stuff you need to live. Retirement savings are sacred and should not be touched by creditors. They are protected not just by the exemption, but also many are even outside the estate and wouldn’t need an exemption. Planning how to allocate your exemptions is a crucial element of advocating for you in your bankruptcy. It needs to be done legally and your lawyer should be closely advising you as the case is prepared.
The following is a table that gives a comparison of what is covered. These are some of the most common exemptions other than the homestead exemption and the amounts you can claim as of late 2015. These amounts were enacted in 2012 and effective January 1, 2013.
|C.C.P. 703||Description of Asset||Amount of exemption|
Anything of value can be mixed with other exemptions
|703.140(b)(3)||Household Goods & Furnishings, Clothes||Unlimited, But each article <$550 garage sale value|
|703.140(b)(4)||Jewelry||$1,525 pawn shop value|
|703.140(b)(6)||Tools of trade||$7,625|
|703.140(b)(7)||“Unmatured”(term) life insurance||No limit|
|703.140(b)(8)||Matured Life (cash value) Insurance||$13,675|
|703.140(b)(9)||Professionally prescribed health aids||No limit|
|Right to payment for social security, unemployment, public assistance, veteran's benefit, Disability or alimony or retirement benefit||Extent reasonably necessary for you & your dependents|
|Retirement Savings like 401Ks, pensions and IRAs||Unlimited|
|703.140(b)(11)(D)||The debtor's right to receive, or property traceable to, a payment on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent||$25,575|
|C.C.P. 704||Description of Asset||Amount of exemption|
Personal property used in debtor's or debtor's
spouse's trade, business, or profession
(amount of exemption for commercial
motor vehicle not to exceed $4,850)
|$8,000 for each spouse|
Personal property used in debtor's and spouse's common trade, business, or
profession (amount of exemption for
commercial motor vehicle not to exceed $9,700)
|704.080||Social security benefits directly deposited only||$3,200|
|704.090||Inmate trust account (restitution fine or order)||$ 1,600|
|704.100||Aggregate loan value of unmatured life insurance policies||$ 12,800|