Comparing California and Federal Bankruptcy Exemptions

Anyone in the San Diego area who is wondering about filing a bankruptcy petition should be aware that both California statutes and the federal bankruptcy code allow debtors to shield certain assets from the claims of creditors. Such assets are usually referred to as “exempt assets.” Assets that cannot be shielded are referred to as “non-exempt assets.” Every debtor should make an effort to understand which exemptions will provide the most benefit in the debtor’s specific situation. Judicious use of exemptions may allow a debtor to retain possession of the family home, an automobile, and various retirement and pension plans.

California exemptions fall into two categories, referred to as System One and System Two. System One permits the debtor to claim as an exempt real property up to $75,000 for a single debtor and $150,000 for a married couple who have filed a joint petition. Also exempt are appliances, furnishings, clothing, and food. Also exempt are Social Security payments, jewelry, heirlooms, and art and automobiles up to $1900 in value. Many types of insurance benefits and retirement pensions may also be claimed as exempt. System Two includes many of the same kinds of assets, but the limits on the various exemptions may vary.

Federal bankruptcy exemptions include up to $25,150 in equity in real property. Any unused portion of the homestead exemption may be used for other property. One automobile may be declared exempt up to $4,000 in value. Individuals may declare $1,700 for jewelry, $625 in household gods, $13,400 in accrued dividends, or loan value in a life insurance policy. Federal bankruptcy exemptions also include personal injury recovery, retirement funds in a plan under Sec. 401(k) of the Internal Revenue Code, alimony and child support, and a so-called “wild card exemption,” under which up to $1,325 in value of any property may be declared exempt.

The subject of selecting exempt property can be very complex. A consultation with an experienced bankruptcy attorney can provide useful guidance in choosing exemptions and in combining federal and California state exemptions.