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 Bankruptcy Exemptions: System 1 vs System 2

California exemptions fall into two categories, referred to as System One and System Two.

System One (704 exemptions) permits the debtor to claim exemptions for:

  • Real property up to $75,000 for a single debtor and $150,000 for a married couple who have filed a joint petition.
  • Appliances, furnishings, clothing, and food.
  • Social Security payments, jewelry, heirlooms, and art and automobiles up to $3,325 in equity.
  • Many types of insurance benefits and retirement pensions may also be claimed as exempt.

System Two (703 exemptions) includes many of the same kinds of assets, but the limits on the various exemptions may vary. For example:

  • Real property up to $29,275 
  • Motor vehicle up to $5,850

Talk to a bankruptcy attorney for more information on which system can provide you with the most property protection.

Federal Bankruptcy Exemptions

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.

Can I Choose Federal or State Exemptions in California?

While some states allow debtors to choose between state or federal bankruptcy exemptions, California does not allow this choice. You must choose between the 704 or 703 state exemption options based on which system protects your property best. However, you can use federal nonbankruptcy exemptions to exempt property.

Call to Learn More About Exemptions for Your Case

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.