The primary reason why people tremble in terror at the very mention of bankruptcy is a misplaced notion that they’ll lose everything after filing for Chapter 7: their home, car, savings, and even clothes off their backs.
While Ch7 is the so-called “liquidation bankruptcy”, meaning the bank has the right to seize your property, the idea that they’re allowed to leave you destitute is borderline ridiculous. Not only are they NOT allowed to do that but YOU are the one that gets to decide what you keep!
Welcome to the wonderful (and quite useful) world of bankruptcy exemptions – a federal/state-issued set of rules that helps you keep what matters most when going gets hard. Just be certain to find a proficient Chapter 7 bankruptcy lawyer near you, as options are vast and the process can be confusing.
What is the bankruptcy exemption in California 2024?
In essence, exemptions allow individuals filing for Chapter 7 bankruptcy to keep specific essential assets, deemed necessary for their well-being, quality of life, employment, and fresh financial start. In other words:
- Exemptions are specific assets and properties that are protected from liquidation during the bankruptcy process.
While most US states allow for choosing between federal and state exemptions, California filers must rely solely on the latter. However, the Golden State is also the only one that boasts a dual-exemption system.
Commonly known as System 1 (§704 Exemptions) and System 2 (§703 Exemptions), these rulesets differ significantly in the extent of protection they offer as well as in terms of overall flexibility:
System 1 (§704 Exemptions)
This system offers more homestead equity protection but allows for very specific exemptions pertaining to personal property and tools of the trade. Below are the values for the most common exemptions, adjusted for 2024:
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- Homestead Exemption (CCP §704.130) allows you to protect the equity in your primary residence in the range of $349,712.99 to $699,425.98;
- Motor Vehicle Exemption (CCP §704.010) protects equity in your vehicle up to $7.500;
- Public & Private Retirement & Pension Benefits (CCP §704.110 & §704.115) are generally exempt in full;
- Disposable Wages (CCP § 704.070) are 75% exempt or 50% if they include child support;
- Personal Property used for Business, Trade, or Profession (CCP §704.060) includes equity exemption of up to $8,725 – unless the property in question is a motor vehicle exempt in 704.010.
Due to the incredibly generous homestead exemption amount, System 1 is typically more suitable for filers with substantial home equity.
System 2 (§703 Exemptions)
Otherwise known as the “wildcard exemption”, System 2 offers more flexibility in asset protection (i.e. personal property and tools of the trade). However, this flexibility comes at the expense of homestead exemptions, which are significantly lower:
- Homestead Exemption (CCP §703.140(b)(1)) allows for the protection of real estate or property used as the primary residence in the value of up to $31,950;
- Motor Vehicle Exemption (CCP §703.140(b)(2)) exempts up to $6,375 in one or more vehicles;
- Property Exemption (CCP § 703.140(b)(3)) allows for unlimited protection of personal possessions, provided that the value of any single item does not exceed $725;
- Public & Private Retirement & Pension Benefits work pretty much the same as in System 1, with the addition of ERISA-qualified pension, annuities, or benefits (CCP § 703.140(b)(10)).
However, the nominal Wildcard clause (CCP §703.140(b)(5)) allows you to protect any other asset or assets, up to $31,950 if you don’t claim the homestead exemption. This effectively enables you to leverage the value of your residence to protect other property.
Where to find a veteran Chapter 7 bankruptcy lawyer near me in San Diego?
Law Offices of Mark L. Miller boasts the finest selection of bankruptcy lawyers anywhere from North City to San Ysidro. With 25+ years of experience, extensive knowledge of the subject matter, and unwavering commitment to our clients’ well-being, we’re an ideal partner on your journey to financial recovery.
Whether you need practical advice on Chapter 7 filing or expertise-based tips on rebuilding your credit score, we’re here to ensure that bankruptcy has a positive impact on your life. Reach out to us today for a free consultation and tailored strategies that’ll lead you to a stable future!