Chapter 7 Bankruptcy Exemptions - Federal and California Exemptions of Debtor Assets


An Introduction by the Bankruptcy Attorneys at the Law Office of Jon Brooks in San Jose, CA

What Is The Bankruptcy Estate?
In a Chapter 7 Bankruptcy, with certain exceptions, everything the debtor owns at time the bankruptcy is filed becomes the "bankruptcy estate." The Chapter 7 Trustee appointed to the debtor's case controls all the assets that are included in the debtor's bankruptcy estate. This is in contrast to a Chapter 13 bankruptcy, where although the debtor's assets also belong to the bankruptcy estate, the debtor continues to control the assets within it (although he or she must generally obtain the Trustee's and sometimes the Court's approval to sell or transfer property while the Chapter 13 case is pending), and the Chapter 13 trustee has no authority to take such assets away from the debtor.

Chapter 7 Bankruptcy Homestead Exemption
A Bankruptcy under Chapter 7 of the Bankruptcy Code is often referred to as a “liquidation” bankruptcy, or a "straight" bankruptcy. The term "liquidation" refers to the fact that the Bankruptcy Code empowers the Chapter 7 Trustee to take assets included in the bankruptcy estate away from the debtor, sell or "liquidate" them, and use the proceeds to pay something to the debtor's unsecured creditors. Unlike a Chapter 13 bankruptcy, where the debtor keeps all of his or her assets but makes payments under a payment plan, a Chapter 7 bankruptcy debtor makes no payments to unsecured creditors, but must give up any valuable assets unless they fall under an exemption provided under the Bankruptcy Code or under state law.

It is important to understand that it is not the intent of the Bankruptcy Code to leave Chapter 7 debtors penniless at the conclusion of their bankruptcy. The Bankruptcy Code allows for a fair amount of your property to be “exempted” from the bankruptcy estate. In other words, these exemptions are carved out from the bankruptcy estate and set aside from those assets that the Trustee could gather and sell. The exempted assets are assets that the debtor will be able to keep outright even after the Chapter 7 bankruptcy.

In addition to the available exemptions in Chapter 7, there are also categories of assets that are not considered to be part of the debtor's bankruptcy estate in the first place, and therefore do not require a specific exemption in order to be protected. The most common among these are 401(k) plan retirement savings. 401(k)s do not require an exemption to be protected because the federal law under which they exist contains an "anti-alienation" provision, which specifically excludes them from creditors' reach.

What Property May I Exempt? How Much Can I Exempt?

Debtors have a choice of either using the federal exemptions provided under the Bankruptcy Code or the exemptions provided by his or her state of residence. As our bankruptcy practice is located in San Jose, our Chapter 7 clients avail themselves of the California exemptions applicable in bankruptcy. In California, debtors have a choice between two tracks of exemptions. The choice of exemptions is a very important legal decision that should be made only with the advice of experienced bankruptcy attorneys. Our analysis of the value of our client's assets and which exemptions will best protect those assets exemplifies how we strive to protect our clients' interests.

In California, the Chapter 7 debtor must select one set or the other; bankruptcy law does not permit mixing and matching of the exemptions for the debtor's benefit. The track of exemptions that we apply is largely dependent on whether the client owns his or her primary residence and whether that home has any equity.

For the vast majority of Californians in debt, the California statutory exemptions will apply. However, any debtor who has moved to California within the last two years from another state may be required by Federal law to use the exemptions provided by his or her former state of residence.

The following is a list of some (but not all) of the more common exemptions taken within each exemption track by our clients in Chapter 7 bankruptcy. This is not intended to be a complete list. If you have any questions regarding any asset you own and the possibility of exempting it, please consult with one of our bankruptcy attorneys.

NOTE: In addition to 401(k)s as described above, other common retirement savings accounts, such as Individual Retirement Accounts (IRAs) are covered under the federal bankruptcy exemptions, specifically, under Bankruptcy Code Section 522(d)(12). The exemption on some other retirement accounts is in some instances unlimited. However Section 522(n) does place a cap on amounts in IRAs not attributable to earnings or roll-overs (as of this writing) of $1 Million. The federal exemption available to cover retirement savings such as IRAs, may be taken in addition to one of the California tracks of exemptions listed below.

California Exemption Track #1 – 703 (Wildcard) Exemptions

This track of exemptions is commonly referred to as the “703” Exemptions due to the number of the Code section in the California Code of Civil Procedure in which they are enumerated (C.C.P. §703.140). It is also commonly referred to as the “Wildcard” Exemption, getting its name from the most popular exemption used in this track.

  1. Homestead Exemption – Debtors are able to keep any equity interest in any real property that they actually live in, up to $22,075 in value. This also applies to mobile homes. In most cases, however, the Wildcard Exemptions are chosen precisely because the debtor does not have a home or has no equity in that home needing an exemption. Therefore, the "Miscellaneous" exemption listed below is generally taken in lieu of this Homestead exemption under 703 and can be combined in such a way as to create a maximum exemption of $23,250.
  2. Miscellaneous Personal Property ("Wildcard") – Up to $22,075 (provided no Homestead exemption is taken) in the debtor’s aggregate interest in any property that he/she owns, plus an additional $1,175 for a combined maximum of $23,250. Thus, if you do not own a home or have no equity in your home, then the total combined Wildcard exemption will protect up to $23,250 worth of any type of asset or property that you own.
  3. Household Goods and Furnishings (e.g. clothing, appliances, books, instruments, sporting goods, animals, crops, etc.) – Debtors are allowed to keep any item not exceeding $550 in value in any particular item.
  4. Jewelry – Up to $1,425.
  5. Motor Vehicle – Up to $3,525 for any ONE vehicle. If the value of your vehicle exceeds this amount, or you have multiple vehicles, generally we can often use the some portion of the Wildcard exemption above to exempt the remaining value of the other vehicles. Also note, that a vehicle that is not paid for, generally does not need to be exempted except in the rare circumstance that there is actually equity in the vehicle.
  6. Public Benefits – Benefits offered by the government such as Unemployment, Social Security, Disability, Public Welfare, and Veteran’s benefits are exempt.
  7. Life Insurance with a Cash Surrender Value (e.g., "whole life") – Up to $11,800 in the debtor’s aggregate interest in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent.
  8. Tools of the Trade (implements, professional books, tools, other things used for your occupation) – Up to $2,200.

California Exemption Track #2 – 704 (Homestead) Exemptions

This track of exemptions is commonly known as the “Homestead Exemption” due to the fact that the majority of debtors who use this track of exemptions do so to retain the equity in their Homestead. This track of exemptions is actually used in California law for all cases involving money judgments, and is not restricted to bankruptcy. However, California law allows for debtors filing for Bankruptcy to use this set of exemptions.

  1. Homestead – Covers equity in a primary residence of up to $75,000 for a single person under 65; up to $100,000 for a married couple or the head of a household; and up to $175,000 under very specific conditions (e.g. persons over age 65, disabled persons, or low-income individuals over the age of 55).
  2. Motor Vehicle – Up to $2,725 in any number of vehicles. However, the TOTAL amount of the exemption is $2,725.
  3. Material to be applied to repair or maintenance of residence – Up to $2,875.
  4. Jewelry, Heirlooms, and Art – Up to $7,175.
  5. 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; $9,700) – Up to $7,175, unless both spouses are engaged in business, then $14,350. Note, however, that commercial motor vehicle exemption may not be claimed if the motor vehicle exemption above is also claimed and such motor vehicle could reasonably be used in business.
  6. Deposit account with direct payment of social security or public benefits (exemption without claim, §704.080(b)) (a) Public benefits, one depositor is designated payee - Up to $1,425 (one debtor recipient) or $2,150 (debtor spouses/recipients; (b) Social security benefits, one depositor is designated payee – Up to $2,875 (one debtor recipient) or $4,300 (debtor spouses/recipients)

Please note that the foregoing lists of California exemptions applicable in Chapter 7 bankruptcy are not comprehensive lists, but rather are merely some of the most common exemptions taken. If you have a question as to whether an asset in your possession will be exempted from seizure by the Trustee if you file for Chapter 7 Bankruptcy, you are advised to retain us so that one of our seasoned bankruptcy attorneys may provide you with the knowledgeable legal advice that is so critical to a successful bankruptcy.

To further discuss Federal and California bankruptcy exemptions and to schedule a free consultation with an experienced bankruptcy attorney at the Law Offices of Jon Brooks in San Jose, CA, please call us at 408.286.2766. Prior to our appointment, we ask that you download our Personal Bankruptcy Questionnaire, fill it out to the best of your ability, and bring this with you to your meeting with us.

We are proud to be a Debt Relief Agency as defined by federal law. We help people get out of debt by filing for relief under the Bankruptcy Code.


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