If you are eligible to use California exemptions in bankruptcy, you can choose between two lists of exemptions -- California’s Exemption System 1 and System 2. (Learn more about which state’s exemptions you must use.) But there are significant differences between the two lists of California exemptions. Whether you should use System 1 or System 2 will depend on your individual circumstances.
You Must Choose California Exemption System 1 or System 2
In some states, you may be able to use either that state’s exemption system or the federal bankruptcy exemptions. In California, you are required to use state exemptions. But you have a choice between California’s Exemption System 1 and System 2.
Whether it’s in your best interest to use System 1 or System 2 will generally depend on:
- the type of property you own
- the value of your assets, and
- your individual circumstances.
But keep in mind that you must choose either System 1 or System 2. You can’t mix and match exemptions between the two systems. (For a more complete list of the exemptions in each system, see California Bankruptcy Exemptions.)
Differences Between California’s System 1 and System 2 Exemptions
There are several differences between the type and amount of exemptions offered by California’s System 1 and System 2. The following are some of the most important differences that might help you decide which system is right for you.
The homestead exemption is what most debtors use to protect the equity they have in their principal residence. The homestead exemption amount is the primary difference between California’s Exemption System 1 and System 2. (Learn more about California’s homestead exemption.)
System 1. The homestead exemption amounts in System 1 vary depending on your individual circumstances. But they are much higher than in System 2. In general, you can exempt up to:
- $75,000 if you are single and not disabled
- $100,000 if you have a family and live with at least one family member who has no interest in the homestead
- $175,000 if you are 65 or older or if you have a physical or mental disability, and
- $175,000 if your creditors are trying to force the sale of your home and you are either (a) 55 or older, single, and make less than $25,000 per year, or (b) 55 or older, married, and make less than $35,000 per year jointly with your spouse.
System 2. In System 2, the homestead exemption is limited to $25,575.
Motor Vehicle Exemption
The motor vehicle exemption allows you to exempt a certain amount of equity in your car or other type of vehicle (such as a truck or motorcycle). In System 1, you can exempt up to $2,900 in your motor vehicle. But the System 2 exemption is more favorable and allows you to exempt up to $5,100 in one or more motor vehicles. (Learn more about California’s motor vehicle exemption.)
Exemption for Wages
A wage exemption allows you to protect a certain amount of wages that were earned or paid shortly before bankruptcy. In System 1, you can exempt 75% of wages paid to you within the 30-day period before filing for bankruptcy. There is no specific wage exemption in System 2 but you can use the wildcard exemption to protect any wages you recently received (discussed below).
Exemption for Jewelry
In System 1, you can exempt up to $7,625 of value in your jewelry. But the jewelry exemption in System 2 is limited to $1,525.
A wildcard exemption allows debtors to exempt a certain amount of equity in any type of property. There is no wildcard exemption in California’s Exemption System 1. But System 2 contains a generous wildcard exemption. (Learn more about the wildcard exemption in bankruptcy.)
Using System 2’s wildcard exemption, you can exempt any type of property up to $1,350 plus any amount of the homestead exemption you don’t use. This means that if you don’t use any of your homestead exemption amount, your wildcard exemption can be up to $26,925 ($1,350 plus the homestead exemption of $25,575).
Because you can use the wildcard exemption to protect any type of property, most debtors use California’s System 2 exemptions unless they have a significant amount of equity in their home.
Periodic Adjustment of California Exemption Amounts
The California Judicial Council adjusts these exemption amounts periodically (generally every three years) to account for inflation. The last update took place on April 1, 2013 and the next adjustment is scheduled to occur on April 1, 2016.
Because bankruptcy exemption laws and amounts can change frequently, make sure to research your state’s exemptions thoroughly (or talk to a bankruptcy attorney in your area) prior to filing your case. (Learn about how to research bankruptcy laws and find the most up to date exemption figures by visiting Nolo’s Legal Research Center.)