When filing for Chapter 7 or Chapter 13 bankruptcy, California allows you to choose between two different sets of exemptions. Exemptions protect your property in any bankruptcy chapter that you file. What will happen to your nonexempt property will depend on the bankruptcy chapter filed.
In a Chapter 7 bankruptcy, the trustee will sell the property you can’t exempt and use the funds to pay unsecured debts—such as credit card balances, personal loans, and utility bills.
In Chapter 13 bankruptcy, the trustee doesn’t sell your nonexempt property. Instead, you keep it and pay its value to your unsecured creditors through your three- to five-year repayment plan.
Some states let filers choose between state and federal bankruptcy exemption law, but California isn’t one of them. In California, you must use state exemptions. However, you’ll still be able to select the exemption set that works best for you. California is the only state with two state exemption systems.
Generally, debtors with substantial home equity prefer System 1 (referred to as “704” exemptions after the applicable civil procedure code section). System 2 or “703” exemptions tend to be better for debtors who prefer using a wildcard exemption to protect other types of valuable property. You can also use any of the federal nonbankruptcy exemptions.
If you are a married couple filing jointly, some states allow you to double the exemption amount. In California, however, spouses can’t double exemptions, with a few exceptions.
Avoiding Exemption Issues in California
If you don’t exempt your property carefully, you could lose it. Answers to these common questions might help you steer clear of common issues.
Do I automatically get to keep exempt property? Generally, no (although two exemptions newly adopted in 2020 are automatic). In most cases, you can exempt property needed to maintain a job and household, such as furnishings, clothing, and some vehicle equity. You’ll select the California exemption set that best protects your property, list your assets on official bankruptcy form Schedule C: The Property You Claim as Exempt, and file it along with other required paperwork.
Will someone check my exemptions? The bankruptcy trustee—the court-appointed official tasked with managing your case—will review Schedule C to ensure that you have the right to protect the claimed property. A trustee who doesn’t agree with your exemptions will file an objection with the court. The judge will decide whether you can keep the property.
Example. Jeff owns a rare, classic car worth $15,000, but the state vehicle exemption won’t adequately protect it. Believing that the car qualifies as art—at least in his mind—Jeff exempts it using his state’s unlimited artwork exemption. The trustee reviews Schedule C, disagrees with Jeff’s characterization and files an objection with the court. After consideration, the judge will likely side with the trustee, determining that the vehicle doesn’t qualify as a piece of art.
What if I make a mistake? Most trustees won’t file an objection unless it’s clear that the debtor is trying to pull something over on the court. At least not without trying to resolve the issue first. If there’s a minor exemption problem, the trustee will likely call you to work the issue out informally.
It’s worth noting that it’s not a good idea to finesse exemptions. Not only do you have an obligation to supply correct information on your bankruptcy forms, purposefully making inaccurate statements could be considered fraudulent. Bankruptcy fraud is punishable by up to $250,000, 20 years in prison, or both.
California Bankruptcy Exemption System 1 (704 Exemptions)
Below you’ll find exemptions commonly used by California bankruptcy filers.
California 704 Homestead Exemption
The homestead exemption protects a certain amount of equity in your principal residence. In System 1 (also known as § 704 exemptions), you can exempt real or personal property you reside in at the time of filing for bankruptcy, including a mobile home, boat, stock cooperative, community apartment, planned development or condominium, up to: $75,000 if single and not disabled; $100,000 if the filer and at least one family member have an interest in the homestead; $175,000 if 65 or older or if physically or mentally disabled; $175,000 if creditors are seeking to force the sale of your home and you are either (a) 55 or older, single and earn under $25,000 per year, or (b) 55 or older, married and make under $35,000 per year - 704.730.
California 704 Motor Vehicle Exemption
The motor vehicle exemption protects equity in your car, truck, motorcycle, or another vehicle. The System 1 vehicle exemption is $3,325 - 704.010.
Household items and personal effects - 704.020.
Residential building materials to repair or improve home up to $3,500 - 704.030.
Jewelry, heirlooms, and works of art up to $8,725 - 704.040.
Health aids - 704.050.
Bank deposits arising out of Social Security payments up to $3,500 for a single payee ($5,250 for husband and wife payees) and unlimited if funds are not commingled; bank deposits from other public benefit payments up to $1,750 ($2,600 for husband and wife as joint payees) - 704.080.
Personal injury and wrongful death causes of action and recoveries necessary for support - 704.140 & 704.150.
Cemetery and burial plot - 704.200.
75% of wages paid within 30 days before filing bankruptcy - 704.070.
Public employee vacation credits (at least 75% if receiving installment payments) - 704.113.
Retirement & Pensions
Tax-exempt retirement accounts (including 401(k)s, 403(b)s, profit-sharing, and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans) - 11 U.S.C. § 522.
Private retirement plans and benefits, including IRA and Keogh - 704.115.
Public employees - Cal. Gov’t Code § 21255.
County employees - Cal. Gov’t Code § 31452.
County peace officers - Cal. Gov’t Code § 31913.
County firefighters - Cal. Gov’t Code § 32210.
Unemployment and disability benefits, and union benefits due to labor disputes - 704.120.
Workers' compensation benefits - 704.160.
Public assistance benefits - 704.170.
Relocation benefits - 704.180.
Student financial aid - 704.190.
Tools of Trade
Tools, implements, materials, books, uniforms, instruments, one commercial vehicle, equipment, and furnishings up to $8,725 total, or up to $17,450 if used by both spouses in the same occupation - 704.060.
Matured life insurance benefits needed for support of unlimited value, or unmatured life insurance policy up to $13,975 - 704.100.
Disability or health insurance benefits - 704.130.
Homeowners' insurance proceeds for six months after received, up the to amount of homestead exemption -704.720.
Fidelity bonds - Cal. Labor Code § 404.
Life insurance proceeds if policy prohibits use to pay creditors - Cal. Insurance Code § 10132, 10170, 10171.
Business or professional licenses - 695.060.
Trust funds of inmates up to $1,600 - 704.090.
Property of business partnership - Cal. Corporations Code § 16501.
California Bankruptcy Exemption System 2 (703 Exemptions)
California’s System 2 (also known as § 703.140(b) exemptions) only applies in bankruptcy (they can’t be used to protect your property against creditors outside of bankruptcy). Certain courts have deemed bankruptcy-only exemption systems to be unconstitutional while others allow debtors to use them.
Some courts might not allow you to use the System 2 exemptions (especially when filing for bankruptcy outside of California because of domicile rules). Consider talking to a knowledgeable bankruptcy attorney about exemptions permitted in your area.
California 703 Homestead Exemption
Under System 2, California’s homestead exemption is $29,275 for real or personal property used as a residence - 703.140(b)(1).
Tools, books, and implements of trade up to $8,725 - 703.140(b)(6).
Alimony & Child Support
Alimony and child support necessary for support - 703.140(b)(10).
Unmatured life insurance policy, other than credit - 703.140(b)(7).
Unmatured life insurance accrued interest, dividends, loan, cash, or surrender value up to $15,650 - 703.140(b)(8).
Disability benefits - 703.140(b)(10).
Loss of future earnings payments needed for support - 703.140(b)(11)(E).
$1,550 plus any unused amount of burial or homestead exemption in any property (currently $30,825 in total if the filer doesn’t use the homestead exemption) - 703.140(b)(5).
Unless otherwise noted, all law references are to the California Code of Civil Procedure. These exemptions were last updated by the California Judicial Council to adjust for inflation on April 1, 2019. The next update will be April 1, 2022.