Like all states, California has a set of exemptions you can use to protect property when filing for bankruptcy, such as a home, car, and retirement account. In this article, you'll learn:
If you have more questions, read How Does California Bankruptcy Work? Not only will you find answers, but it includes helpful checklists and a link to an interactive bankruptcy quiz. Or, try the start-to-finish bankruptcy guide, What You Need to Know to File for Bankruptcy in 2021.
You can protect property covered by an exemption regardless of whether you file for Chapter 7 or 13. But each chapter treats nonexempt property—things not covered by an exemption—differently.
The different approaches ensure that creditors receive the same amount regardless of the chapter filed.
You can file for bankruptcy in California after living there for more than 180 days. However, you must live in California much longer before using California exemptions—at least 730 days before filing, to be exact. Otherwise, you'd use the previous state's exemptions.
But suppose you weren't living in any particular state during the two years before filing for bankruptcy. In that case, you'd use the exemptions of the state you lived in for most of the 180 days before the two-year period that immediately preceded your filing. (11 U.S.C. § 522(b)(3)(A).) Learn more about filing for bankruptcy after moving to a new state.
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.
Below you'll find exemptions commonly used by California bankruptcy filers.
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 $600,000 - 704.730. For more information, see The California Homestead 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.
Retirement & Pensions
Tools of Trade
California's System 2 (also known as § 703.140(b) exemptions) only applies in bankruptcy (you can't use them 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.
Under System 2, California's homestead exemption is $29,275 for real or personal property used as a residence - 703.140(b)(1).
In System 2, you can exempt up to $5,850 of equity in motor vehicles.
Retirement & Pensions
Tools of Trade
Alimony & Child Support
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.
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 disagrees 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 out the issue 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.
Last updated: July 6, 2021