Bankruptcy filers can make use of federal and state exemptions to protect their assets. However, choosing between them is confusing. Some states like California do not allow citizens to choose federal exemption but offer two different sets of exemptions to protect your property during bankruptcy, say Lawyers of Los Angeles based bankruptcy law firm Recovery Law Group. To know more about California’s bankruptcy exemptions, call 888-297-6023.
Bankruptcy exemptions in California
Amongst the two sets of exemptions provided by the state of California, System 1 is preferred by debtors with substantial home equity, while System 2 is preferred by debtors who have valuable property other than home equity. It is important to know that double exemptions are not available to married couples filing for a joint bankruptcy in California.
Objections can be raised by the bankruptcy trustee to your exemptions and you might end up losing the property if you aren’t careful. You need to list your protected assets on form Schedule C along with other official bankruptcy papers to keep your exempt property. Schedule C is reviewed by both court-appointed official and the bankruptcy trustee to ensure that the claims in the papers agree with the exemption set. In case it is not the case, an objection is filed in court with the judge deciding whether you can keep the property or not.
Trustees generally object in case a debtor is trying to fraudulently get some of their assets exempted. If a minor exemption problem is encountered, then an informal arrangement can be made to rectify it. supplying factually incorrect financial statements in a bankruptcy case can have serious implications. Bankruptcy fraud is a punishable offense with a fine of $250,000, 20 years prison term or both.
Exemption system 1 of California
The exemptions are updated every three years to factor in rising inflation. The various exemptions in this system include:
- Homestead
Some amount of equity in your primary residence can be protected. This covers a community apartment, mobile home, stock cooperative, planned condominium or boat. The amount of equity you can cover is up to $75,000 for single and not disabled individuals; $100,000 in case of a family; $175,000 if you are 65 years or older or are physically or mentally disabled; $175,000 if creditors are forcing the sale of your home and you are either 55 or older, single and earning $25,000 per year; or are 55 or older, married and earning $35,000 per year.
- Motor vehicle
You can protect $3,325 worth of equity in motor vehicle exemption which includes motorcycle, car, truck or any other vehicle.
- Personal property
- Household items and personal belongings;
- The residential building material for repairing home up to $3,500;
- Jewelry and heirlooms including art up to $8,725;
- Health aids;
- Bank deposits due to Social Security payments up to $3,500 for a single payee and $5,250 for husband and wife payees;
- Bank deposits from other public benefit source up to $1,750 for an individual and $2,600 for husband and wife payees;
- Cemetery and burial plots;
- Personal injury and other claims which are essential for support.
- Wages
- Public employee vacation credits (minimum 75% in case payments are made in installments)
- 75% of wages paid within 30 days prior to a bankruptcy
- Pensions and retirement accounts
- IRAs and Roth IRAs limits;
- Public retirement benefits;
- Tax-exempt retirement accounts including 401(k)s, 403(b)s, SEP and SIMPLE IRAs, profit sharing and money purchase plans, etc.;
- Public employees
- County employees
- County fire fighters;
- County peace officers;
- Private retirement plans and benefits like Keogh and IRA.
- Public benefits
- Public assistance benefits;
- Student financial aid;
- Workers’ compensation benefits;
- Relocation benefits;
- Unemployment and disability benefits;
- Union benefits as a result of labor
- Tools of trade
Any tools which are essential for you to continue your job/livelihood are exempted up to $8,725 or up to $17,450 if both spouses, in the same profession use them. These include books, instruments, equipment, tools, materials, implements, uniforms, a commercial vehicle, and furnishings.
- Insurance
- Unmatured life insurance policy up to $13,975 or a matured life insurance benefits of unlimited value;
- Fidelity bonds;
- Life insurance policy in case policy specifically prohibits its use to pay off creditors;
- Disability or health benefits;
- Homeowners’ insurance for 6 months after received, up to the amount of homestead exemption.
- Miscellaneous
- Trust funds up to $1,600;
- Business or professional licenses;
- Property of business partnership.
Exemption system 2 of California
This system can be used only in bankruptcy and does not work to compensate creditors outside of bankruptcy and includes:
- Homestead
You can have an equity of $29,275 in a personal property which can be used as a residence.
- Motor vehicle
Up to $5,850 equity in motor vehicles is exempted.
- Personal property
- Health aids;
- Jewelry up to $1,750;
- Burial plot up to $29,275 in place of homestead exemption;
- Wrongful death recoveries essential for support;
- Household goods, clothing, appliances, animals, books, furnishings, musical instruments, and crops up to $725 per item;
- Personal injury recoveries up to $29,275.
- Pensions and retirement
- ERISA-qualified pension, annuities, and benefits essential for support;
- Tax-exempt retirement accounts including 401(k)s, 403(b)s, money purchase and profit-sharing plans, SEP and SIMPLE IRAs, and defined benefit plans;
- IRAs and Roth IRAs with limits.
- Public benefits
Crime victims’ compensation, unemployment compensation, Social Security, Veterans’ benefits and public assistance.
- Tools of trade
Any books, tools, and implements essential for a job up to $8,725.
- Alimony and child support
The amount essential for the support of spouse and child.
- Insurance
- Unmatured life insurance policy;
- Unmatured life insurance accumulated interests, dividends, loan, cash or surrender value up to $15,650;
- Disability benefits;
- Loss of future earnings payments essential for support.
- Wildcard
$1,550 apart from any unused burial or homestead exemption in any property. In case no homestead exemption is used, up to $30,825.