In chapter 7 bankruptcy, we apply “exemptions,” laws that define the uppermost value in different types of property that are safe from liquidation (surrender or sale to repay debts).

Typically, the exemptions available to California residents are sufficient to protect all your property in chapter 7 bankruptcy. If they’re not (meaning, if you have “too much”), we may recommend as an alternative, the filing of a chapter 13 bankruptcy, which is a payment plan that doesn’t involve liquidation. 

The chapter 7 bankruptcy petition must be prepared correctly to ensure your property is properly exempted. To do so we must accurately itemize, value and and “exempt” what you own or have an interest in. If property is omitted, then you can lose the right to exempt it even if it would’ve been protected had it been properly reported. Therefore, it’s essential to identify the full extent of your assets, which may include both what you currently own as well as what you may be entitled to in the future. Certain assets may be difficult to value and optimizing the exemption of property can be a complicated task. 

With secured (financed) properties like houses and vehicles, the relevant value to protect is the equity (i.e. the value after deducting the debt owed on it). Hypothetical cost of sale can also be subtracted from the total value that needs to be exempted.

Exemptions vary by state. If you’ve lived in California for the last 2 years (well… 730 days), you’ll choose from one (but not both) of California’s 2 sets of exemptions. The first set, which follows section 704 of the Code of Civil Procedure is generally preferred if you have substantial home equity. Otherwise, the second set (under section 703) is preferred for its versatile “wildcard” protection for relatively high cash value or its equivalent.

Highlights of the mutually exclusive exemptions are noted below and reflect values current as of April 2019 as well as an update for the homestead exemption introduced in 2021. 

California Bankruptcy Exemption System 1(Code of civil procedure 704)–Brief Highlights:

  • Homestead exemption (amount of equity you’re allowed in your home): the greater of $300,000 or the median sale value in your county (capped at $600,000). Subject to verification, in San Diego County, the homestead exemption is $600,000.
  • Motor vehicles = $3,325 (amount of equity allowed)
  • Jewelry/heirlooms/art = $8,725
  • Tools of trade = $8,725 (per working spouse)
  • Most normal “household goods and furnishings”
  • Most retirement accounts and pensions
  • 75% of your wages received in the last 30 days

California Bankruptcy Exemption System 2 (Code of civil procedure 703)–Brief Highlights:

  • Motor vehicle(s)= $5,850 (in equity)
  • Jewelry = $1,750
  • Tools of trade = $8,725
  • Normal household goods and furnishings limited to $725 per item
  • Combined homestead and “wildcard” exemption of $30,825 in any asset(s); may be “stacked” with other exemptions.
  • Most retirement accounts and pensions