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Exemptions in the California bankruptcy code

On Behalf of | Sep 20, 2022 | Bankruptcy Law

California bankruptcy exemptions allow people filing for debt relief through the courts to keep most of their commonly used property, such as their homes and automobiles. California has Exemption System 1 and Exemption System 2; however, filers can only choose one and not a combination of both.

Bankruptcy filers must meet California’s two-year residency requirement, and married couples filing for bankruptcy cannot use both exemptions. The amount of property that you own and what you want to protect through bankruptcy will help you decide which exemption best suits you. Debt relief seekers must use either California’s exemptions systems or the federal non-bankruptcy exemptions.

Federal non-bankruptcy exemptions

Federal non-bankruptcy exemptions are for people receiving retirement, death, survivors or disability benefits. Professions such as military service members, government employees, seamen, railroad workers and Social Security recipients might also choose federal non-bankruptcy exemptions if the state exemptions don’t work for them.

Bankruptcy exemptions cover a limited amount while federal exemptions will double the allowed amount for joint filers. California limits exemption amounts; your protected property must fall within the state’s maximum.

California bankruptcy exemptions 1 and 2

A means test will determine your qualification for bankruptcy relief. Set 1, or “704 exemptions,” often works better for homeowners with a lot of equity. The provision in Set 1 protects your equity significantly better than Set 2 does. Single residents can own around $75,000 in equity, joint filers can own $100,000 in equity and those 65 years and older can have $175,000 in equity in the Set 1 exemption provisions. Set 1 allows $3,050 for motor vehicle equity.

Set 2, or “703 exemptions,” allows about $26,080 in home equity and allows $5,350 for motor vehicle equity. Exemptions expand equity owners’ ability to seek debt relief through bankruptcy.