Understanding Your California Bankruptcy Exemptions

Deciding to file for bankruptcy is a significant decision, and it’s vital that you understand how the process will impact you beforehand. One common misconception is that you will have to surrender all of your belongings to qualify for bankruptcy protection. In truth, you may be able to claim exemptions that will exclude certain property from being seized or used to calculate your repayment.  If you are considering filing for a California bankruptcy, it’s essential to learn more about this topic. Here is more on understanding your California bankruptcy exemptions.

California Bankruptcy Exemptions

In some states, a bankruptcy filer will have the option of selecting between federal and state exemptions. However, in California, someone seeking to exempt property may only use state exemptions. That being said, if applicable, you may be able to claim certain federal non-bankruptcy exemptions—exemptions that are outside of the Bankruptcy Code—if you worked in certain professions or belong to a particular group.

Two Types of California Exemptions

Although a California bankruptcy does not offer filers the option of selecting between federal and state exemptions, they will have two choices for their exemptions. There are two sets of available exemptions:  Set 1 or “704 exemptions” and Set 2 “703 exemptions.” Both sets allow the debtor to exempt value for certain designated possessions.

One significant difference between 704 and 703 is the homestead exemption. Specifically, the exemption value under Section 704 is significantly more than under Section 703. For that reason, homeowners with substantial equity in their property usually select Set 1 (704 exemptions). Filers who don’t own real estate or have much equity in their homes typically choose Set 2 (703 exemptions).

Set 1 (704 Exemptions)

  • Set 1 or “704 exemptions” are typically used by filers who are homeowners with a significant amount of equity in their property. Last year, the California legislature voted to change homestead exemption. Now a bankruptcy debtor can exempt the greater of:
    1. “The countywide median sale price for a single-family home in the calendar year prior to the calendar year in which the judgment debtor claims the exemption, not to exceed six hundred thousand dollars ($600,000), [or]
    2. Three hundred thousand dollars ($300,000).”

Some of the remaining exemptions under 704 include but are not limited to:

  • Motor vehicles– up to $3,325.
  • Household Items– all qualifying “Household furnishings, appliances, provisions, wearing apparel, and other personal effects.”
  • Building Material– Up to $3,500 in building materials to repair or improve home.
  • Jewelry, Heirlooms, and Works of Art – up to $8,725
  • Health Aids-all reasonably necessary health aids for the filer or their dependents
  • Tools of the Trade-up to $8725

Set 2 (703 Exemptions)

Set 2 or “703 exemptions” are ordinarily selected by those who do not own real property or have very little equity. The 703 homestead exemption protects:

  • “(1) The debtor’s aggregate interest, not to exceed twenty-nine thousand two hundred seventy-five dollars     ($29,275) in value, in real property or personal property that the debtor or a dependent of the debtor uses as a  residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence.”

Section 703’s other exemptions also include but are not limited to:

  • Motor Vehicle– Up to $5,850 in the value in one or more motor vehicles.
  • Household Property– Up to $725 in the value “in any particular item, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.”
  • Jewelry– Up to $1750 in value, “in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.”
  • Wildcard-Up to $1,550 in value, plus any unused amount of the exemption provided for homestead exemption, in any property.
  • Health Aids-all professionally prescribed health aid for the debtor and their dependents.
  • Tools of the Trade-Up to $8,725 aggregate interest “in value, in any implements, professional books, or tools of the trade of the debtor or the trade of a dependent of the debtor.”

Although Set 1 and Set 2 exemptions are similar, there are important distinctions between the two systems. Deciding which set is best for you will depend on your circumstances. Before you file for bankruptcy protection, it would be best to consult with an experienced California bankruptcy attorney to review your case and discuss your options.

Attorney Raffy Boulgourjian is a California bankruptcy attorney with over twenty years of experience representing clients and can help you with your Chapter 13 case. Contact Mr. Boulgourjian today to schedule a free legal consultation to discuss your California bankruptcy law needs.


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