Every bankruptcy exemptions petition has three key elements: income, assets, and debts. The amount and the type of income, assets, and debts will dictate in which direction any given case will go. Today we are going to focus on assets and more importantly debunking the myth that a debtor who files for bankruptcy will lose all of his or her assets.
One of the main purposes of bankruptcy is to provide a debtor in bankruptcy a fresh start upon exiting bankruptcy with a discharge. Therefore, leaving someone with no assets would derail that purpose. Thus each state in America has either accepted the federal exemptions or have crafted their own. Exemptions are the items you get to keep and cannot be sold to satisfy a creditor’s claim.
The state of California has chosen to create its own set of exemptions and created two separate schemes which a debtor can use to protect his or her assets when filing. The schemes are codified as §703 and §704 relating to the California Code of Civil Procedure.
The major difference in the exemption sets is whether or not the debtor has any equity in their primary residence. Under §704 a single debtor can protect $75,000 of equity, a married debtor or a debtor with dependents can protect $100,000 and last lastly a debtor over the age of 65, or a low income debtor over the age of 55, or a disabled debtor of any age can protect $175,000.00 of home equity. However, when a debtor elects the homestead exemption he or she is limited to a $2,900 automobile exemption and not much of anything else. In contrast, §703 exemptions provide for a $26,925.00 wild card exemption (meaning anything you want) and a $5,100.00 vehicle exemption. So for a debtor without any equity in a home, he or she can essentially protect over $32,000 worth assets. For a majority of debtors that is more than sufficient to protect all of their assets. Also keep in mind that both sets of exemptions likewise have a modest protection for household goods, bank accounts, tools of the trade, personal injury, social security funds, and workers compensation claims.
However, all debtors must understand that only the net equity in any given asset must be protected. Therefore if you have a mortgage payment, a car payment, or any other type of secured debt, the amount you owe on the debt must first be subtracted and the transactional cost of sale must be computed to figure out the actual amount that needs to be exempted (protected). In other words your creditors aren’t always interested in taking your home or car. The attorneys at OneDayBK are well versed in not only California Exemptions but can help you pick the correct exemption set to maximize the assets that we can protect. And if you are considering filing and you are over on assets do not panic. The amount of your unexempt assets can always be paid back to your creditors to allow you keep 100% of your assets whether you do it under Chapter 13 or Chapter 7 without having to surrender anything.