Exemptions. Funny word, right? Exemptions in bankruptcy are assets considered by the law to be necessities of life. Exempt assets are things you keep when you file chapter 7 bankruptcy whereas non-exempt assets can be taken and sold for the benefit of your creditors. Most people considering chapter 7 bankruptcy in Contra Costa County have some general idea about what the system will allow them to keep. The trouble is, most people are wrong! Many people assume they will not be allowed to keep a car. Others assume the judge will come to their house to inventory their clothes. The law is clear, people just need to know their rights. To begin, chapter 7 is the most common type of bankruptcy and is also the strictest. The exemption laws in California give people filing chapter 7 bankruptcy two options:
Option One – Wildcard or 703 Exemptions
These exemptions are generally selected for people who do not own a home, or for homeowners with little or no equity in their home. These exemptions are commonly referred to as the “703” Exemptions, a term derived from the number of the Code section in the California Code of Civil Procedure in which they are enumerated (C.C.P. §703.140). It is also commonly referred to as the “Wildcard” Exemption, getting its name from the fact that §703.140(b)(5) allows for the protection of miscellaneous personal property as discussed below.
- Miscellaneous Personal Property (“Wildcard”) – Up to $28,225 (amount as of May 1, 2016) in any property owned. If you do not own a home or have no equity in your home, then the Wildcard exemption will protect up to $28,225 worth of your assets. Importantly, the Wildcard exemption may be combined with the other categorized exemptions below, such as the vehicle exemption, for example, in order to protect a car worth far more than the vehicle exemption would otherwise allow.
- Household Goods and Furnishings (for example clothing, furniture, appliances, books, instruments, sporting goods, etc.) – are protected.
- Jewelry – Up to $1,600 is protected.
- Motor Vehicle(s) – Up to a total of $5,300 for one or more vehicles. As noted above, if the value of your vehicle exceeds this amount, or you have multiple vehicles, generally you can use some portion of the Wildcard exemption to protect the remaining value of the vehicles. Also note, with a vehicle that is not paid for, only the equity in the vehicle, if any, must be exempted.
- Public Benefits – Benefits offered by the government such as Unemployment, Social Security, Disability, Public Welfare, and Veteran’s benefits are exempt.
- Life Insurance with a Cash Surrender Value (often called “whole life” or “Universal Life”) – Up to $14,325 in cash value. Cash value is defined as the amount that can be redeemed while the owner or the insured is alive. Conversely, the death benefit is a much higher amount payable only on death. Bankruptcy and exemptions are unrelated to death benefit amounts.
- Tools of the Trade (implements, professional books, tools, other things used for your occupation) – Up to $8,000.
- Retirement Accounts – These are exempt in their entirety so long as the retirement is an IRA or an employer sponsored plan like a union pension, 401(k), or 403(b). Self-employment retirement plans like Keogh plans, SEP IRAs and the like are subject to special rules.
Option Two – Homestead or 704 Exemptions
These exemptions are commonly known as the “Homestead Exemption” because the majority of people using these exemptions do so to protect the equity in their home.
- Homestead – Covers equity in a primary residence of up to $75,000 for a single person under age 65; up to $100,000 for a married couple or the head of a household; and up to $175,000 for people age 65 or over, disabled people, or certain low-income individuals over the age of 55.
- Motor Vehicle – Up to $3,050 in one or more vehicles.
- Jewelry, Heirlooms, and Art – Up to $8,000 combined value for all items.
- Tools of the Trade – Assets used in a person’s (or their spouse’s) trade, business, or profession – Up to $8,000, unless both spouses are engaged in business, then $15,975. Note, however, that a commercial motor vehicle is limited to $4,850; or $9,700 for married couples.
- Life Insurance with a Cash Surrender Value (for example “whole life” or “Universal life”) – Up to $12,800 or $25,600 if a husband and wife file bankruptcy together.
- Public Benefits – Benefits including Unemployment, Social Security, Disability, Welfare, and Veteran’s benefits are exempt with no monetary limit.
- Retirement Accounts – Are exempt in their entirety so long as the retirement is an IRA or an employer sponsored plan like a union pension, 401(k), or 403(b). Self-employment retirement plans like Keogh plans, SEP IRAs and the like are subject to special rules.
The exemption laws are complicated and this is a general description.
At the Law Office of Michael Primus, we have helped hundreds of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy. If you live in Contra Costa County and have debt problems, contact us for a free in office consultation. Offices in Walnut Creek, Antioch and Hercules