Californians filing bankruptcy got an increase in the exemptions that protect their assets on April 1, 2016.
Every three years, the dollar amounts are adjusted for changes in the cost of living.
Californians don’t get to protect possessions under the Bankruptcy Code’s exemptions. Instead, a California resident who files bankruptcy must use California exemption law. That’s the case even though bankruptcy is governed by federal law.
There are, perhaps, better choices in the state law. One choice is the standard California state law exemptions found in Code of Civil Procedure 704. These are the exemptions applicable in state law collections as well as bankruptcy.
The second choice, appealing to those without significant equity in their home, is the California bankruptcy exemptions found at CCP 703.140(b).
What do debtors get to keep
Here’s the new list of increased bankruptcy exemptions
|Household goods per item||$675|
|Loan value of life insurance||$14,|
|Personal injury claims||$26,800|
|Other misc. exemptions||703.140|
Californians, because they are required to choose one state exemption system or the other rather than the federal bankruptcy exemptions, can also use the federal list of non bankruptcy exemptions.
Bankruptcy wild card exemption
The trickiest part of the California bankruptcy exemptions is what’s called the “wild card”. (It’s also called the “grubstake”.) When 703.140(b)(1) and (b)(5) are added together, the debtor can protect $28,225 of equity in any asset or combination of assets. That’s the wild card.
The wild card amount can be parceled out to protect some cash in a bank account; some equity in a vehicle that exceeds the car exemption; stock; a business or whatever else you have.
The point is that the exemption isn’t restricted to a certain kind of property. It can be used to protect anything.
How exemptions work
Exemptions protect the specified amount of equity in an asset.
If it’s a house, the exemption protects a certain amount of value in the property that exceeds the liens on the property. It doesn’t matter if the value of the house is $200,000 or $1,200,000. The exemption protects that much equity in the house.
If there is equity in a house over and above the total of liens and the homestead, a Chapter 7 trustee can sell the house and give the debtor the homestead exemption in cash.
That doesn’t happen very often. Because, there has to be enough equity to pay the costs of sale, any capital gains taxes and the trustee’s commission before the sale benefits creditors.
Benefiting creditors is, after all, the trustee’s job.
Image courtesy of Flickr and k2d2vaca.