One of the first questions people ask us is, "What will I lose?" For most people, the answer is less than they fear, and often nothing at all. That is because of exemptions. This page explains how they work for people filing in Whittier and the rest of Los Angeles County.
What are bankruptcy exemptions?
An exemption is a law that protects a type of property, up to a certain value, from your creditors. In a Chapter 7 case, the trustee can sell property that is not exempt and use the money to pay creditors. Property that is fully exempt stays with you.
In a Chapter 13 case, you keep your property. But the value of any non-exempt property affects how much your plan must pay to unsecured creditors.
What matters is usually your equity: what the property is worth minus what you still owe on it. A $20,000 car with an $18,000 loan has only $2,000 in equity.
California residents use California's exemptions, not the federal list. If you moved to California recently, a different state's exemptions may apply.
California's two exemption systems
California gives you a choice between two sets of exemptions. You must pick one. You cannot mix and match.
System 1: Code of Civil Procedure § 704
System 1 is the "regular" California exemption list. Its biggest feature is a large homestead exemption for the home you live in. It is often the better choice for homeowners with significant equity.
System 2: Code of Civil Procedure § 703.140
System 2 is modeled on the federal exemptions. Its homestead exemption is much smaller, but it includes a flexible wildcard that can protect almost any kind of property, such as cash, a tax refund or extra car equity. It is often the better choice for renters and people with little home equity.
Married couples filing together generally must choose the same system. We compare both systems with your actual property before deciding.
Protecting your home: the homestead exemption
The homestead exemption protects equity in the home where you live. California changed this exemption on January 1, 2021, and greatly increased it for most homeowners. Under System 1, the amount is now tied to home prices in your county, with a minimum and a maximum, and it adjusts each year for inflation.
Because Los Angeles County home prices are high, many Whittier homeowners can protect a large amount of equity. Whether your equity is fully protected depends on your home's value, your mortgage balance and the current limit. We check this carefully before you file.
If you have more equity than the exemption covers, Chapter 13 may let you keep the home.
Other important exemptions
Vehicles
Both systems protect some equity in a car or truck. If your car is worth about what you owe, it is often fully protected. If you keep making your loan payments, you can usually keep the car.
Retirement accounts
Most retirement savings are protected. This includes 401(k) plans, pensions and many IRAs. Some types of accounts have limits.
Tools of the trade
If you work with your hands, the tools, equipment and sometimes the vehicle you need for your job can be protected up to a set amount. Both systems have a tools-of-the-trade exemption.
The wildcard
System 2 includes a wildcard exemption you can use on any property. Part of it is a fixed amount, and if you do not use your homestead exemption, part of that can be added to the wildcard. This can protect cash in the bank, a tax refund or other things not covered elsewhere. System 1 does not have a general wildcard.
Everyday property
Household furniture, clothing, appliances and similar items are generally protected under either system.
Exemption amounts change
California adjusts many exemption amounts for inflation on a regular schedule. Online lists are often out of date. We use the current figures when we review your case.
Find out what you can protect
To see how exemptions fit into the bigger picture, visit our Whittier bankruptcy lawyer page, read about the filing process, or check our bankruptcy FAQs.
Bankruptcy consultations are free. Bring a list of what you own and what you owe, and Steven Ibarra will walk through both exemption systems with you. Contact us or call (562) 612-7806. We are available 24/7. Hablamos español.