Bankruptcy Exemptions

Information on bankruptcy exemptions and asset protection provided by a California lawyer. 
For details of California's two sets of bankruptcy exemptions, see CCP703 and CCP704.

What are exemptions in bankruptcy?

 

Exemptions are "protections" for value in certain assets that you own or have an interest in.   If an asset is exempt (or if a specified value in an asset is exempt) then your creditors cannot take that asset (unless it is worth more than the exemption amount) pursuant to a judgment lien or other legal process.  (there are exceptions to this for some creditors, such as the Internal Revenue Service, to whom exemptions for some reason don't seem to apply).

Exemptions are created by State Law.  There are also federal bankruptcy exemptions, but depending on which state's exemption laws apply when your case is filed, you may or may not be able to use the federal exemptions.   Different states have very different exemption allowances.

How do you figure out which State's laws apply in your case?  This is not easy, but here is the basic answer:

The exemption laws that apply is the State or local law applicable as of the date the bankruptcy case is filed in which the debtor's domicile has been located for the 2 years (730 days) immediately preceding the filing of the case.   If the debtor(s) have lived in more than one State during that 730-day period, then it is the State where the debtor lived for the greater part of the 180-day period PRIOR TO the 730 days.

Confusing?  This was added by Congress under the new bankruptcy laws.

Exemptions are very important, particularly in a Chapter 7 case because the Trustee can sell any assets which are not exempt.   In a Chapter 13 or Chapter 11 context, the exemptions are still important, but only insofar as  the plan that gets proposed must pay out over time at least as much as the creditors would get in a Chapter 7 liquidation case.

California has two different sets of exemption statutes which provides very different allowances.   They cannot both be used; either on or the other.  Yet another reason why it's critical to hire an experienced bankruptcy attorney.

Obviously, it is important to have a qualified bankruptcy attorney assess your situation and determine these types of issues.