There are two sets of bankruptcy exemptions available to California residents (if you have been domiciled in California for the required length of time). These are commonly referred to as the “703 exemptions” and the “704 exemptions.”

You must choose one exemption “menu” or the other- you can’t choose one exemption from the 703 menu and another exemption from the 704 menu.

Bankruptcy filers in California are not permitted to use the Federal bankruptcy exemptions.

This post discusses the “704 exemptions.”

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California 704 Exemptions: General Information

  • Bankruptcy exemptions are used to protect property when a person files Chapter 7 or Chapter 13 bankruptcy. They make the protected property off limits to the bankruptcy trustee. This means the trustee cannot sell the protected (“exempted”) property to pay your creditors.
  • When filing bankruptcy, you make a list of all of your assets. You then apply your exemptions to your various assets to tell the court how much of a particular asset you want to keep. Most people filing Chapter 7 or Chapter 13 bankruptcy keep 100% of their assets when they file.
  • The exemptions have dollar amount limits. In California, these tend to be generous.
  • Most people (basically all clients in our practice) have no trouble protecting everything they own with their exemptions when they file bankruptcy.
  • “704” refers to the code section of the California Code of Civil Procedure that provides for the exemptions.
  • Generally, bankruptcy filers who own homes with a fair amount equity will use the 704 exemptions. This is because the 704 exemptions include a generous homestead exemption.
  • The 704 homestead exemption is somewhat detailed. If using this exemption, be sure you are familiar with the rules for applying the exemption.
  • The  California 704 bankruptcy exemptions are adjusted every three years on April 1. The next adjustment is due on April 1, 2016.
  • If you use the 704 exemptions, you are still eligible to use the additional exemptions that are scattered throughout federal non-bankruptcy law. NOTE:  these exemptions are NOT the same thing as the “federal bankruptcy exemptions.” The federal bankruptcy exemptions are not available to California residents.
  • There are also additional exemptions scattered throughout the California Code. The exemptions listed below are the most frequently used exemptions.
  • If you have an unusual situation related to your income or assets, let your attorney know. There may be a lesser-known exemption that applies to your situation.

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California 704 Exemptions: Most Frequently Used

Homestead

  • Protects:   (1)  equity in your (2) principal residence that (3)  you reside in (4) at the time you file for bankruptcy.
  • Includes:  mobile homes, boats, stock cooperatives, apartments, and condominium.
  • Amounts: up to $75,000 if single and not disabled;
  • $100,000 if your family lives in the residence and at least one family member has no interest in the residence;
  • $175,000 if 65 or older or if physically or mentally disabled;
  • $175,000 if creditors are seeking to force the sale of your home and you are either (a) 55 or older, single and earn under $25,000 per year, or (b) 55 or older, married and earn under $35,000 per year.

Motor Vehicle (704.010)

  • Protects:  equity in your car, truck, motorcycle, or other vehicle.
  • Amount:  $2,900

Jewelry, Heirlooms Art

Value of these items is exempt up to $7,625

Health aids

Fully exempt

Bank Deposits Comprised of Social Security Payments

  • Exempt up to $3,050 for a single payee ($4,575 for husband and wife payees) and
  • Exemption is unlimited if social security funds have not been commingled with other funds
  • Need to be able to trace the source of the funds

Other Public Benefit Payments (deposited in bank)

  • Exempt up to $1,525 ($2,275 for husband and wife as joint payees)
  • Need to be able to trace the source of the funds

Personal injury and wrongful death causes of action and recoveries necessary for support 

Fully exempt if necessary for support

Cemetery and burial plot

Usually fully exempt

Wages

75% of wages if paid within 30-day period preceding bankruptcy filing date

Retirement & Pensions

Tax exempt retirement accounts (including 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans

IRAS and Roth IRAs

  • Exempt to $1,245,475 – 11 U.S.C. § 522(b)(3)(C)(n).
  • Exemption amount set by federal law.
  • See The Federal Bankruptcy Exemptions for updates on this dollar amount. This applies even though California residents are not eligible to use the “Federal Bankruptcy Exemptions.”

Other Funds Generally Exempt- May Need to Trace Source of Funds

  • Public retirement benefits
  • Private retirement plans and benefits, including IRA and Keogh
  • Unemployment and disability benefits,
  • Some union benefits
  • Workers’ compensation benefits
  • Public assistance benefits
  • Student financial aid

Tools of Trade

  • Tools,  uniforms, equipment, and furnishings up to $7,625 total, or up to $15,250 if used by both spouses in the same occupation.
  • Commercial vehicle up to $4,850, or $9,700 if used by both spouses in the same occupation 

Insurance

  • Matured life insurance benefits needed for support of unlimited value, or unmatured life insurance policy up to $12,200
  • Disability or health insurance benefits
  • Homeowners’ insurance proceeds for six months after received, up to amount of homestead exemption
  • Life insurance proceeds if policy prohibits use to pay creditors

Other Exemptions Related to Profession

  • Business or professional licenses – Exempt
  • Property of business partnership – Exempt

CLICK HERE FOR A LIST OF THE CURRENT CALIFORNIA 704 EXEMPTION DOLLAR AMOUNTS

These amounts will readjust on April 1, 2016.

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