California exemptions in bankruptcy

26 Jul California exemptions in bankruptcy

Californians get a choice between two distinct exemption schemes when they file bankruptcy. The state law system has a large homestead exemption for homeowners; the California bankruptcy exemptions provides a wildcard, or grubstake, exemption that can protect cash, stock or anything else of value.

Bankruptcy law allows the debtor to keep assets that are exempt to enable a fresh start. Exemptions is the one area where bankruptcy law differs, on its face, from state to state. The states got to choose whether their citizens would be able to use the exemptions in the Bankruptcy Code or were confined to state law exemptions.

California took a middle position: it opted out of the bankruptcy code exemptions, then enacted into state law a set of exemptions that mirrored the Bankruptcy Code exemptions at the time. Go figure.

Individuals or couples filing jointly must choose one system or the other. You can’t take one exemption from one system and another exemption from the alternative system. Generally, homeowners with substantial equity choose the state law exemptions and renters choose the California bankruptcy exemptions.

Exemptions seems to be the area where people trying to file bankruptcy without a lawyer most often go wrong. Get it really wrong and you could lose assets that you might otherwise keep. The matter got more complicated with the amendments of 2005 which require that a debtor have lived in the state for two years to claim the state’s exemptions.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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