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Bankruptcy: California

The goal of filing bankruptcy in California is twofold: to enable honest debtors to seek from crippling debt and enable creditors to receive partial repayments based on the value of the debtor’s property or future earnings.  255,041 bankruptcies were filed in California in 2010, ranking California 6th in the nation for the number of bankruptcy filings per capita.  76% of Californian bankruptcy petitions in 2010 sought protection under Chapter 7 bankruptcy.

Filing Bankruptcy in California

Bankruptcy in California is governed by federal law and all bankruptcy cases in California are initiated in the US Bankruptcy Courts:

  • California Eastern District Court: Bakersfield, Fresno, Modesto, Sacramento
  • California Northern District Court: Eureka, Oakland, Salinas, San Francisco, San Jose, Santa Rosa
  • Southern District Court: San Diego
  • Central District Court: Los Angeles, Riverside, Santa Ana, Santa Barbara, and Woodland Hills

The federal courts have exclusive jurisdiction over bankruptcy proceedings, yet the state of California has legislation in place that dictates California bankruptcy petitioners may only choose from the state exemption list when determining what personal property the petitioner may be permitted to keep in bankruptcy, and what must be sold.

Chapter 7 Bankruptcy, California

Chapter 7 bankruptcies in California are the most common bankruptcy filing. Chapter 7 is preferable for petitioners who don’t have a significant amount of assets, such as investments or substantial equity in a home. This is because a Bankruptcy Trustee may liquidate personal property that isn’t protected by California’s bankruptcy exemptions. Liquidation occurs when the Trustee converts personal assets to cash for distribution to creditors. California’s Chapter 7 bankruptcy law allows petitioners to keep some essential property; the exempt assets are strictly off-limits to creditors looking for repayment.

The vast majority of Chapter 7 cases are “no-asset” cases where no property is taken.

California Bankruptcy Exemptions

California’s state laws designate specific property exemptions that allow debtors to keep certain personal property and assets so they can move forward and be productive members of society. Bankruptcy law in state of California allows debtors to choose exemptions from the state list.

Property exemption amounts are subject to change and are no longer updated in the state statutes, so it is imperative that a California bankruptcy attorney is consulted before making a decision of this degree.  There are two exemption systems in California.  Apart from California’s Wild Card Exemption (system 2), the following California bankruptcy exemptions appear under System 1:

California Homestead Exemption

  • Petitioners may declare homestead exemption to protect homestead from judicial liens and protect proceeds of voluntary sale for 6 months
  • $75,000 total: Real or personal property you occupy including mobile home, boat, stock cooperative, community apartment, planned development, if single & not disabled;
  • $100,000 total for families if no other member has a homestead
  • $175,000 if 65 or older, or physically or mentally disabled
  • $175,000 if 55 or older, single and with gross annual income under $15,000, or married & gross annual income under $20,000 and creditors seek to force the sale of your home
  • Forced sale proceeds exempt for 6 months after sale of home
  • A debtor who is separated but married may claim homestead in community property still occupied by other spouse (Husband and wife may not double)

California Personal Property Exemption

  • $7,175 total: Jewelry, heirlooms and art (Husband and wife may not double)
  • $2,725 total: Motor vehicles or $2,725 in auto insurance for loss or damages (Husband and wife may not double)
  • $2,875 total: Building materials to repair or improve home (Husband and wife may not double)
  • $2,875 total: Bank deposits from Social Security Administration ($4,300 for husband and wife); unlimited if Social Security funds are not commingled with other funds
  • $1,425 total: Bank deposits of other public benefits to ($2,150 for husband and wife)
  • Appliances, furnishings, clothing and food
  • Funds held in escrow
  • Health aids
  • Burial plot
  • Homeowners’ Association Assessments
  • Personal injury and wrongful death causes of action
  • Personal injury and wrongful death recoveries needed for support; if receiving installments, at least 75%

California Tools of Trade Exemption

  • $4,850 total: Commercial vehicle ($9,700 if used by both spouses in same occupation)
  • $7,175 total: Tools, implements, materials, instruments, uniforms, books, furnishings and equipment ($14,350 if used by both spouses in same occupation)

California Wage Garnishment Exemption

  • 75% of wages paid within 30 days prior to filing
  • Public employees’ vacation credits; 75%if receiving installments

California Public Benefits Exemption

  • Disability, health, unemployment and workers’ compensation benefits
  • Aid to blind, aged, disabled; public assistance
  • Financial aid to students
  • Union benefits due to labor dispute
  • Relocation benefits

California Insurance Exemption

  • Homeowners’ insurance proceeds for 6 months after received, to homestead exemption amount
  • Fidelity bonds
  • $11,475 total: Unmatured life insurance policy loan value (Husband and wife may double)
  • Matured life insurance benefits needed for support
  • Life insurance proceeds or avails if clause prohibits proceeds from being used to pay beneficiary’s creditors
  • Fraternal Society  and Fraternal unemployment benefits

California Pensions and Retirement Savings Exemption

  • Public retirement benefits
  • County employees, firefighter, peace officers, public employees
  • Private retirement benefits, including IRAs & Keoghs

California Miscellaneous Exemption

  • Business or professional licenses
  • Property of business partnership
  • $1,425 total: Inmates’ trust funds (Husband and wife may not double)

California Wild Card Exemption (Under System 2, only)

  • $1,175 of any property
  • Unused portion of homestead or burial exemption of any property

Chapter 13 Bankruptcy, California

In 2010, 24% of debtors petitioned for protection under Chapter 13 bankruptcy laws in California.  Chapter 13 bankruptcy California, the court will appoint a Trustee to reorganize the petitioner’s debts and develop a 3-5 year repayment plan, by which creditors are repaid with the debtor’s future earnings.  Under Chapter 13, petitioners keep most – or all – of their property.

How to File Bankruptcy in California

With only the State of California’s bankruptcy exemptions to consider, a debtor’s decision to file bankruptcy may be influenced by their eligibility for property exemptions. In the instances when the exemptions would permit the debtor to keep most major assets and their debts qualify for discharge, Chapter 7 bankruptcy would be worth discussing with your bankruptcy attorney.  Because every case unique, a California bankruptcy attorney can inform debtors and advise whether Chapter 7 or Chapter 13 bankruptcy is the best option for their particular situation.

Bankruptcy Attorney: California

It is the debtor’s responsibility to know their rights and obligations as bankruptcy petitioners.  A California bankruptcy attorney can break down and simplify the federal laws and California bankruptcy exemptions for those considering filing for protection.  Personal bankruptcy cases can be incredibly complex and stressful, and the bankruptcy advice and guidance of a California bankruptcy attorney in these situations is a good investment in your financial future.