Even though bankruptcy is federal law, each state can decide how much their debtors can protect their assets when filing bankruptcy. Many of California's "exemptions" have increased, in ways that could well be helpful to you.
Some Essential Background
"Exemptions" are one of the most important concepts in bankruptcy law because they determine whether you are able to keep what you own when you file bankruptcy. Even before the new increases in the exemptions, most people who filed bankruptcy in our law office were already usually able to keep everything they owned. But these new increases in California exemptions can still be very helpful in certain situations.
Why California Exemptions for Federal Bankruptcies?
How can a California law-passed by the California Legislature and signed into law by Gov. Jerry Brown-determine what you get to keep in bankruptcy, which is a federal procedure? Because the federal bankruptcy law allows each state to create a set of exemptions and require its residents to use them when filing bankruptcy, which California has done.
How Exemptions Work under Chapter 7 and under Chapter 13
Under a Chapter 7 "straight bankruptcy," exemptions determine how much the debtor can protect from his or her creditors. More practically speaking, the exemptions determine whether the debtor can keep everything he or she owns from the bankruptcy trustee (who acts on behalf of all the creditors).
Under a Chapter 13 "adjustment of debts," exemptions help determine how much the debtor must pay creditors in a payment plan.
Since there are some special complications about how exemptions work under Chapter 13, this blog talks about exemptions under the more straightforward Chapter 7.
The Increased Exemptions
California is quite unusual in that it actually has two distinct sets of state exemptions. You must, through the help of your attorney, pick one of these. The new increases mostly affect one of these two sets, which are referred to as the Section 703.140(b) exemptions, from the section of the California Code of Civil Procedure where they are codified. Here are the most important of these increases:
Motor Vehicles: Increased from $3,525 to $4,800. Now not restricted to one vehicle, but can be divided among two or more, with a total of $4,800 in value.
Tools of Trade: Increased significantly from $2,200 to $7,175. These are for assets that are integral (not just incidental) to your occupation. As the statutes states, it covers "any implements, professional books, or tools of the trade of the debtor or the trade of a dependent of the debtor."
Personal Injury Compensation: Increased from $22,075 to $24,060. More importantly, has now been broadened to include the portion of damages compensating for pain and suffering.
Jewelry: Increased from $1,150 to $1,425. Restricted to "jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor."
"Wildcard": Increased from $23,250 to $25,340. The "wildcard" exemption acts like it sounds: it can be applied to any type of property, and can be combined with other bankruptcy exemptions (such as the ones above) to increase the protection on any particular asset.
Exemptions Aren't Easy
Even though most people considering filing bankruptcy are not likely going to lose any assets that they want to keep, there's much more to this than just checking off a list. Judgment calls need to be made and countless legal nuances understood and applied. Call us to set up a consultation meet so we can show you how we can put the newly strengthened California exemption laws to work for you.