What Property Can You Keep in a Chapter 7 Bankruptcy
For many people seeking debt relief, Chapter 7 bankruptcy is the best option. However, many people looking to file for bankruptcy are concerned about losing their homes, car, or other personal assets. To help you better understand nonexempt and exempt property, Iris Kwon, an experienced bankruptcy attorney in California, is breaking down what you can keep in a Chapter 7 bankruptcy.
What is a Chapter 7 Bankruptcy?
Firstly, it’s important to have a clear understanding of how Chapter 7 bankruptcy works. This is a liquidation bankruptcy in which your eligible debts are totaled, then a bankruptcy trustee assigned by the court gathers your valuable, personal property, and sells it to pay off your unsecured creditors. After your nonexempt property is sold, any remaining eligible debt is discharged, absolving you from any additional debt collection or payments, including civil judgment and wage garnishment.
Debts That Can Be Discharged in Your Bankruptcy Case
Credit Card Debt
Payday loans
Personal Loans
Medical Bills
Ineligible Debts
Debts from a secured creditor, including mortgages or car loans. These will be foreclosed or repossessed by the lender if you fall behind on payments.
Most student loans
Most tax debt
Legal debt, including fines or payments owed to personal injury cases
Domestic debt, including back child support or alimony
Understanding Bankruptcy Exmpetions
When you file for Chapter 7 bankruptcy, the valuables you own are added to your bankruptcy estate and considered nonexempt property, meaning they can be sold to pay off unsecured creditors. However, bankruptcy exemptions are available to protect your property. While federal bankruptcy exemptions do exist, California is an opt-out state, and this means that only the state exemptions they offer are allowed to be used in your bankruptcy case.
Exempt Property
Before filing bankruptcy exemptions, these are exempt assets that can’t be collected by a bankruptcy trustee:
Retirement accounts, including a 401k or IRA
Reasonably necessary clothing
Reasonably necessary household goods
Appliances
Pension
“Tools of the trade” meaning items necessary for your job
Veteran benefits
Personal injury benefits
Disability benefits
Health aids
Social Security benefits
Nonexempt Property
These items, belongings, and property are part of your bankruptcy estate and can be collected unless an exemption is used to protect them:
Valuable collections, such as stamps or coins
Valuable art
Cash, savings accounts, or an investment portfolio
Secondary vehicle
Secondary home
Boat or recreational vehicle
Expensive musical instruments such as a piano or guitar
Home equity
California Residency Requirement
Before we dive into state exemptions you may be eligible for, you need to be aware that California does have a strict residency requirement in its bankruptcy code. To be eligible, you must live in California for a minimum of 730 days or two full years. Otherwise, you must use the state exemptions from where you lived for six months prior to moving to Califonrnia. For example, if your Chapter 7 bankruptcy filing is dated for May 2024, and you moved to California in October of 2023, you would need to use the state’s exemptions from where you moved from, or you may be eligible for federal exemptions.
California Bankruptcy Exemptions
Under California’s Code of Civil Procedure 703, these are the main items for exemption:
PRIMARY RESIDENCE OR BURIAL PLOT — C.C.P. § 703.140(b)(1) A $29,275 exemption is allowed in real property or personal property (including a mobile home) that the debtor or a dependent of the debtor uses as a residence.
MOTOR VEHICLE — C.C.P. § 703.140(b)(2) The maximum allowed is $5,680 in one or more motor vehicles.
HOUSEHOLD FURNISHINGS & PERSONAL EFFECTS — C.C.P. § 703.140(b)(3) An unlimited exemption is allowed in household goods and furnishings, clothes and shoes, appliances, books, animals, crops, or musical instruments, which are held primarily for personal, family, or household use, so long as no single item is worth more than $725.
JEWELRY — C.C.P. § 703.140(b)(4) The maximum exemption is $1,750 in jewelry held primarily for personal, family, or household use of the debtor.
WILD CARD — C.C.P. § 703.140(b)(5) The “wild card” can exempt any asset(s). It totals $1,550, plus any unused portion of the $29,275 exemption for a primary residence listed above in # 1. In other words, someone who does not use any of exemption #1 has a $30,825 exemption to protect any asset or assets. You can also use the “wild card” to supplement other exemption(s) in this set of exemptions.
TOOLS OF THE TRADE — C.C.P. § 703.140(b)(6) An $8,725 exemption is allowed for professional books or tools of your trade.
LIFE INSURANCE — C.C.P. § 703.140(b)(8) An exemption is allowed in any unmatured life insurance policy with no cash value. If the policy has cash value, $15,650 is exempt.
HEALTH AIDS — C.C.P. § 703.140(b)(9) An unlimited amount is allowed for health aids (e.g., wheelchairs, walkers, CPAP machines, etc.).
BENEFITS PAYMENTS — C.C.P. § 703.140(b)(10) A total exemption is allowed for accrued Social Security, unemployment, veterans, and disability benefits. Back alimony or support payments are also exempt, but only to the extent reasonably necessary* for the support of the debtor and his or her dependents.
RETIREMENT ACCOUNTS — C.C.P. § 703.140(b)(10)(E) An exemption is allowed for any payment under a stock, bonus, pension, profitsharing, annuity, or similar plan on account of illness, death, disability, age, or length of service, to the extent reasonably necessary* for the support of the debtor, his or her spouse, and any dependents.
MISCELLANEOUS PAYMENTS — C.C.P. § 703.140(b)(11) Payments received under a crime victims’ reparation law or for the wrongful death of a person on whom the debtor was a dependent or on account of a life insurance contract are protected to the extent reasonably necessary* for the support of the debtor and his or her dependents.
PERSONAL INJURY CLAIMS — C.C.P. § 703.140(b)(11)(D) Any payment on account of a personal injury lawsuit is exempt up to $29,275. Compensation for loss of future earnings is exempt to the extent reasonably necessary* for the support of the debtor and his or her dependents.
Under California’s Code of Civil Procedure 704, these are the main items for exemption:
PRIMARY RESIDENCE — C.C.P. § 704.730 The amount of this exemption is: $75,000 for a single person; $100,000 for a married person or head of household; $175,000 for: (a) a person 65 or older, or (b) a physically or mentally disabled person, (c) a person 55 or older with annual income under $25,000 ($35,000 for a married couple).
To qualify for the homestead exemption, the property must be the primary residence of the debtor or the debtor’s spouse. Under Bankruptcy Code, a person is entitled to a maximum homestead of $125,000 until that person has lived in that state for approximately 3.4 years. (This is relevant only to those seeking the $175,000 homestead amount.) The exemption is for equity in the property. For exemption purposes, equity is determined by taking the fair market value of the property and subtracting the value of any consensual liens (e.g., mortgages and deeds of trust).
MOTOR VEHICLE — C.C.P. § 704.010 The maximum allowed is $3,325 total equity in motor vehicles.
HOUSEHOLD FURNISHINGS & PERSONAL EFFECTS — C.C.P. § 704.020 Household furnishings, personal effects and appliances are free from creditors’ claims when they are reasonable and necessary. A household item with an unusually high value (such as an extremely rare antique) may not be exempt.
HOME IMPROVEMENT MATERIALS — C.C.P. § 704.030 Materials for repairing or improving a person’s residence are exempt up to $3,500.
JEWELRY, HEIRLOOMS, ART — C.C.P. § 704.040 The maximum exemption is $8,725 in jewelry, heirlooms, and works of art.
HEALTH AIDS — C.C.P. § 704.050 Reasonably necessary health aids are fully exempt.
TOOLS OF THE TRADE — C.C.P. § 704.060 A person can exempt up to $8,725 in tools, books, and equipment. Up to $4,850 of this exemption may be used for a commercial motor vehicle used for business purposes.
PRE-PETITION WAGES — C.C.P. § 704.070 Wages earned 30 days prior to the bankruptcy are partially exempt. This exemption protects 75 percent of the amount you received during this period. If these wages were subject to garnishment, all of these funds are exempt. (All wages received after the bankruptcy is filed are free of creditors’ claims.)
BENEFITS PAYMENTS IN BANK ACCOUNTS — C.C.P. § 704.080 If a bank account can be shown to receive Social Security payments by direct deposit, it is protected up to $3,500 for an individual and up to $5,250 for a couple. If a bank account can be shown to receive public benefits, it is protected up to $1,750 for an individual and $2,600 for a couple.
INMATE TRUST ACCOUNT — C.C.P. § 704.090 The maximum exemption is $1,750. For a restitution fine or order, the maximum is $325.
LIFE INSURANCE — C.C.P. § 704.100 A policy with no cash value is totally exempt. The maximum exemption for the cash value of a policy is $13,975, or doubled if married. Benefits from matured life insurance or annuity policies are exempt to the extent reasonably necessary for the support of the debtor and his or her spouse or dependents.
PUBLIC RETIREMENT BENEFITS — C.C.P. § 704.110 All amounts held for retirement by a “public entity” are exempt without limitation. “Public entities” are governmental bodies as well as public corporations.
PRIVATE RETIREMENT BENEFITS — C.C.P. § 704.115(a)(1) & (2), (b) Benefits payable or paid under private retirement accounts, union retirement plans, and profit-sharing plans designed and used for retirement purposes are exempt in an unlimited amount. This applies only to retirement plans established or maintained by private employers or employee organizations (such as unions), not arrangements by individuals to use specified assets for retirement purposes. Funds in self-employment retirement plans and individual retirement annuities and accounts may be exempt if designed and used principally for retirement purposes. Amounts in self-employment retirement plans and IRAs are exempt only to the extent reasonable necessary for the support of the debtor and his or her spouse and dependents* at retirement, taking into account the resources likely to be available to debtor at retirement.
DISABILITY, UNEMPLOYMENT, HEALTH INSURANCE BENEFITS — C.C.P. § 704.120, 704.130 Payments from these types of insurance are exempt with no dollar limit.
PERSONAL INJURY CLAIMS — C.C.P. § 704.140 A lawsuit, or the right to sue someone, is an asset in the eyes of the law. When a personal injury cause of action (the right to sue) has not yet been reduced to a judgment and paid, the entire claim is exempt. When money has been paid as a result of a personal injury accident, the money is exempt, but only to the extent that is reasonably necessary for the support of the debtor and his or her dependents.* If the award or settlement is payable in installments, each payment is exempt except to the extent that the same amount of earnings would be subject to wage garnishment.
WRONGFUL DEATH CLAIMS — C.C.P. § 704.150 A wrongful death claim is exempt to the same extent as a personal injury claim.
WORKERS’ COMPENSATION CLAIMS AND AWARDS — C.C.P. § 704.160 A workers’ compensation claim and award is completely exempt without limitation.
CHARITABLE AID, STUDENT LOANS, RELOCATION BENEFITS — C.C.P. § 704.080, C.C.P. § 704.190, and C.C.P. § 704.180 Any funds received for these purposes are exempt.
CEMETERY PLOT — C.C.P. § 704.200 Any cemetery plot owned is exempt.
Schedule a Free Bankruptcy Evaluation Today
If you are considering filing for Chapter 7 bankruptcy to achieve debt relief, schedule a free consultation with a bankruptcy lawyer today. We understand that exemption laws and bankruptcy paperwork can be overwhelming to understand, and we will help you navigate the process, understand exemption rules, stand up for you in court, and fight to protect your bankruptcy estate. To get started, call us at 714-798-2544 or fill out the form below.