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Which Set of California Bankruptcy Exemptions Are Most Favorable?

There is a common misconception that you must give up all your property in a Chapter 7 bankruptcy. In reality, filers usually can retain all or most of their assets by taking advantage of federal or state bankruptcy exemptions. In California, bankruptcy filers must use one of the state’s two different sets of exemptions. Which one is more favorable depends on the filer’s individual circumstances.

When you file for Chapter 7 bankruptcy, you take an inventory of all your assets and then identify which set of exceptions will protect the greatest share of your property from liquidation, i.e. being sold and used to pay your creditors. The two sets are:

  • Set 1 — Also called 704 exemptions, Set 1 is most often used by people who own a home with some equity built up and want to protect that home from being sold.
  • Set 2 — Also called 703 exemptions, Set 2 is generally used by people who do not own a home.

The Set 1 homestead exemption amount increased dramatically as of January 1, 2021, thanks to a revised law signed by Governor Gavin Newsom. Filers can now exempt between $300,000 and $600,000 of home value in bankruptcy, depending on the median sales price of homes in the filer’s county during the previous year. This is a major increase from the previous version of the law, which only allowed exempting $75,000 to $175,000 of home value. The revised law also does away with the confusing practice of giving people different exemption values based on age and marital status. Overall, it means more people should now be able to retain their homes.

By contrast, Set 2 only allows you to exempt $29,275 of home equity. This is why Set 2 exemptions are typically chosen by people who are not homeowners or who recently bought a home and don’t yet have much equity built up.

No matter which set of California exemptions you choose, you may also be able to take advantage of certain federal nonbankruptcy exemptions. They allow you to keep retirement accounts, disability benefits, survivor’s benefits and certain military benefits. To qualify, you must fall into a specific age group or work in a particular profession.

The Law Offices of Michael Jay Berger in Beverly Hills can assist you in deciding which set of California bankruptcy exemptions is most favorable in your situation and whether federal exemptions are available. We are dedicated to helping Californians use bankruptcy as a tool to improve their lives. Call 310-271-6223 or contact us online for a free initial consultation.

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