Filing bankruptcy in California is largely the same as every other state. In case you are unfamiliar with Federal bankruptcy laws, below is a quick overview of what to expect in California, and what makes filing for bankruptcy unique in California.
Who is eligible to file for Chapter 7 in California
In order to file for Chapter 7 bankruptcy in California, your household income level must be below the median state income level. As of 2013 (the most recent year with data), the median household income in California state is $56,883. If you fall below this threshold than you may be eligible to file for Chapter 7 bankruptcy in California. If you have an income greater than the median income than you must pass a means test to determine eligibility.
Chapter 13 Repayment in California
60 months is the longest repayment term in California and may be shorter depending on your average income. If your average income over the previous six months is greater than the median household income in California then you will usually be required to adhere to a 60 month plan. However, if your income is less than the median household level in California than you can request a 36 month plan even if that means you might not repay all of your debts.
Property Exemptions in California Bankruptcy
In the State of California, property in bankruptcy can only be exempted under the state laws. Federal exemptions do not apply. However, there are two systems that one can choose from depending on their circumstances and financial situation:
- System 1 is for individuals who want to protect their home equity.
- System 2 is for individuals who have a lot of money in their bank accounts, as it has generous wildcard exemptions.
There are states that allow married couples who are filing a joint bankruptcy to double their exemptions. Once again, the State of California does not allow this either. Therefore, married couples in California cannot double their exemptions unless the particular exemption permits it.
System 1 Bankruptcy Exemptions
Utilizing System 1 California bankruptcy exemptions, the debtor can exempt their home (known as “homestead exemption”) provided they reside in it while filing for bankruptcy. Types of homes that be exempt under the homestead exemption are:
- single family homes
- mobile homes
- community apartments
Individuals who are single and not disabled can exempt a home that does not exceed $75,000 in equity value. They can exempt their home if they live in it with their family, it is worth $100,000 or less in equity, and no other family member has interest in it. Individuals who are 65 years or older—or who are mentally and physically disabled—can exempt houses that are worth $175,000 or less in equity.
Additional System 1 Exemptions in California
Vehicle Exemption: In System 1, debtors can exempt equity on their car up to an amount that does not exceed $1,900.00.
Personal Property Exemptions: California bankruptcy filers can exempt household items, according to California Code – Section 704.020. This includes personal effects as well as a cemetery or a burial plot.
- Individuals can exempt works of art, jewelry, or heirlooms that are worth $6,075.00 total or less.
- The debtor can also exempt any health aid as well as financial support that they receive for personal injury or wrongful death actions.
- A single individual can exempt Social Security bank deposits that do not exceed $2,875.00 per month, while a husband and wife can exempt Social Security payments up to $4,300.00 per month.
- Bank payments from any other public benefit payments can be exempted up to $1,425.00.
Individuals can also exempt health and disability insurance benefits, fidelity bonds, life insurance proceeds, professional or business licenses, business partnership properties, as well as trust funds that belong to inmates.
System 2 Bankruptcy Exemptions
Homestead Exemption: In a System 2 California bankruptcy, debtors can exempt personal property that can be used as residence up to an amount of $24,060.00.
Vehicle Exemption: The exemption amount for equity on motor vehicles is $2,775.00.
Personal Property Exemptions:
- Personal property that is exempted includes a burial plot that is worth up to $24,060.00 in place of a homestead
- Household goods, clothes, furnishings, appliances, domestic animals and musical instruments that are worth up to $600.00 per item
- Jewelry of up to $1,424.00
- Health aids, wrongful death payments that they need for support, and personal injury lawsuit payments of up to $24,060.00
Retirement Exemptions: System 2 exempts retirement and pension plans such as 401k and 403b plans, and other tax exempt pension plans.
Other System 2 Exemptions:
- Public benefits such as reparation benefits for crime victims, veterans’ benefits, unemployment benefits, and Social Security and public assistance payments are exempt
- Any tools of a person’s trade, including books and equipment, that are worth less than $7,175.00
- The debtor’s alimony, child support money, and disability benefits are exempted
System 2 Wildcard Exemption: System 2 is especially generous in its wildcard exemption. Individuals have a wildcard amount of $1,280.00. However, if they have not used their homestead or burial plot exemptions, they are granted an exemption of up to $24,060.00. Therefore, a debtor could end up with a total wildcard exemption of $25,340.00.
The exemptions in the State of California are usually adjusted after every three years. Information on these updates can be found in the state’s Judicial Council website.