The bankruptcy procedure is complex in several ways. Many people believe they must give up all their possessions when they declare bankruptcy. That is not the case. In reality, most California residents filing for bankruptcy under Chapter 13 can keep nearly every one of their assets. This is possible because of the exemptions provided under Chapter 13 bankruptcy.

If you're unfamiliar with Chapter 13 bankruptcy or are considering filing for it, you should seek the advice of a knowledgeable bankruptcy attorney.

What is Bankruptcy?

Bankruptcy is a legal proceeding that allows debtors to receive debt relief. The primary objective of declaring bankruptcy is to discharge one's financial obligations by selling whatever property or assets the debtor is prepared to give up or can live without.

To file for Chapter 13 bankruptcy, debtors need only demonstrate that they possess a steady source of income sufficient to make the necessary monthly payments. You can protect your belongings if you file for bankruptcy under chapter 13. It also allows you to clear your obligations within three to five years.

How California Bankruptcy Exemptions Work

California bankruptcy exemptions safeguard the net equity in your property from being used to cover your obligations. Non-exempt equity raises the monthly payments to unsecured lenders during a Chapter 13 bankruptcy filing. Consequently, it's crucial to use all of the exemptions provided by the bankruptcy.

To calculate a person’s net equity, the fair market valuation of an item must be subtracted from any valid liens on it (such as a mortgage or a title loan) and any bankruptcy exemptions that apply. If the outcome is either negative or zero, the asset has no bearing on the Chapter 13 payment plan.

Whether you file under Chapter 7 or Chapter 13, you can still use exemptions to safeguard your exempt property. However, nonexempt property—items not protected by an exemption—are handled differently under each chapter.

Chapter 13 Bankruptcy Exemptions

Chapter 13 is an alternative for debtors whose earnings are too large to declare Chapter 7 bankruptcy, whose unsecured debts do not exceed $400,000, and whose secured debts do not exceed $1 million.

The exemptions available to Chapter 13 filers are similar to those available to Chapter 7, but they're applied differently. For  Chapter 13, you do not need exemptions to keep your property from being taken away. However, they determine the debt reorganization plan's monthly payments.

In certain states, bankruptcy filers are granted the option of selecting exemption regulations from either their state or the federal government. However, California is not one of those states. Suppose you file for bankruptcy in California state. You can keep some of your possessions by taking advantage of the state's exemptions. You will, nevertheless, be allowed to choose the exception set that best suits your needs.

During a Chapter 13 bankruptcy proceeding, you typically retain your assets (although you may choose to give up property used as security for a secured loan if you cannot keep up with the payments or do not wish to continue doing so).

However, similar to a Chapter 7 petitioner, a Chapter 13 applicant must include all their assets on the schedules attached to their bankruptcy petition. Additionally, like Chapter 7 filers, Chapter 13 petitioners must claim particular property exemptions. Additionally, non-exempt assets influence a Chapter 13 schedule.

Each method has been designed to guarantee that creditors will recover the exact amount no matter the type of bankruptcy filed.

Only California has two state exemption schemes. Debtors with significant home equity seek "704" exemptions OR System 1. For debtors who don't have a lot of equity in their homes, "703" exemptions or System 2 are usually preferable because they protect a larger variety of valuable assets thanks to the broad wildcard exemption.

Additionally, you might make use of any federal government non-bankruptcy exemption. Some states permit married couples to increase their exemption by up to two times if they file their taxes jointly. However, a few exceptions prevent spouses in California from double exemptions.

Bankruptcy Exemption System 1 Or 704 Exemptions

The exemptions listed below are often used in California bankruptcy filings.

California 704 Homestead Exemptions

California homestead exemption allows you to safeguard a certain percentage of the value in your primary dwelling. System 1 or 704 exemptions allow you to exempt a maximum of $600,000 in personal or real estate you dwell in during the moment of declaring bankruptcy, such as a trailer home, boats, stock cooperative, shared apartment, condominium or planned development. This is under the California Civil Code of Procedure section 704.730.

California 704 Motor Vehicle Exemptions

The California motor vehicle exemption safeguards your automobile, truck, motorcycle, or other vehicle equity. The vehicle exemption for System 1 is up to $3,625 under CCP 704.010. Consult a knowledgeable attorney to learn more about how the California motor vehicle exemption functions during Chapter 7 cases and how you can safeguard vehicles.

Personal Property

Personal property including:

  • Materials for residential construction to renovate or repair a property, a maximum of $3,825 under section 704.030.
  • Personal effects and household goods are covered under section 704.020.
  • Up to $9,525 in artwork, jewelry, and heirlooms provided under CCP section 704.040.
  • Bank deposits up to 1,826 dollars, or the amount necessary for support, under 704.225.
  • Bank deposits resulting from Social Security benefits at a maximum of $3,825 for one payee and infinite if deposits are not merged.
  • Bank deposits resulting from other state welfare benefits are capped at $1,900, provided under CCP section 704.080.
  • Health aids under CCP section 704.050.
  • Recoveries from lawsuits for wrongful death or personal injury (under sections 704.140 & 704.150) often used to pay for medical expenses and other expenses.
  • Burial plot and cemetery. Under section 704.200.


  • Seventy-five percent of earnings in the last 30 days before bankruptcy (704.070).
  • Vacation credits for public employees (at least 75% if obtaining installment payments). Under CCP section 704.113.

Retirement and Pensions

  • Retirement plans that qualify for tax exemption include 403(b)s, 401(k)s, money purchase plans and profit-sharing, SIMPLE IRAs and SEP, and specified benefit pensions, as outlined in Title 11 of the United States Code 522.
  • Retirement benefits as outlined under section 704.110.
  • IRAs & Roth IRAs (restrictions apply). Under 11 U.S.C. section 522(b)(iii)(C) (n). Federal law establishes this amount.
  • Private retirement benefits and plans, such as the IRA and the Keogh—Section 704.115.
  • County employees—California Government Code 31452.
  • Public employees—California Government Code 21255.
  • County firefighters—California Government Code 32210.
  • County peace officers—California Government Code 31913.

Public Benefits

  • Benefits for disability and unemployment, as well as union benefits resulting from labor disputes —under 704.120.
  • Government benefits under 704.170.
  • Workers' compensation benefits—under 704.160.
  • Financial aid for students under 704.190.
  • FEMA benefits under 704.240.
  • Relocation benefits under 704.180.

Tools of Trade

Equipment, tools, supplies, uniforms, books, instruments, implements, one commercial vehicle, and furnishings between $9,700 to $19,050. This is if both spouses are employed in the same profession — under 704.060 of the Code of Civil Procedure.


  • Unmatured life coverage benefits or mature life coverage benefits of infinite value.
  • Fidelity Bonds—California Labor Code 404.
  • Benefits from health or disability insurance—under 704.130.
  • Homeowners insurance payouts for six months following receipt, up to the maximum of the homestead bankruptcy exemption (CCP 704.720).
  • California Insurance Code 10170, 10132, 10171. Life insurance funds if policy restricts use to repay creditors.


  • Professional or business licenses under CCP 695.060.
  • Partnership property under Section 16501 of the California Corporations Code.
  • Inmate trust funds amounting to $325 under section 704.090.

California Exemption System 2 Or the 703 Exemptions

System 2 exemptions in California, also called 703.140(b) exemptions, are only applicable during bankruptcy proceedings; they cannot be used to defend your property from creditors in any other situation.

The System 2 bankruptcy exemptions might not be recognized by all courts (particularly when declaring bankruptcy outside California due to domicile rules). Consult an experienced bankruptcy lawyer to learn more about the legal exemptions in your jurisdiction.

California's 703 Homestead Exemption

  • The California homestead exemption for personal or real property that is used as a residence is $31,950 under System 2 (CCP 703.140b1).

Personal Property

  • CCP 703.140b1 allows for a burial plot to be worth up to $31,950 in place of a homestead exemption.
  • Clothing, appliances, household goods, furniture, books, animals, crops, and musical instruments valued at up to $800 per item are permissible under CCP 703.140b3.
  • CCP 703.140b4 covers jewelry worth not more than $1,900.
  • Health aids—CCP 703.140b9.
  • Wrongful death compensation required for assistance—CCP 703.140b11.
  • CCP 703.140b11 allows for compensation of personal injuries worth $31,950 or less.

Motor Vehicle Exemption under California Law 703

  • Equity in automobiles can be exempted under System 2 up to a maximum of $6,375.

Tools of Trade

  • Books, implements, and tools of trading worth no more than $9,525—CCP 703.140b6.

Pensions & Retirement Plans

  • Individual Retirement Accounts and Roth IRAs—11 United States Code 522b3Cn.
  • Pensions, annuities, and other essential benefits under ERISA qualify for the minimum required distribution rate (CCP 703.140b10).
  • Section 522 of Title 11 of the United States Code applies to qualified retirement plans exempt from federal income tax. These plans include 401ks, 403bs, money purchase and profit-sharing plans, SIMPLE IRAs and SEP, and specified benefit plans.

Public Benefits

  • Compensation for the unemployed, veterans' social security benefits, as well as public aid covered under CCP 703.140b10.
  • Reparation benefits for victims of crime—CCP Section 703.140b11.

Child Support and Alimony

  • Mandatory child and alimony support—CCP 703.140b10.


This includes $1,700 and any unused homestead or burial exemption on any property (currently at $31,950 if the bankruptcy filer does not claim the homestead exemption)—CCP 703.140b5.


  • Credit life insurance policies that have not yet matured CCP 703.140b7.
  • Accumulated interest, loans, dividends, surrender value, or cash value on a life insurance policy that has not yet matured (up to $17,075)—CCP 703.140b8.
  • Disability benefits—CCP 703.140b10.
  • Compensation for lost earnings—CCP 703.140b11E.

Exemption amounts were last updated by the California Judicial Council considering inflation on April 1, 2022. The next revision is scheduled for April 1, 2025. Exemptions from California bankruptcy are subject to change. Therefore it's important to regularly review the currently up-to-date list or the relevant governing laws.

How Does Chapter 13 Affect Non-Exempt Property?

A debtor who files for Chapter 13 bankruptcy is allowed to retain any nonexempt property. However, the plan payments, in general, need to be at least equal to what lenders would have obtained in a Chapter 7 bankruptcy. Also included in that calculation is the worth of any retained non-exempt assets.

This indicates that the individual filing for bankruptcy must settle a Chapter 13 repayment schedule lasting five years. On the other hand, the filer can give up some of their property to reduce the total amount owed. Therefore, Chapter 13 bankruptcy is not ideal for such a case.

Most bankruptcies are filed by individuals who don't possess expensive properties that exemptions can't protect. Let's assume the bankrupt individual had only one antique vehicle worth $30,000 instead of a yacht, a collection of antique cars, and 50 acres of land. The minimum amount required to retain the vehicle under the bankruptcy plan is $40,000, which is around $667 per month.

Depending on someone's living standard, an annual income of $60,000 could not cover that. It could be significantly lower than the regular payment under the bankruptcy plan or slightly higher, but either way, it wouldn't make much of a difference.

Can I Automatically Retain Exempt Property?

For the most part, no. Items like furniture, clothing, and car equity are often exempt if necessary to sustain employment and residence. When declaring California bankruptcy, you'll need first to determine which exemptions apply to your case, then complete the Schedule C bankruptcy form and submit it with the rest of the necessary documentation.

Will Someone Look Through My Bankruptcy Exemptions?

Yes. A bankruptcy trustee appointed by the court to oversee your petition will examine Schedule C to verify that you are entitled to keep the claimed property. If your trustee has a problem with the exemptions, they can challenge them in court. You'll have to wait for the judge's ruling to find out if you get to retain the property.

When to File for California Bankruptcy Exemptions

If you have been a California resident for not less than 180 days, you are eligible to declare bankruptcy in the state. However, you'll need to stay in the state for a prolonged time, at least 730 days, before you can file any state tax exemptions. In that case, you'll have to fall back on the exemptions from your previous state.

However, let's say that you didn't live in any state for the 2 years before your bankruptcy filing. If this is the case, you can claim the exemptions from the jurisdiction in which you spent most of the 180 days before the 2 years immediately before your petition.

Why Would I Need a California Bankruptcy Attorney?

Bankruptcy is always a serious matter since it can affect your financial security in the future. Aside from being beneficial, hiring a professional bankruptcy attorney will help you avoid legal disputes in the future. This is an important step, as it requires careful consideration of their merits before hiring.

A good bankruptcy attorney should have the following qualities:

  • Experienced

A seasoned bankruptcy attorney is the same as a well-versed professional. Consider a bankruptcy attorney who has been active in the field for a long time and has a stellar educational background. This should put your mind at ease since it indicates they have spent much time learning about and dealing with complex bankruptcy cases.

  • Passionate

A bankruptcy lawyer worth hiring should truly care about their client's well-being. They ought to have a deep commitment to helping others. No matter how challenging a bankruptcy case could be, it can be resolved successfully by someone passionate about their work.

  • Availability

Your financial position is in jeopardy. Getting a solution to your financial issues is an absolute necessity right now. The law firm should also be easy to get in touch with. One thing to consider is whether the law firm provides free initial consultations for assessing cases or if you can get quick access to an attorney.

  • Specialization

Considerable thought should be given to choosing a specialist in your field. When searching for a bankruptcy attorney, it is important to find one who focuses their practice on this field of law. If you need a bankruptcy attorney, you shouldn't pick a lawyer who is just getting started in the field or is specialized in another field, such as criminal law.

Find a San Diego Bankruptcy Lawyer Near Me

Chapter 13 bankruptcy has a complicated application process. You need to figure out what it means, what it will do, and whether exemption laws apply. Considering the complications of Chapter 13 exemptions, you will require the services of a professional bankruptcy attorney.

If you or a loved one needs to file for Chapter 13 bankruptcy, you can contact the San Diego Bankruptcy Attorney in San Diego, CA. Our bankruptcy attorneys have years of experience managing and resolving bankruptcy cases, and they do so with enthusiasm and expertise. Call us today at 619-488-6168.