One of the most important areas of bankruptcy law to optimally use to your benefit when you file for bankruptcy is that of bankruptcy exemptions.
Contrary to popular myth, you don't have to lose everything you own when you file bankruptcy: Federal law provides a "hedge" to protect your basic necessities and even certain non-essential assets when you file for bankruptcy so you won't become instantly destitute.
We at San Diego Bankruptcy Attorney can help you sort through your options as to bankruptcy exemptions so you can retain as much of your most important property following the bankruptcy as possible.
Contact us today by calling 619-488-6168, and we will give you a free consultation and help you get started at reclaiming your financial future!
What Is an Exemption in a Bankruptcy?
When you file for bankruptcy in California, as in other US states, you don't have to simply lose all of your possessions and life savings. That would put you out on the street homeless, and likely, you might then become an applicant for government support - which the government doesn't want to risk, which is part of why these exemptions are allowed.
Exemptions are "exempt" from being taken over by the bankruptcy trustee and divided out to one or more of your creditors in a bankruptcy. Basically, they are possessions you are allowed to protect and keep in a Chapter 7 bankruptcy filing.
There are specific exemption schemes and choice you have to choose that designate particular assets as exempt, in accordance with the law. A specific quantity of "fair market value" is assigned under each exemption category, and fair market value is also the standard for valuating the worth of your existing assets.
In certain instances, you can shield the value of an asset 100%, but at other times, you may not be able to. That can mean dividing up assets or liquidating them, with the exemption allowance going to you and the excess being "fair game" for your creditors.
Exemptions with Chapter 7 Versus Chapter 13 Bankruptcies
Exemptions play a role in both types of bankruptcy: Chapter 7 and Chapter 13. But they play rather different roles.
Exemptions with Chapter 7
Exemptions loom much larger in Chapter 7 bankruptcies because, in this case, you are trying to dispense with all of your dischargeable debts, and so you will likely lose a good deal of your total assets in so doing.
Chapter 7 involves a trustee liquidating many of your assets and paying each creditor the appropriate portion of the revenue gained, depending on how much you owed them and what type of debt it was.
But you would be far worse off losing all you own in a bankruptcy than simply not filing bankruptcy at all. Therefore, you are allowed to exempt a great deal of the value of your assets from being sold. Choosing your exemption wisely can help you end up in a much better position financially following the bankruptcy than before.
Exemptions With Chapter 13
In a Chapter 13 bankruptcy, your debt is reorganized and possibly diminished, but not simply eliminated. You are given the chance to adhere to a 3 to 5 year payment plan to catch up on delinquent accounts. And those portions of debts that won't, according to the Chapter 13 plan, be paid in full by the end of the period, are canceled.
When it comes to "general unsecured debts" in Chapter 13 filings, the portion of these debts you have to pay back is based on the total value of your non-exempt assets. Thus, the more exemptions you claim, the less you have to pay on such debts (and the more property you will still own following the bankruptcy.)
California Exemption Schemes
Unlike in many other states, when in you file for bankruptcy in California (be it Chapter 7 or 13), you can choose between two different exemptions schemes. Each scheme has its own pros and cons, and its important to analyze which scheme will help you to benefit the most.
The two exemption schemes are termed 704 and 703. We at San Diego Bankruptcy Attorney can help you better understand the benefits of the 704 versus 703 bankruptcy exemption scheme and help you choose the scheme that's truly in your best interest.
Also, California law requires you follow a state exemption scheme. In many other states, you can choose between using federal and state exemptions, but California does not give you that option.
California also disallows doubling of exemption amounts when married couples file jointly for bankruptcy, except in certain specific categories where they do allow such doubling. This differs from many other states where you can double every exemption in a joint filing.
For the most part, people with a good amount of home equity to protect do better with the 704 exemption scheme, while those with more non-home equity property fare better under scheme 703. But there are exceptions to this rule of thumb, so you need an experienced bankruptcy lawyer to help you choose the best scheme and then choose each exemption wisely.
The 704 Exemption Scheme
Under "System One" (704 scheme), you get a rather large "homestead" exemption that protects equity in your "primary residence." Not only traditional homes, but other real estate like mobile homes, livable boats, condos, and community apartments can be covered by this homestead exemption. A single filer currently gets a homestead exemption of $75,000, but if you have a family, are disabled, are over 65, or fit other specific criteria, you could get up to a $175,000 homestead exemption.
Under 704, your motor vehicle exemption is only $3,000 or so. But if you don't own an expensive car, this won't matter much. And besides, it's more important to protect your home than your car, when "push comes to shove."
704 also allows for various personal property exemptions, including "personal effects," building materials for home improvement, jewelry ($8,000), bank account funds sourced from SS checks or government benefits, any funds from a wrongful injury/death judgment that you need for support, and your reserved cemetery plot.
You can also protect three-quarters of money from wages received within 30 days of filing for bankruptcy.
Other important exemption categories include pensions and retirement accounts, unemployment payments, disability or workers comp payments, student's financial aid funds, whole life insurance policies with accrued cash value, tools of your trade, and a variety of smaller, miscellaneous items.
It can be a major task to figure out exactly which assets you have, what are their fair market values, and decide on how best to protect them - and which are more important to you. We have a lot of experience in helping people wade through these sometimes very difficult decisions. We can give you a clear picture of how you exemption decisions are likely to impact you further down the road so you can make wise, informed decisions you won't regret.
The 703 Exemption Scheme
The System Two (703 scheme) is similar to System One in regard to having most (not all) of the same exemption categories. The main difference is in the amounts assigned under each class of exemptions and in the existence of the "wild card" exemption.
The homestead exemption under 703 is more modest (a bit over $25,000 at present), but applies to the same range of residential properties as in the 704 scheme. If you have little equity in real estate or own only a very inexpensive residence like a trailer house or camper, the shrunken homestead exemption won't really bother you.
Your motor vehicle exemption with 704 is over $5,000, which is higher than with 703 plans.
The jewelry exemption is only $1,600 instead of over $8,000 as in 704 schemes. Most of the rest of the personal property exemptions are similar, however.
You still get the $8,000 tools of your trade exemption, which can be important for those who are self-employed or who must purchase a lot of expensive equipment for work.
Your retirement accounts, pensions, Social Security, public benefits, alimony/child support, disability benefits, whole life policy, and many other exemptions work much like they do in the 704 plan.
One huge difference with 704 plans is that you get over $1,400 PLUS any unused homestead and burial ground exemption dollars to use as a "wildcard exemption." That usually means over $20,000 or even over $25,000 in total wildcard exemptions.
About California's "Wild Card" Exemption
With the wild card exemption category (only in the 703 exemption scheme), you can use the available "exemption dollars" an practically anything.
You can choose just the right amount of the wildcard exemption for each category or item and spread it around as needed. You can use it to increase, in effect, other exemption areas. So, if you have a car worth $8,000 but only are getting $5,000 in vehicle exemptions, you can take the extra $3,000 from your wild card exemptions to save your car. Or you could increase your personal property exemptions or almost anything else.
Plus, if you have some of the wild card exemption "left over," you can simply use that to cover "liquid cash" and not have an empty or badly depleted bank account at the end of the discharge of your debts under Chapter 7 bankruptcy.
It's easy to see why the wildcard exemption is attractive and leads many to opt for the 703 exemption scheme over the 704, but it's not for everyone. If you can protect most of your important assets under 704 and you have a lot of home equity at stake, then 704 is for you and the lack of a wildcard exemption won't matter.
At San Diego Bankruptcy Attorney, we can help you decide if you the 704 or 703 scheme is for you. And if you go with 703, we can help you to manage your wild card exemptions in the most effective way legally possible.
Why Choose San Diego Bankruptcy Attorney?
It's true that there are numerous bankruptcy law firms in and around San Diego, but we at San Diego Bankruptcy Attorney have earned a reputation as a company that serves its clients better than the competition. We have a long and strong track record of maximizing our clients' exemptions and helping them to strategically choose them.
We know how to minimize any negative impacts filing bankruptcy may have on you and help you to be better off following your bankruptcy than you were before you filed.
Some of our competitors are essentially "law mills" that pay little attention to the best interests of their customers, but just rush through each bankruptcy case with a "cookie cutter" approach that saves them time but loses you money and hurts your financial future. We never do that. NEVER.
We ALWAYS give you the personal attention and respect you deserve and customize our services to the real needs of each and every client.
Our attorneys have an intricate knowledge of bankruptcy law and all other legal matters that impinge upon it; and we are also fully familiar with the inner workings of local San Diego and Southern California bankruptcy courts and processes.
But the advantage or using San Diego Bankruptcy Attorney to handle your bankruptcy filing and process doesn't stop there. The real difference is deeper than that. We put ourselves in your shoes and fight tenaciously for you and your financial future like we were fighting for our own.
And in fact, we are. Because we are deeply conscious of the fact that our success depends on your success - and our consistently high customer satisfaction rate shows that our commitment to our clients' well being has not gone unnoticed.
We have helped numerous others in dire financial straits wisely use Chapter 7 or 13 bankruptcies and wisely choose their exemption scheme and particular exemptions, and benefit as a result. We stand ready to do the same for you.
Contact Us Today for Help!
At San Diego Bankruptcy Attorney, we can guide you through every step of filing a Chapter 7 or Chapter 13 bankruptcy in San Diego or anywhere in Southern California. We have deep experience in optimizing the bankruptcy filings of our clients in regard to exemptions and all other bankruptcy-related matters.
Feel free to contact our bankruptcy attorney anytime 24/7 at 619-488-6168 for a free consultation. Or, you can stop by our office at 750 B Street, Suite #2510, in San Diego, CA, for an in person consultation if you wish.