When choosing to file for bankruptcy, it is important to have a determine whether all of your assets can be protected. The knowledgeability and experience of your bankruptcy lawyer is very important in making this determination. The bankruptcy code allows you to keep all assets that you can properly exempt and allows for the bankruptcy trustee to potentially liquidate assets that are not exempt. There are exemptions provided by Federal Law and also by State law, which a knowledgeable attorney can assist you in deciphering and utilizing. In California, you must use California Bankruptcy Exemptions, not Federal exemptions. Recently there have been many updates to the California Bankruptcy Exemption laws that a Los Angeles Bankruptcy Lawyer, especially a bar certified specialist, can guide you on. You are in luck, as the California Bankruptcy Exemptions are more attractive than most other states and the federal exemptions.Exemptions Under 11 USC 703
Under this exemption system, you get to mainly protect your personal property, versus equity in your home. Under the 703 exemption system, you are provided with a “wild card” exemption which acts like a ‘joker’ card allowing you to protect anything and everything up to $31,950 (increased as of April 2022) and it can be combined with the other exemptions under 703 – such as exemptions for motor vehicles, retirement, jewelry, personal injury, or whatever else you may have.
In the bankruptcy realm, even future assets are considered assets that must be protected. If you are a beneficiary of an inheritance, this needs to be protected. If you are in the insurance industry and have a book of business or receive residual payments for clients you have signed up, you need to protect the future income you will be receiving from these sources. Similarly, if you are in entertainment and receive residuals or royalties for work completed before bankruptcy, you will need to get in touch with SAG AFRA (or go to their Los Angeles location) to find out your residual history for the previous years to determine what needs to be protected going forward. In these instances, it is very important to have a specialized bankruptcy lawyer that can guide you and make sure your future income and assets are fully protected before you file.
If your main asset is the equity in your home residence, then you would need to choose the 704 exemptions discussed below. If there is equity in a house over and above the total of liens and the homestead, a Chapter 7 trustee can sell the house and give the debtor the homestead exemption in cash.Exemptions Under 11 USC 704
Previously, the 704 exemption system allowed you to protect $100,000, $150,000, or $175,000 in equity in your home… even if your total equity was $1,000,000. This was problematic as you would still have unexempt equity that could be liquidated by the Trustee in a chapter 7 bankruptcy. As of 2021, California Bankruptcy Exemptions were updated and now the exemption of your residence equity increased up to the median home value of your county. For example, in Los Angeles County, the median home value was $600,000. Therefore, you could now exempt up to $600,000 in Los Angeles, no matter your home value. This is a great stride in the bankruptcy world as it allows more people to file bankruptcy without the risk of losing their home. Keep in mind that this exemption value is different depending on what county you live in. and not all countys have the same median/exemption as Los Angeles. For example, Riverside County’s median home value is in the $400,000 range. It is very important to discuss this with your bankruptcy lawyer to make sure that your home is protected before you file.
You need to keep in mind that although there are exemptions to protect your personal property under the 704 exemption system, the numbers and protections in this system are very different than in the 703 exemption system and you cannot mix and match the two. Preparation of your bankruptcy with an experienced specialized bankruptcy attorney is very important to make sure you get to keep all of your assets.
Based on what assets you have, what their values are, and how they are best protected is one of the key determinations on whether you qualify for a Chapter 7 fresh start or a Chapter 13 reorganization bankruptcy.