Filing for Chapter 7 bankruptcy doesn’t mean you lose everything. In fact, California law protects a wide range of personal property through exemptions. These exemptions are designed to help you get a fresh start, not to strip you of the essentials you need to live and work.
If you’re considering bankruptcy, understanding exempt assets is crucial. Below, we’ll break down what assets you can typically keep under California’s two exemption systems, how to choose between them, and how to protect what matters most.
California’s Two Bankruptcy Exemption Systems
California is one of a handful of states that requires residents to use state exemptions instead of federal ones. The state offers two sets of exemptions: the 704 series and the 703 series, named after the sections of the California Code of Civil Procedure. You must choose one or the other—you cannot mix and match.
The 704 system is usually a better fit if you own a home with significant equity. It allows you to protect a higher amount of home equity but offers less flexibility for other types of assets.
Key features include:
- A homestead exemption that protects between $300,000 and $722,502 of equity in your primary residence, depending on your county’s median home price
- Up to $8,625 in vehicle equity for any number of vehicles
- Household furnishings, appliances, and clothing that are reasonably necessary
- Retirement accounts such as 401(k)s and IRAs are fully exempt
- Tools of the trade up to $10,950 in value
- Jewelry, art, and heirlooms up to $10,950
This system works well for homeowners looking to preserve their equity and stay in their home.
The 703 system is often better for renters, or for those without equity in real estate. It includes a “wildcard” exemption that can be applied to any type of property, including cash and personal items not otherwise covered.
Key features include:
- A homestead exemption up to $36,750 in home equity
- A wildcard exemption of $1,950 in any property you own, plus any unused portion of the homestead exemption—potentially totaling up to $38,700
- Motor vehicle exemption up to $8,625 for one or more vehicles
- Household goods, clothes, and furnishings up to $925 per item
- Jewelry up to $2,175
- Life insurance loan value up to $19,625
- Personal injury recoveries up to $36,750
This option gives more flexibility, especially for those without major assets like a home.
What’s Not Exempt
While California’s exemptions are generous, not everything is protected. Some assets may be considered nonexempt and subject to sale by the bankruptcy trustee to pay creditors.
Examples of nonexempt property include:
- Vacation homes or second residences
- Multiple or luxury vehicles with high equity
- Investment accounts that are not retirement-based
- Expensive jewelry, collectibles, or designer goods beyond exemption limits
- Large sums of cash or bank account balances not protected by the wildcard exemption
If you’re concerned about losing something, timing and planning are key. Avoid transferring assets or paying off family members before filing—these moves can be reversed by the court and damage your case.
Before filing, it’s wise to:
- Inventory your assets and assess their fair market value
- Understand the exemption limits under both systems
- Consider timing—for example, waiting for funds to be used on necessities or adjusting bank balances to fall under exemption thresholds
- Speak with a bankruptcy attorney about how to best position your case to maximize asset protection
Common Mistakes That Put Your Assets at Risk
Filing for Chapter 7 bankruptcy in California gives you a powerful opportunity to protect essential assets—but only if you avoid key missteps along the way. Here are the most common mistakes that can put your property at risk:
- Transferring property before filing. Giving away a car, signing over a title, or moving money into someone else’s account may seem like a smart way to protect what you own. But bankruptcy trustees treat these as fraudulent transfers, especially if they occur within four years of filing. Even if your intent wasn’t malicious, the court can reverse the transfer and seize the asset.
- Repaying friends or family first. Paying off a personal loan from someone close to you may feel like the right thing to do, but it can be considered a “preferential payment.” If you repay certain creditors—especially insiders—within one year before filing, the trustee can demand that money back and redistribute it to your other creditors.
- Undervaluing assets. Many filers guess the value of their belongings or list items for far less than their actual worth. If a trustee believes you’ve intentionally undervalued something, they may challenge your entire schedule of assets. Always use fair market value, and support it with documentation like photos, appraisals, or comparable sales.
- Leaving items off your asset list. Forgetting to include a savings account, unused electronics, or collectibles can raise serious red flags. Even if the omission is accidental, it can look like you’re trying to hide assets. Full disclosure is required under penalty of perjury, and leaving things out may threaten your entire case.
- Choosing the wrong exemption system. Picking between California’s 703 and 704 exemption systems isn’t just a formality. If you don’t own a home and still choose the 704 system, you might miss out on the wildcard exemption that could have protected your bank account or second vehicle. Selecting the wrong system can lead to avoidable asset loss.
- Using outdated or generic information. Bankruptcy laws change, and California doesn’t allow federal exemptions. Relying on general advice from forums or outdated websites can result in bad choices that expose your property. State-specific guidance is essential, especially when exemption limits and categories shift year to year.
- Filing without a clear strategy. Filing too quickly without fully understanding your assets, debts, and exemption limits can backfire. Some people file in a rush to stop collection calls or wage garnishment, but without a clear plan, they end up losing property they could have kept with proper preparation.
Avoiding these common mistakes helps ensure that you not only get the debt relief you need, but also keep the property that matters most to you. Strategic preparation and careful attention to detail go a long way in protecting your financial future.
Protecting Your Future Starts with the Right Information
Chapter 7 offers a powerful fresh start, but only if you fully understand how exemptions work and how to use them properly. California law offers a path to discharge your debt while preserving your home, your car, and other essentials—but the details matter.
The right exemption strategy depends on your assets, income, and goals. At Janus Law, we help you make the most of your options and avoid costly mistakes. Whether you’re a homeowner with equity, a renter with savings, or self-employed with tools you rely on, we’ll guide you through every step.
Contact Janus Law right now to schedule a consultation and learn how to protect what matters most in your Chapter 7 case.
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