Understanding California Bankruptcy Laws & Exemptions

Things can happen during a person's lifetime that can result in unplanned financial issues. Sometimes, debts are so onerous and creditors are so unreasonable that people are forced to seek bankruptcy relief. If you are filing for bankruptcy in California, you must follow some specific California bankruptcy laws.

Federally sanctioned supplemental exemptions are permitted to be used according to the bankruptcy laws in California and can be used with the allowed California State exemptions. According to California bankruptcy laws, a person must choose one of two categories of exemption. The two categories are simply known as System One and System Two. A debtor, with suggestions from someone who offers bankruptcy assistance, can choose which one of the two systems is right for them.

According to California law, the System One choice has a homestead exemption of a maximum of $50,000 for one person who isn't handicapped, a maximum of $75,000 for families and a maximum of $125,000 for seniors. In addition, System One allows for personal property exemptions of as much as $2,000 cash in the bank; as much as $2,000 worth of building materials; as much as $5,000 worth of jewelry and heirlooms; motor vehicles valued up to $1,900; burial plots; appliances; home furnishings; personal clothing; health related aids; food; and any money that results from personal injury or wrongful death claims. Also, allowances are provided for the following under System One: any type of insurance claims; pensions; benefits like unemployment compensation; workers' compensation claims; health assistance claims; tools of the trade which includes tools, uniforms, equipment, books and manuals needed to continue in a trade; and wages exempt at a minimum of 75%.

There are many differences between System One and System Two exemptions under California bankruptcy laws. For System Two, $17,425 is the highest exemption for every homestead category. The maximum amount for jewelry and heirlooms is $1,150. The trade tools exemption is limited to $1,750 while the exemption for motor vehicles is as much as $2,775. In addition, System Two caps the total amount of personal benefits that can be exempted at $17,425. However, a wild card exemption of as much as $925 is permitted. System Two doesn't have any wage exemption but there is an exemption for ERISA eligible pensions.

Due to the complexity involved in these two exemption systems under the California bankruptcy laws, people are strongly advised to engage a lawyer who specializes in this field of law for assistance with bankruptcy. Basically, a lawyer will consider all of your financial issues and advise you about which one of the two exemption systems would be right for you when your bankruptcy case is filed.

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