A consumer in Escondido, California, can get relief from some debts they see no way of paying using bankruptcy. However, they may have concerns over losing all of their property. Exemptions can possibly help them keep it.
Assets in bankruptcy
Chapter 7 requires the debtor to sell nonexempt assets, or nonessential assets, to pay creditors. Some examples of nonexempt assets include second homes, second vehicles, jewelry, musical instruments, valuable artwork, and valuable heirlooms. The trustee in charge of the case sells the assets and divides the proceeds among creditors, and the debtor gets a discharge of the debts.
Chapter 13 bankruptcy reorganizes debts into manageable payments with a court-approved plan that the consumer creates. The filer doesn’t have to relinquish assets, but the value of the assets determines the payments they must make. They also need enough income to meet the monthly payments and not exceed the debt threshold.
How exemptions work
Bankruptcy exemptions protect property up to a certain value without enough equity that the consumer would otherwise lose. Some states allow federal and state exemptions, but California only allows state exemptions that divide into two groups: 703 and 704.
Bankruptcy exemptions under 703, or wild card exemptions, may work better for consumers who don’t own real estate. New laws raised the homestead exemption under 703 to $26,800 and motor vehicle exemption to $5,350. It allows a $1,750 exemption for jewelry, $725 per household items such as clothing, and work tools up to $8,725.
The 704 bankruptcy exemptions help consumers who own property with too much equity to keep out of bankruptcy. The homestead exemption protects $75,000 for single filers, $100,000 for families, and $175,000 for those at risk of foreclosure. The 704 exemptions protect $3,325 of equity for motor vehicles and up to $8,000 for jewelry and artwork.
Married couples cannot double the homestead exemption, and the debtor must live in the state for two years to claim exemptions. Since exemptions change frequently, filers should ensure they aren’t committing fraud as they prepare their bankruptcy filing.