When individuals can no longer keep up with debt payments, Chapter 7 bankruptcy may offer a crucial lifeline and an opportunity to rebuild a financial future. Under this form of bankruptcy, the court values and sells a debtor’s assets to pay creditors, discharging most types of debt.
Unfortunately, many Americans hesitate to consider this option, fearing that they will automatically lose important property, whether a home, vehicle or personal belongings. However, in California many types of assets are potentially exempt from liquidation.
Types of assets that debtors may be able to keep
One of the primary purposes of bankruptcy law is ensuring that struggling individuals have the means to continue supporting themselves and their families. For this reason, the law considers certain types of property basic “life necessities” that may be exempt from liquidation.
In addition to a house, car, home furnishings and clothing, potentially exempt items may include family heirlooms, retirement pensions and insurance policies up to a certain dollar amount.
California exemption options
Californians filing for individual bankruptcy may choose between two types of exemption systems, known as “System 1” and “System 2,” or “704” and “703” exemptions, respectively.
Debtors who have a significant amount of home equity often opt for 704 exemptions, which may include:
- Home equity up to $75,000 for an individual, $100,000 for a family
- Vehicles up to $2,300
- Jewelry up to $6,075
- Household furnishings fully protected (if reasonably necessary)
Those who do not have significant home equity or want to protect another type of valuable asset may choose to file under section 703 exemptions, which may offer protection for the following:
- Home or personal property equity up to $24,060
- Vehicles up to $4,800
- Jewelry up to $1,425
- Household furnishings up to $600 per item
Those filing for bankruptcy are far from alone
Whether due to a job loss, medical issue or other stressful circumstance, bankruptcy is more common than many realize. According to the American Bankruptcy Institute, over 52,000 Californians filed under Chapter 7 in 2019 alone. Those struggling to make ends meet should know that they may be able to regain financial stability while continuing to move forward with their lives.