What do exemptions mean for your property?

When you file for bankruptcy, you're going to hear a lot about “exemptions”. In Chapter 7 Bankruptcy, exemptions protect your personal property, while under Chapter 13 Bankruptcy exemptions help to determine how much you have to pay your creditors. Therefore, the exact meaning of “exemptions” varies a bit according to which type of bankruptcy you choose to file.

Chapter 7 vs 13?

In layman's terms, you could say that exemptions protect your personal property from being seized and sold in order to repay your debts under Chapter 7 Bankruptcy. Under Chapter 13 Bankruptcy, you are ordered to repay a certain amount of your debts depending upon your personal monetary worth, but exemptions are things that are not counted in making those calculations.

In either case, in the state of California you have the option of choosing between two exemption systems. The main difference is that System 1 is often preferred by homeowners with a lot of equity in their real estate property, because it provides a greater exemption for home value. System 2 might be preferred by debtors who have a large amount of cash in the bank or other types of valuable personal property, because it provides a generous “wildcard” exemption. Of course, the system which works best for you will depend upon your unique situation. Discussing exemptions with your bankruptcy attorney is the best way to determine which system of exemptions will benefit you most.

You may have heard that you have the choice between using a state or federal bankruptcy exemption program. That is indeed the case in many states, but in California you must use the state-provided exemption systems. California also differs from other states in that married couples cannot double their exemptions, except in circumstances where System 1 or System 2 expressly allows it. It's extremely important to consult with a qualified bankruptcy attorney if you're considering filing for bankruptcy, rather than make decisions based on the advice of friends or family, because the bankruptcy procedures in California are quite different from those in other states.