California Bankruptcy Exemptions - 704 vs. 703? - Talkov Law (2024)

Residency Requirement to Claim California Exemptions

To file for bankruptcy in California, you must first meet the residency requirement by having lived in California continuously for at least 2 years prior to filing for bankruptcy. If you lived in more than one state during the last 2 years, speak to a bankruptcy attorney on how to file while maximizing your exemptions.

Choosing Between California’s Two Sets of Exemptions – 704 vs. 703

California is the only state that has two separate sets of exemptions, according to Nolo.com, but debtors are only permitted to pick one set. One set is known as the “704 Exemptions”, which are generally a better fit for those with substantial home equity. The second set of exemptions is known as the “703 Exemptions”, which allows for a “wildcard exemption.” This is usually a better fit for those who do not own real property or who have less home equity. Property is generally exempt up to a certain dollar amount, as specified in the applicable bankruptcy code for each set.

The 704 Exemptions in California Bankruptcy

704 Exemptions, aptly named after Code of Civil Procedure Section 704.XXX, are most commonly used by homeowners with substantial home equity.

Homestead Exemption

Under 704 Exemptions, debtors are entitled to protect the equity in their home under California’s recently updated homestead exemption. Between $300,000 and $600,000 (depending on the location of the home) in equity may be protected under the generous new homestead exemption. However, special rules apply as explained in our article on the California homestead exemption published in the Los Angeles Lawyer Magazine.

Motor Vehicle

Vehicles are protected up to $3,325 (combined, for all vehicles). Cal. Code Civ. Proc. 704.010

Household Furnishings, Apparel, Personal Effects

These items are exempt if they are “ordinarily and reasonably necessary to, and personally used or procured for use by, the judgment debtor and members of the judgment debtor’s family at the judgment debtor’s principal place of residence.” Cal. Code Civ. Proc. 704.020. However, if an item is not “ordinarily found in a household” or it has “extraordinary value,” it may not be exempt.

Materials Used for Repair or Improvement

Materials that are purchased in good faith to be used to repair, maintain, or improve a principal place of residence are exempt up to $3,500. Cal Code Civ. Proc. 704.030

Jewelry, Heirlooms, and Works of Art

Such items are exempt up to $8,725. Cal. Code Civ. Proc. 704.040

Health Aids and Prosthetic & Orthopedic Appliances

Health aids are exempt so long as they are “reasonably necessary to enable the judgment debtor or the spouse or a dependent of the judgment debtor to work or sustain health.” Cal. Code Civ. Proc. 704.050

Items Required for the Trade, Business, or Profession

Items such as “tools, implements, instruments, materials, uniforms, furnishings, books, equipment, one commercial motor vehicle, one vessel, and other personal property” are exempt up to $8,725 if they are “reasonably necessary to and actually used by the judgment debtor in the exercise of the trade, business, or profession by which the judgment debtor earns a livelihood.” Cal. Code Civ. Proc. 704.060. The exemption is twice that amount ($17,450) if both the debtor and the debtor’s spouse are in the same trade, business, or profession and require said items. This section also provides an exemption for a commercial motor vehicle in the amount of $4,850.

Wages

Debtors may exempt certain wages that were paid to him or her in the 30 days prior to the bankruptcy filing. Civ. Proc. Code § 704.070

Pensions

Pensions, including both public and private retirement accounts, and annuities are exempt. Cal. Code Civ. Proc. 704.110 and 704.115.

Public Benefits

$1,750 for single debtors, $2,600 for married debtors filing jointly. Cal. Code Civ. Proc. 704.080

Social Security Benefits

$3,500 for single debtors, $5,250 for married debtors filing jointly. Cal. Code Civ. Proc. 704.080

Life Insurance

Unmatured life insurance policies are completely exempt. The loan value of such policies, however, is only exempt up to $13,975. Cal. Code Civ. Proc. 704.100

The 703 Exemptions (Wildcard Exemption) in California Bankruptcy

703 Exemptions, also known as “wildcard” exemptions, may be a better choice for those who are more interested in protecting personal property and who don’t own a home. “Wildcard” refers to the ability to protect various forms of property that may not be protected under the 704 exemptions.

Wildcard Exemption in California Bankruptcy

Anything that does not fit another exemption category or goes over the maximum exemption amount in that category may be exempted up to $1,550, plus any unused homestead exemption amount, adding up to $30,825 for single debtors as of 2021. Cal. Code Civ. Proc. 703.140(b)(5)

Homestead Exemption

Exemption in homestead property is up to $29,275, though every dollar used on this exemption decreases the remaining available wildcard exemption. Cal. Code Civ. Proc. 703.140(b)(1)

Motor Vehicle

Vehicles are protected up to $5,850 (combined, for one or more vehicles). Cal. Code Civ. Proc. 703.140(b)(2)

Household Furnishings, Goods, Misc.

Items such as “household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments” may be exempted up to $725. Cal. Code Civ. Proc. 703.140(b)(3)

Jewelry

Jewelry that is “held primarily for the personal, family, or household use” is protected up to $1,750. Cal. Code Civ. Proc. 703.140(b)(4)

Health Aids and Prosthetic & Orthopedic Appliances

Health aids that are professionally prescribed are completely exempt. Cal. Code Civ. Proc. 703.140(b)(9)

Tools, Books, and Implements of Trade

Such items are protected up to $8,725. Cal. Code Civ. Proc. 703.140(b)(6)

Pensions

Federal nonbankruptcy exemptions allow for retirement savings accounts (such as a 401(k) or 403(b)) to be completely exempt and for IRAs and Roth IRA’s to be exempt up to $1,362,800.

Public Benefits

Unemployment, veterans’ benefits, disability, workers’ compensation, crime victims’ reparation benefits, and Social Security benefits are completely exempt.

Life Insurance