California Bankruptcy Exemptions

California bankruptcy exemption laws protect property you need to work and live, making it essential to understand them for a fresh start. California is unique because the state offers two sets of exemptions, giving you a choice. In addition to finding both sets below, you'll also learn what happens to property you can't exempt, how long you must live in California to use its exemptions, and more.

What Are California's Bankruptcy Exemptions?

Bankruptcy is a federal process that works the same in every state, but you'll use California state law to protect your property. Review each list carefully and compare it to the property you own, because you can't use exemptions from both lists. You can also use the federal nonbankruptcy exemptions in addition to the state sets.

California 703 vs. 704 Exemptions: Which Should You Use?

California's 703 exemptions work best for people who don't own a home or have little to no home equity. Most people can protect all household basics, and this exemption set provides a generous wildcard exemption you can use to protect anything of your choosing, including luxury items not usually covered in bankruptcy. For instance, if you own an expensive car outright, have banked a nest egg, or have a valuable collection but don't own much else, you'll likely lean toward the 703 exemptions.

By contrast, California's 704 exemptions protect a significant amount of home equity, all household basics, personal injury actions, and equipment needed in a family business. In exchange, filers can't keep luxury items like a boat, RV, or fancy car. But the jewelry, heirlooms, and art exemptions are very generous.

Exemption caution. You must independently verify the accuracy of exemptions and that the property meets qualification requirements. A bankruptcy lawyer will have current information and be in the best position to help you protect your assets in bankruptcy.

How Long Must You Live in California to Use Its Exemptions?

It's tempting to move to a state with more generous bankruptcy exemptions when filing for bankruptcy, but it doesn't work that way. To prevent people from abusing the system, filers must live in the state for at least two years; otherwise, they must use the previous state's exemptions. Here's how it works.

• If you've made your permanent home (your "domicile") in your current state for at least two years, you can use the state's exemptions (or the federal exemptions if allowed).
• If your domicile hasn't been in the same state for two years, the rules get more complicated: you'll choose the state you lived in the longest during the 180 days immediately before the two years before filing.

Did you get that? If not, here's a way to figure it out. Count back two-and-a-half years, then ask yourself where you lived the longest during the first six months of that two-and-a-half-year period.

Example. Suppose you planned to file on January 1, 2027. Your two-and-a-half-year period would start on July 1, 2024, and you'd qualify to use the exemptions of whichever state you resided in the most from July 1, 2024, through December 31, 2024. You wouldn't have to file your case there, but you'd use that state's exemptions.

Special Homestead Exemption Rules

The homestead exemption protects your ownership interest in your home. You'll need to read your state's homestead statute to determine the specifics, such as the amount of equity and acreage covered, whether the exemption protects a manufactured home, and if you need to file a homestead exemption with the county clerk. In all states, though, the property must be your residence, and you'll need to comply with a federal timing law.

You must live in the home for over 40 months before filing for bankruptcy. Otherwise, your homestead exemption is capped at $214,000 if you file on or after April 1, 2025 (the amount changes every three years). This cap won't apply if you bought your home with home sale proceeds from that state.

What Happens to Nonexempt Property in California Bankruptcy?

It depends on the chapter you file. In Chapter 7 bankruptcy, you lose property not covered by an exemption. The bankruptcy trustee responsible for managing your case will sell the property for the benefit of your creditors.

In Chapter 13 bankruptcy, you can keep all your property. However, that luxury comes at a price: you'll pay your creditors the value of any property not covered by an exemption in your Chapter 13 repayment plan.

For example, say you own a car outright worth $3,000, and your state has a vehicle exemption of up to $5,000. Here's what would happen in each chapter.

• Chapter 7 bankruptcy. You'll get to keep your car, because the exemption would protect the equity fully. If your vehicle were worth $15,000 instead, the bankruptcy trustee would sell it, pay you $5,000 for the exemption, and distribute the rest to your unsecured creditors.
• Chapter 13 bankruptcy. You wouldn't need to pay your creditors extra through your repayment plan. However, if the car were worth $15,000, you'd need to pay your creditors at least $10,000 (minus sales costs) through your plan.

These examples don't account for a vehicle loan. You'll find more information about protecting financed homes and cars in a California bankruptcy below.

Can You Keep a Financed Home or Car in California Bankruptcy?

Many people wonder if they can wipe out a home mortgage or car loan and keep the property without paying for it. The simple answer is "No." If you still owe a balance on your mortgage or car loan, you must pay as agreed to prevent the lender from foreclosing or repossessing the property.

That's because when you purchased it, you gave the lender a property "lien." The lien created a secured debt, allowing the lender to take back the property if you don't pay as agreed, even in bankruptcy.

Protecting Financed Property in Chapter 7 Bankruptcy

Chapter 7 doesn't have a mechanism that lets you catch up on a mortgage or car payment over time, so the payment must be current. You'll lose the property if you're behind on payments and file for Chapter 7. The lender will ask the bankruptcy court to allow it to proceed with foreclosure or repossession during the bankruptcy, or wait until Chapter 7 ends.

Protecting Financed Property in Chapter 13 Bankruptcy

You don't lose property in Chapter 13. However, before the bankruptcy judge approves or "confirms" your plan, you must prove you earn enough to make the monthly payment and pay the late payments by the end of the three- to five-year plan. Some filers can pay less on financed property if they qualify to reduce an auto loan to the car's value or strip a junior mortgage, credit line, or lien from a home.