Exempt Property – Assets That Are Protected (Part 3 of 3)

Exempt Property – Assets That Are Protected (Part 3 of 3)

Where to find the list of exemptions . Below is a link for the exemptions that are available to debtors who file a bankruptcy case in California. The California debtors can choose between the two separate sets of exemptions. Depending on the kind of assets that the debtor owns, one set of exemptions may be much more favorable to a particular debtor than what is available under the other set. Exemption planning is an art, and the exemption planning is best performed under the guidance of an experienced bankruptcy attorney.

Caveat: You can not “mix and match” by combining exemptions from one list with any of the exemptions on the other list.

Use this link to view the two actual sets of California exemptions:

Caveat: Always check with an expert before taking any action, as the laws sometimes change, and court rulings will occasionally affect the manner in which these laws are applied and interpreted. For example, the bankruptcy law also places certain exclusions on property that can be claimed as exempt in situations where the debtor has not been domiciled in the same state for at least 730 days before the filing of the bankruptcy case, and if not, then the debtor may be required to use the exemptions of the state where the debtor used to live, instead of the state where the debtor now lives. These exception requirements are extremely complex and require careful analysis by an expert.

Similarities in the sets of exemptions. Both CCP §703 and §704 have provisions to protect clothes and other common, ordinary household goods such as furniture, appliances, clothing and personal effects. Both have varying provisions for protecting jewelry, vehicle equity, retirement plans, insurance policies (including cash surrender value), tools of the trade, and claims for worker’s compensation and personal injuries. However, it must be remembered that the two code sections vary somewhat in the values of such items that can be exempted.

Key differences between the two sets of exemptions. The principal difference between the two sets of California exemptions is in the amount of home equity that can be exempted. CCP §704 contains the “homestead” exemption. CCP §704 can be used to exempt equity in the Debtor’s residence (keep in mind that it is only the equity in the property that is protected by the homestead). The homestead does not exempt the actual property, but works only to protect the applicable amount of exempt equity. The exemption protects $50,000 if the Debtor is an individual; $75,000 if the debtors are married and filing together, or an individual who is head of the household; or as much as $150,000 if the debtor is over 65 years old, or disabled, or over 55 years old with a gross annual income of less than $15,000 (or $20,000 if married). Take careful note of the Caveats regarding domicile duration.

The new law imposes certain other limits. In addition to requirements regarding length of the domicile to determine which state exemption law to apply, the new bankruptcy law enacted October 17, 2005 puts a further limitation on the amount of the allowable homestead exemption. Bankruptcy Code §522(p)(1)further provides that a homestead exemption may not exceed $125,000 if the property was acquired within 1215 days preceding the bankruptcy, unless the debtors interest in the property was transferred from the debtor’s previous principal residence into the debtors current principal residence and provided that both residences are located in the same state. To take advantage of the homestead exemption, the property must be used by the Debtor as a principal place of residence, and may be a mobile home or a boat used as a principal residence. (Note: The 1215 day rule is one of the few provisions of the 2005 Amendments that actually took effect in April 2005 when the law was passed, while almost all other provisions of the amended law took effect six months later, on October 17, 2005.)

The “grubstake” or “wildcard” exemption. CCP §703 does not contain this homestead provision found in CCP §704. Instead, CCP §703 contains what is commonly referred to as a “grubstake” or a “wildcard” exemption. This allows the Debtor to protect up to $19,625 in any kind of assets that the debtor chooses.

Uses of the wildcard exemption . It can be used to protect any property that the debtor chooses to exempt, up to the amount of the exemption, and even if that asset would not be exempt under another other specific provision of the statute. For example, the specific motor vehicle exemption of $2,975 may be combined with the grubstake exemption to exempt a vehicle worth $22,600. Further, it can be divided up to exempt any combination of real or personal property, as long as the combined value of the items value does not exceed the exemption amount. For instance, the grubstake can be used to protect real property with little equity, and does not require the Debtor to reside at the property. Or it could be used to exempt a combination of things like tax refunds, excess vehicle equity, and bank accounts.

Possible denial of exemptions. The exemptions claimed by the debtor are subject to being disapproved if the debtor has claimed the wrong or inapplicable exemptions, or if the debtor has engaged in inequitable conduct, such as a fraudulent transfer of the exempt property.

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By |2012-10-09T06:09:20+00:00October 9th, 2012|bankruptcy-faq, Financial|0 Comments
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