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Will I Lose All of My Stuff in a Chapter 7 Liquidation?

Filing for Chapter 7 can be an important way to relieve yourself of crushing debt caused by credit card balances, medical bills, and other forms of consumer debt – not to mention interest fees on top of the raw debt owed.

Instead of compelling you to repay the debt you owe, Chapter 7 bankruptcy liquidates your nonexempt property and uses the generated cash to pay off your creditors – even if they don’t recover the full value of your debt. Any remaining debt is typically discharged by the bankruptcy court, and the matter is settled.

While a discharge of debt is a considerable factor in Chapter 7, liquidation is as well. While filing for bankruptcy is something that should never be taken lightly, liquidation causes many who would benefit from Chapter 7 to hesitate for longer than they should. There’s a lot of fear about what liquidation can mean, often leaving people convinced that their clothes can be taken off their backs during Chapter 7.

While a lot of property can be lost in a Chapter 7 liquidation, not everything is up for grabs. In fact, there are various exemptions that people in California can take advantage of that may help them protect a lot more than they thought was possible.

Two Sets of California Bankruptcy Exemptions

In California, bankruptcy filers can choose between two sets of bankruptcy exemptions: Exemptions 704 and 703. Both sets include different kinds of protections against bankruptcy liquidation for various types of property.

Set 1: 704 Exemptions

The following is a list of property you can exempt from Chapter 7 Bankruptcy liquidation when you claim the 704 set of exemptions:

  • Homestead Exemption (amounts in equity): $75,000 if single; $100,000 if family (and at least one family member has no interest in the home); $175,000 if 65 or older; $175,000 if you’re at risk of a forced sale of your home.
  • Motor Vehicle Exemption (amount in equity): $3,050
  • Personal Property Exemptions: Household items and personal effects, cemetery and burial plot, health aids and mobility devices, personal injury and/or wrongful death awards.
  • Personal Property Exemptions (up to a certain amount): Jewelry, family heirlooms, and works of art ($8,000); bank deposits from Social Security payments (up to $3,200 for single payees; $4,800 for married payees; unlimited if funds are not comingled); bank deposits from other public benefits ($1,600 if single; $2,375 for married couples filing jointly); residential building material to improve or repair one’s home (up to $3,200).
  • Wages: Up to 75 percent of wages, which must have been paid within 30 days prior to a bankruptcy filing; vacation credits for public employees
  • Retirement and Pension Funds: Tax-exempt retirement accounts, a limited amount from IRAs and Roth IRAs, public retirement benefits, private retirement plans and benefits.
  • Public Benefits: Unemployment, disability, union benefits from labor disputes, workers’ compensation, public assistance, relocation, student financial aid.
  • Tools of Trade: Tools, implements, materials, books, uniforms, instruments, one commercial vehicle, equipment, furnishings.
  • Insurance: Unmatured life insurance policies of up to $12,800 and homeowners’ insurance proceeds for six months after received (up to homestead exemption amount).
  • Alimony and Child Support: None.

Set 2: 703 Exemptions

The following is a list of property you can exempt from Chapter 7 Bankruptcy liquidation when you claim the 703 set of exemptions:

  • Homestead Exemption (amounts in equity): $26,80
  • Motor Vehicle Exemption (amount in equity): $5,350
  • Personal Property Exemptions: Health aids and wrongful death damage recovery.
  • Personal Property Exemptions (up to a certain amount): Jewelry ($1,600); burial plot (up to $26,800); personal injury recoveries ($26,800); clothing, household items, appliances, furnishings, books, etc. ($675 per item).
  • Wages: None.
  • Retirement and Pension Funds: Tax-exempt retirement accounts; ERISA (qualified pension, annuities, and benefits).
  • Public Benefits: Unemployment, Social Security, Veterans’ benefits, public assistance, crime victims’ reparation.
  • Tools of Trade: Tools, books, and implements.
  • Insurance: Unmatured life insurance policies, disability benefits, loss of future earnings payments.
  • Alimony and Child Support: Amount necessary for support.
  • Wildcard: $1,425 in addition to any unused value of burial and homestead exemption; if the homestead exemption is not used, then $28,225.

Which Set of Exemptions Should I Choose?

The best way to determine whether claiming Exemptions 704 or 703 is right for you is to consult with an attorney. At Nguyen Law Group, we can provide the legal counsel you need to determine which options in bankruptcy can help you find the relief you need and minimize what you lose in the process.

For more information about how we can help, contact us online or call (909) 328-6280.