California Bankruptcy Exemptions Given Modest Increase

California bankruptcy exemptions increased for 2013Those filing personal bankruptcy in California in 2013 can now protect a little more of their assets in a Chapter 7 bankruptcy, and potentially pay a little less into a Chapter 13 plan. That’s because the California bankruptcy exemptions have been increased modestly as of January 1, 2013. I’m not complaining as this is the first increase in the amounts debtors can keep in a Chapter 7 bankruptcy in California since April 2010. And anyone needing to file bankruptcy in California should be grateful to Assembly Member Bob Wieckowski for introducing the bill, AB 929, that raised the bankruptcy exemptions. Unfortunately, the California Bankers Association and the National Association of Bankruptcy Trustees (go figure) opposed the passage of AB 929 and were able to prevent the bill’s originally proposed increase in the homestead exemption. The homestead exemptions that had been contained in the bill would have raised the amount of equity that a single debtor could protect in bankruptcy to $150,000 from the current $75,000. Married debtors under the age of 65 could have protected up to $250,000 of equity instead of the current cap of $100,000, and those over 65 could have protected up to $350,000 (up from $175,000).

Although the homestead exemption increases above were ultimately removed from the bill, the new law does increase the income threshold for bankruptcy debtors aged 55 or older in order to be eligible for the $175,000 homestead exemption. That is, those 55 or older and single with incomes of under $25,000 gross annual income can now qualify for the higher homestead exemption usually reserved for those 65 or older. Joint debtors over 55 with income of up to $35,000 can also qualify for the higher homestead exemption in bankruptcy. Additionally, the new law requires that beginning in April 2013 and every three years thereafter, the California Judicial Council will have to submit to the California legislature proposed adjustments to the homestead exemption based upon changes to the annual California Consumer Price Index, so incremental increases to the homestead exemption will be on the horizon for California bankruptcy debtors.

Apart from these changes to the 704 homestead exemptions, the real help for those filing personal bankruptcy in California comes in increases to the 703 “wildcard” exemptions. These saw some fairly significant increases in the amounts Chapter 7 bankruptcy debtors may protect in motor vehicles (up to $4,800 from $3,525) in household goods and personal effects (up to $600 per item from $550), in their tools used in business (up substantially to $7,175 from just $2,200). Additionally, the exemption for personal injury claims rose to $24,060 and the exclusion for pain, suffering, and actual pecuniary loss was removed. Finally, the combined “wildcard” exemption itself, was increased to $25,340 (up from $23,250).

Perhaps the most significant increase above was the raised exemption amount for “tools of the trade” or tools used in a debtor’s business. As we have seen a large increase in small business owners filing personal bankruptcy in San Jose, the ability of such bankruptcy debtors to keep more of their tools and business implements will undoubtedly help more of the self-employed to get a fresh start from bankruptcy and continue working in their profession. After all, the whole point of our bankruptcy exemptions is to give the debtor the ability to start over, not from zero, but rather with a fair amount of assets with which he can hopefully build a new life free from debt.

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