California’s “Wild Card” Exemption Protects Miscellaneous Assets in Chapter 7 Bankruptcy

California Chapter 7 bankruptcy wild card exemption

UPDATE: Good news! As of January 1, 2013, the California bankruptcy exemptions have been increased, allowing debtors to protect more of their assets in Chapter 7 bankruptcy.

Myths and misunderstandings about bankruptcy abound among the general public. In fact, misinformation about bankruptcy law is so prevalent that it often seems that I spend much of the time I offer in free bankruptcy consultations just dispelling such myths. Countering bankruptcy myths served as my major motivation in starting this bankruptcy blog.

One of the most common myths surrounding bankruptcy is the idea that one cannot file Chapter 7 bankruptcy if he has a home, a car, any savings, or any assets at all. Or, put another way, that if he does file Chapter 7, he will lose all of these assets to the bankruptcy trustee. Well, I’m here to tell you that it just isn’t so. Everyone filing Chapter 7 bankruptcy in California is entitled to claim assets up to certain values as exempt from seizure by the bankruptcy trustee. In California, we have two sets of such exemptions available in Chapter 7 bankruptcy—the “704” or “homestead” exemptions and the “703” or “wild card” exemptions. Ever since home values in the Bay Area began their precipitous decline, however, we rarely need to claim the homestead exemptions because our Chapter 7 clients rarely have any home equity left to protect. So, in this post I’ll focus on the California wild card exemptions.

Before I delve into the wild card exemptions, though, let’s take a moment first to acknowledge that in addition to each of the wild card exemptions discussed below, California bankruptcy debtors can also claim as exempt any qualified retirement savings they may have. These include all 401(k) and pension savings as well as all Individual Retirement Accounts (IRAs). Additionally, as I’ve written before in this blog, 529 college savings plans enjoy the same protection in Chapter 7 bankruptcy as do IRAs.

The wild card exemptions are listed in California Code of Civil Procedure 703.140, and the current dollar amounts are adjusted once every three years and published by the Judicial Council of California. What we refer to as the “wild card” exemption is actually the combination of the exemptions provided in CCP sec. 703.140(b)(1) and (b)(5), or the aggregate of the debtor’s interest in any real or personal property. The current wild card totals $23,250, and is set to adjust again on April 1, 2013.

The beauty of the wild card is that it can be “sprinkled around” or “sliced and diced” to cover different items and types of assets. For example, suppose the Chapter 7 debtor has a car with a present Kelly Blue Book value of $10,000. The vehicle exemption available under 703.140(b)(2) is a mere $3,525, and the debtor needs her car. What to do? We can simply use $6,475 from the wild card, combining this withe the vehicle exemption to protect the entire value of the car. Now the debtor still has $16,775 of unused wild card exemption remaining to protect an other assets she may have, including liquid cash.

Apart from the wild card and the vehicle exemptions described above, every California Chapter 7 bankruptcy using the 703.140(b) exemptions can also avail himself of a jewelry exemption ($1,425), an exemption for professional books and “tools of the trade” ($2,200), an exemption for the cash surrender value of a “whole life” insurance contract ($11,800), as well as all of his personal household furnishings, goods, clothing, books and the like (up to $550 per item). Again, any unused portion of the wild card itself ($23,250) can be added to any of these specifically categorized exemptions.

As we can see, the myth that by filing Chapter 7 bankruptcy, you will lose all your belongings, is simply untrue. While I wouldn’t characterize the California wild card exemptions as generous, they are sufficient to protect all or nearly all of the average Chapter 7 bankruptcy client’s assets. As should also be apparent, however, the proper claiming of the appropriate exemptions in Chapter 7 is complex, and you should retain an experienced debtors’ attorney if you are considering filing Chapter 7 bankruptcy.

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