Keeping your Property in Chapter 7 Bankruptcy
Chapter 7 In Chapter 7 bankruptcy, the trustee will sell the property you are unable to exempt and use the proceeds to pay your unsecured debts, such as credit cards and personal loans. Chapter 7 is the bankruptcy option that gets rid of your debt faster. If you have a large amount of equity in your home that is outside the exemption values, you do not want to file a Chapter 7 because the equity would not be protected and a debtor could lose his/her home.
In California, you can keep your home in Chapter 7 bankruptcy under certain circumstances, depending on the amount of equity you have in your principal residence. This is called the “homestead exemption.” The amount of the exemption varies, depending on age, marital status and physical/mental condition. If you are already behind on your mortgage or have significant equity in your home (and want to keep your home), Chapter 7 is not for you. A Chapter 13 may be more appropriate (discussed later in this article).
The question of what, if any, of your personal property you can keep in Chapter 7 bankruptcy is fairly complicated. In California, there are two “systems/categories” of State issued bankruptcy exemptions, each with different exemption provisions and limits. The Debtor uses the State issued exemptions to protect his/her real and personal property from the Bankruptcy Trustee selling the property to pay back as many creditors as possible for the debt incurred by the Debtor(s). The two exemptions categories fall under California Civil Procedure Code(s) §§703 & 704 et. seq. Typically, a debtor with equity in the home prefers CCP 704 exemptions, while debtors who own valuable property outside of equity in the home (jewelry, vehicles, household items, etc.) generally favor CCP 703 exemptions.
Aside from having two Systems, the California Code of Civil Procedure also contains exemptions for building materials, tools of the trade, health aids, and pensions, amongst other categories. Additionally, there are also Government Code provisions that specifically relate to exceptions for county employees, such as peace officers and fire fighters.
It is highly recommended that you seek the advice of an experienced bankruptcy attorney to determine what exemptions might apply to you, which system of exemptions you should claim, and how much you can claim for each exemption.