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Unfortunately, it has become a common misconception that filing for bankruptcy will cause you to lose all of your property. Very seldom is this actually true. In most cases, the people who file bankruptcy in California – also known as “filers,” “debtors,” or “bankruptcy petitioners” – can keep much of their property and protect their assets by using bankruptcy exemptions. Chapter 7 exemptions can potentially protect your home, your car, and other valuable assets and belongings from sale or liquidation by the bankruptcy trustee. Keep reading to hear Sacramento bankruptcy attorneys explain how bankruptcy exemptions work, and see a comparison of the state exemption systems (System 1 and System 2) available to California debtors.
What is an Exempt Property or Asset?
When a debtor files bankruptcy with help from a Sacramento Chapter 7 lawyer, his or her assets and personal belongings become part of what is known as the “bankruptcy estate.” The bankruptcy court which is handling the filer’s case – that typically being the U.S. Bankruptcy Court for the Eastern District of California, Sacramento Division, for residents of the Sacramento area – will appoint a trustee to administer (manage) the bankruptcy estate. In Chapter 7, which is also called “liquidation bankruptcy,” the trustee’s role involves:
- Assessing the value of the debtor’s assets, which must be itemized on the debtor’s bankruptcy forms.
- Selling nonexempt assets to help certain creditors recoup their financial losses.
- Distributing proceeds from the sale amongst creditors.
Nonexempt assets are assets which are not protected by bankruptcy exemptions, whereas exempt assets are assets which are protected by bankruptcy exemptions. A trustee cannot sell or liquidate exempt assets. Moreover, even if the asset is nonexempt, it may still be safe from liquidation if:
- The debtor is able to purchase the nonexempt property from the trustee, who may be amenable to an installment agreement.
- The trustee decides to abandon the nonexempt property. This may occur if the asset or property is upside-down (meaning the loan exceeds the property’s market value), or if proceeds from the sale would be so insubstantial as to render the sale process pointless.
Chapter 7 Federal Exemptions
Speaking broadly, there are two sets of exemptions in bankruptcy:
- Federal bankruptcy exemptions
- State bankruptcy exemptions
There can be wide variations in bankruptcy laws by state, including those pertaining to bankruptcy exemptions. For instance, only some states permit debtors to choose between (though not blend) state and federal exemptions. Unfortunately, California filers are somewhat limited in that California prohibits debtors from using the federal bankruptcy exemptions.
However, California filers still have a choice. Debtors in California may choose between two different sets of California bankruptcy exemptions:
- System 1 Exemptions (also called “704 exemptions”)
- System 2 Exemptions (also called “703 exemptions”)
Exemption amounts are uniform throughout the state of California. In other words, the California Chapter 7 exemptions which are available to Sacramento filers are the same as those available to Roseville filers, Folsom filers, and so on.
Additionally, exemption amounts are the same regardless of whether the debtor files Chapter 7 or Chapter 13, though exemptions play very different roles in each chapter of bankruptcy. While the main purpose of exemptions in Chapter 7 is to protect property from liquidation, the primary function of exemptions in Chapter 13 is determining how much money the debtor will need to pay back as part of his or her reorganization plan. When you contact The Bankruptcy Group for a free consultation, our California Chapter 13 attorneys can help you better understand the complex relationship between Chapter 13 exemptions and monthly payments in reorganization bankruptcy.
Continue reading to see a list of current System 1 and System 2 bankruptcy exemptions in California.
2017 Chapter 7 Exemptions in California: System 1 vs. System 2
Debtors should be advised that bankruptcy exemptions are periodically updated to account for inflation in the economy. The following California Chapter 7 bankruptcy exemptions are current as of 2017. The following list is non-exhaustive, and additional exemptions may be available depending on factors like:
- What types of possessions you own.
- What, if any, benefits you are receiving.
- Which types of insurance you have.
California System 1 Bankruptcy Exemptions
- Homestead Exemption
- If single, not disabled – $75,000
- If family, one member with no interest in homestead – $100,000
- If age 65+ or physically/mentally disabled – $175,000
- Motor Vehicle Exemption – $3,050
- Tools of the Debtor’s Trade – $8,000 to $15,975
- Personal Property Exemptions
- “Health aids reasonably necessary to enable the [filer] to work or sustain health,” including “prosthetic and orthopedic appliances” (California Code of Civil Procedure § 704.050)
- “Household furnishings, appliances, provisions, wearing apparel, and other personal effects” (California Code of Civil Procedure § 704.020(a))
- Home improvement materials – $3,200
- Jewelry, artwork, family heirlooms – $8,000
- Other
- Student financial aid (“[F]inancial aid for expenses while attending school provided to a student by an institution of higher education,” California Code of Civil Procedure § 704.190(b))
- Worker’s compensation benefits (“[A] claim for workers’ compensation or workers’ compensation awarded or adjudged,” California Code of Civil Procedure § 704.160(a))
California System 2 Bankruptcy Exemptions
- Homestead Exemption – $26,800
- Motor Vehicle Exemption – $5,350
- Tools of the Debtor’s Trade – $8,000
- Personal Property Exemptions
- “[H]ousehold furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor” (California Code of Civil Procedure § 703.140(b)(3)) – $675 per item
- Health aids
- Jewelry – $1,600
- Wildcard – $1,425
Contact Our Experienced Sacramento Bankruptcy Lawyers
Choosing the right set of exemptions is critical to ensuring that you will be able to keep the maximum amount of valuable or sentimental personal property when filing for bankruptcy. However, it isn’t always obvious which set of exemptions is the “right” choice. Some debtors are better served by System 1, while System 2 is the superior choice for others filing Chapter 7 bankruptcy in Sacramento. Critically, exemptions are unavailable in business bankruptcy, which is one reason it is especially important for business owners to have legal help from a Sacramento business bankruptcy lawyer.
Let the experienced California Chapter 7 attorneys of The Bankruptcy Group help you make an informed decision about which set of exemptions to use, which chapter of bankruptcy to file, when to file bankruptcy, and other crucial bankruptcy considerations. For a free and confidential legal consultation, contact our law offices at (800) 920-5351 today.
The post Exemptions in Chapter 7 Bankruptcy in California appeared first on The Bankruptcy Group, P.C..
What happens in a Chapter 13 bankruptcy case when a creditor files a proof of claim involving a debt for which the statute of limitations to collect the debt has run? More specifically, does the filing of such a claim violate the Fair Debt Collection Practices Act (the “Act”)? That’s the issue considered by the U.S. Supreme Court in its recent decision in the case of Midland Funding, LLC v. Johnson. 1 Read More ›
Tags: Chapter 13, U.S. Supreme Court
What happens in a Chapter 13 bankruptcy case when a creditor files a proof of claim involving a debt for which the statute of limitations to collect the debt has run? More specifically, does the filing of such a claim violate the Fair Debt Collection Practices Act (the “Act”)? That’s the issue considered by the U.S. Supreme Court in its recent decision in the case of Midland Funding, LLC v. Johnson. 1 Read More ›
Tags: Chapter 13, U.S. Supreme Court
We usually think of credit cards and medical bills as the leading culprits behind consumer debt. However, many Californians struggle with an additional source of financial hardship: taxes owed to the IRS. While tax payments can seem overwhelming, the good news is that it may be possible to discharge (eliminate) certain tax debts by filing for Chapter 13 bankruptcy. However, in order to be dischargeable, tax-related debts need to meet specific requirements. Keep reading to hear these requirements explained by Roseville bankruptcy attorneys, and learn when you can discharge tax debt in Chapter 13 in California.
Can You File Bankruptcy on Back Taxes Owed to the IRS?
At The Bankruptcy Group, our Roseville Chapter 13 lawyers are often contacted by Californians wo have questions and concerns about tax-related debt. Some of the most common questions we receive from potential clients include, “Does bankruptcy clear IRS debt?” and, “Can back taxes be wiped out in bankruptcy?”
The answer is maybe, depending on the circumstances surrounding the debt. Factors like the type of tax that gave rise to the debt, the age of the debt, and when the tax was assessed all have an impact. If the tax debt meets certain criteria, which are explained in detail in the next section, it may be dischargeable not only in Chapter 13 (reorganization), but also in Chapter 7 (liquidation). Together, these are the two most common types of personal bankruptcy in California.
If a debt is dischargeable, it means the debtor will no longer liable for the debt once his or her case is discharged by the bankruptcy court. If a tax debt is discharged, the IRS cannot come after the filer to collect the debt, as bankruptcy court rulings supersede determinations made by tax authorities. (Note that for Californians in the Sacramento area, “bankruptcy court” generally refers to the Sacramento Division of the U.S. Bankruptcy Court for the Eastern District of California, which serves Sacramento and Placer Counties.)
Continue reading to find out when tax-related debts are dischargeable in Chapter 13 bankruptcy. Other examples of dischargeable debts in California bankruptcy cases generally include, but are not limited to, debts associated with:
- Business Loans
- Credit Card Bills
- Medical Bills
- Personal Loans
- Utility Bills
When is Tax Debt Dischargeable?
The only type of dischargeable tax debt is income tax debt. Generally speaking, debts arising from other tax obligations – for instance, payroll taxes – are considered to be non-dischargeable priority debts.
A priority debt is a debt that takes precedence in a bankruptcy case, even if it is not secured by collateral like a secured debt (such as a home mortgage). In Chapter 13, debtors are generally required to pay priority debts in full, in monthly installments, over the life of their three- to five-year reorganization plan.
However, there may be some cases where a Chapter 13 debtor can discharge federal income tax debt by filing for bankruptcy. In order for income tax debt to be dischargeable, the debt (and debtor) must meet certain requirements. These requirements are that:
- The taxpayer did not commit fraud, tax evasion, or other tax crimes. Fraudulent acts may result in dismissal of the bankruptcy case, and potentially, criminal prosecution.
- The debtor filed the relevant income tax return a minimum of two years before the bankruptcy filing date. Special rules apply for late returns, so a bankruptcy petitioner should consult with a Folsom Chapter 13 bankruptcy lawyer if he or she missed the tax filing deadline.
- The relevant tax return was due a minimum of three years before the bankruptcy filing date.
- One of the following statements must be true:
- The IRS tax assessed the tax a minimum of 240 days before the bankruptcy filing date.
- The IRS did not assess the tax.
CA Bankruptcy Attorneys Serving Roseville and Sacramento
It is very difficult for taxpayers to successfully navigate the highly technical regulations governing bankruptcy and taxes. It is not in your best interests to file bankruptcy without assistance from a bankruptcy lawyer, especially if you are concerned about IRS liabilities. Without the benefit of a Chapter 13 attorney’s extensive experience applying bankruptcy law in California, you are likely to miss key details that could make an enormous financial difference. In the worst-case scenario, you could even make errors that lead to the dismissal of your case, leaving you few remedies to eliminate or mitigate your tax liabilities and other debts.
If you are worried about paying back taxes and income tax-related debt, you are urged to speak with a Folsom bankruptcy attorney concerning your legal options. For a free and confidential consultation, contact The Bankruptcy Group at (800) 920-5351 today.
The post Can You Put Back Taxes in a Chapter 13 Bankruptcy in California? appeared first on The Bankruptcy Group, P.C..
(305) 891-4055 - Free Initial Consultation - Office: North Miami - Kendall - Bankruptcy Attorney Jordan E. Bublick - 25 Years Experience - www.bublicklaw.com
Chapter 13 and chapter 7 bankruptcy each provides for different requirements and relief. In general chapter 13 provides for an opportunity to reorganize your debt and chapter 7 provides for an opportunity to just discharge your debt.
Chapter 13 Chapter 13 bankruptcy is often used by people with higher incomes and substantial non-exempt property to formulate a chapter 13 plan to reorganize their debt while under the protection of the bankruptcy court. Under a chapter 13 plan, you are able to reorganize your secured debt (such as mortgages and car loans) as wells as unsecured debt (credit cards and personal loans). Often you are only required to back only 10% to 20% of you unsecured debt and discharge the rest. A typical chapter 13 plan is over a period of 3 to 5 years.
Chapter 7
Chapter 7 bankruptcy is usually used by people with lower income and little non-exempt property. Under chapter 7 unsecured debt, such as credit cards and loans, is discharged, unless it falls within the categories of non-dischargeable debts, such as student loans and some types of taxes.
Mortgage Modification
Chapter 13 bankruptcy is also used by people who are behind with their mortgages and to save their homes from foreclosure. Under a chapter 13 plan, you are able to take various approaches. You may reinstate your mortgage by catching up-to-date your past due payments over a period of up to 5 years.
Totally underwater second mortgages on residential property may be wholly avoided. Maintenance association liens may be avoided to the extent they are not secured by equity in the real estate.
Mortgage Modification Mediation
You may use the bankruptcy court's new mortgage modification mediation program ("MMM") [previously called the loss mitigation mediation ("LMM") program] to negotiate with your mortgage company to achieve a modification of your mortgage.
Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com
(305) 891-4055 - Free Initial Consultation - Office: North Miami - Kendall - Bankruptcy Attorney Jordan E. Bublick - 25 Years Experience - www.bublicklaw.com
Chapter 13 and chapter 7 bankruptcy each provides for different requirements and relief. In general chapter 13 provides for an opportunity to reorganize your debt and chapter 7 provides for an opportunity to just discharge your debt.
Chapter 13 Chapter 13 bankruptcy is often used by people with higher incomes and substantial non-exempt property to formulate a chapter 13 plan to reorganize their debt while under the protection of the bankruptcy court. Under a chapter 13 plan, you are able to reorganize your secured debt (such as mortgages and car loans) as wells as unsecured debt (credit cards and personal loans). Often you are only required to back only 10% to 20% of you unsecured debt and discharge the rest. A typical chapter 13 plan is over a period of 3 to 5 years.
Chapter 7
Chapter 7 bankruptcy is usually used by people with lower income and little non-exempt property. Under chapter 7 unsecured debt, such as credit cards and loans, is discharged, unless it falls within the categories of non-dischargeable debts, such as student loans and some types of taxes.
Mortgage Modification
Chapter 13 bankruptcy is also used by people who are behind with their mortgages and to save their homes from foreclosure. Under a chapter 13 plan, you are able to take various approaches. You may reinstate your mortgage by catching up-to-date your past due payments over a period of up to 5 years.
Totally underwater second mortgages on residential property may be wholly avoided. Maintenance association liens may be avoided to the extent they are not secured by equity in the real estate.
Mortgage Modification Mediation
You may use the bankruptcy court's new mortgage modification mediation program ("MMM") [previously called the loss mitigation mediation ("LMM") program] to negotiate with your mortgage company to achieve a modification of your mortgage.
Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com
Bankruptcy Attorney Jordan E. Bublick is a Miami, Florida has over 25 years of experience in filing Chapter 13 bankruptcy (reorganization of mortgages and other debt) and Chapter 7 Bankruptcy cases (discharge of debt). He has filed over 8,000 bankruptcy cases. Jordan E. Bublick has been a member of the Florida Bar since 1983 and is a graduate of the Ohio State University College of Law (JD) and the New York University School of Law (LL.M.).
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is generally used by people who desire to discharge unsecured debt and who have little non-exempt property.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is used to reorganize mortgages and other secured debt as well as to discharge unsecured debt.
Chapter 13 bankruptcy is often used to stop a foreclosure action and proposed a plan of reorganization. Due to the decreased real estate values in South Florida, often a junior mortgage lien may be avoidable as an "unsecured debt."
Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com
Bankruptcy Attorney Jordan E. Bublick is a Miami, Florida has over 25 years of experience in filing Chapter 13 bankruptcy (reorganization of mortgages and other debt) and Chapter 7 Bankruptcy cases (discharge of debt). He has filed over 8,000 bankruptcy cases. Jordan E. Bublick has been a member of the Florida Bar since 1983 and is a graduate of the Ohio State University College of Law (JD) and the New York University School of Law (LL.M.).
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is generally used by people who desire to discharge unsecured debt and who have little non-exempt property.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is used to reorganize mortgages and other secured debt as well as to discharge unsecured debt.
Chapter 13 bankruptcy is often used to stop a foreclosure action and proposed a plan of reorganization. Due to the decreased real estate values in South Florida, often a junior mortgage lien may be avoidable as an "unsecured debt."
Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com
In chapter 13 bankruptcy, only the chapter 13 debtor is allowed to file a chapter 13 plan. That is, creditors are not allowed to propose a plan as they are in chapter 11.
Chapter 13 plans generally are designed to adjust payment of debts under a flexible repayment plan. Usually these payments are made from future wages or income. There are some mandatory provisions for a chapter 13 plan, but most are permissive.
A chapter 13 plan is usually three to five years in length. Not all secured creditors - such as an up-to-date car loan - are required to be paid as part of the chapter 13 plan. Priority claims, such as child support and alimony arrearages, may be paid through the plan. Defaults in mortgage payments may be cured in a chapter 13 plan.Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com
In chapter 13 bankruptcy, only the chapter 13 debtor is allowed to file a chapter 13 plan. That is, creditors are not allowed to propose a plan as they are in chapter 11.
Chapter 13 plans generally are designed to adjust payment of debts under a flexible repayment plan. Usually these payments are made from future wages or income. There are some mandatory provisions for a chapter 13 plan, but most are permissive.
A chapter 13 plan is usually three to five years in length. Not all secured creditors - such as an up-to-date car loan - are required to be paid as part of the chapter 13 plan. Priority claims, such as child support and alimony arrearages, may be paid through the plan. Defaults in mortgage payments may be cured in a chapter 13 plan.Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com
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