The majority of California's bankruptcy laws are derived from Title 11 of the United States Code, which contains the federal bankruptcy statutes and codes. However, the state has allowed for some variations in the permitted exemptions when filing for bankruptcy. In general, exemptions refer to the debtor's income and assets that will not be affected by the bankruptcy proceedings, or are exempt.
The laws of California permit the use of federally sanctioned supplemental exemptions in addition to the state-approved exemptions. This state is divided into four districts for the US bankruptcy court in California, and each of these courts bears the district's name. The four districts are the Central Bankruptcy Court of California, the Eastern Bankruptcy Court of California, the Northern Bankruptcy Court of California, and the Southern Bankruptcy Court of California.
In accordance with the California bankruptcy laws, two distinct sets of exemptions are permitted. These two classifications of exemptions are known as System One and System Two, and the insolvent has the option of filing their bankruptcy claim form under either system.
System One provides a homestead exemption of up to $50,000 for a non-disabled single individual, up to $75,000 for families, and up to $125,000 for senior citizens, in accordance with California law. System One also allows the following exemptions for personal property: cash in the bank up to $2,000, building materials up to $2,000, jewelry and heirlooms up to $5,000, motor vehicles up to $1,900, burial plots, appliances, home furnishings, personal clothing, health related aids, food, and any money from personal injury or wrongful death claims.
In addition, System One allows for the following exemptions: insurance claims of any type; pensions; benefits such as unemployment compensation; workers' compensation claims; health aid claims; tools of the trade, such as uniforms, equipment, books, and manuals required to continue in a trade; and wages exempt at least 75%.
System Two exemptions from California's bankruptcy statutes differ significantly from System One exemptions. System Two's homestead exemption permits a maximum of $17,425 for all homestead categories. The exemption for jewelry and heirlooms is limited at $1,150.
The exemption for motor vehicles is limited to $2,775 and the exemption for trade instruments is capped at $1,750. System Two limits the total amount of exempted personal benefits to $17,425 and permits a wild card exemption with a maximum value of $925. Under System Two, only ERISA-qualified pension benefits are exempt from taxation.
Due to the complexity of these two exemption systems under the California bankruptcy laws, it is strongly advised that individuals seek the assistance of a bankruptcy attorney who specializes in this area of law. When it is time to file for bankruptcy in this state, the attorney will typically evaluate your entire financial situation and make a recommendation regarding which of the two exemption systems would be most appropriate.
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