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What is Exempt and Non-Exempt Property?

Exempt and non-exempt property refers to which personal items debtors are and are not allowed to keep during a Chapter 7 bankruptcy filing. If you are filing for Chapter 7, you have to turn over certain non-exempt property to a trustee. That property is sold and the proceeds are used to pay off your debt.

Exempt property denotes items and assets you keep. They are generally those that are essential to your lifestyle, such as your home and necessary clothing. Below are examples of property you can and cannot keep during a Chapter 7 bankruptcy.

Examples of non-exempt property (items you may have to give up):

  • A second vehicle, such as a car or truck
  • A second home
  • Cash, bank accounts, stocks, bonds and other investments
  • Collections of stamps, coins and other valuable items
  • Expensive musical instruments, unless the debtor is a professional musician
  • Family heirlooms

Examples of exempt property (items you can probably keep):

  • Your home
  • A portion of unpaid but earned wages
  • Damages awarded for personal injury
  • Household appliances
  • Jewelry, up to a certain amount
  • Vehicles, up to a certain value
  • Pensions and retirement savings
  • Public benefits, including unemployment compensation
  • Necessary clothing
  • Necessary household goods and furnishings
  • Tools and materials required for your trade

California is a unique state in terms of exemptions. Unlike most states, where you can choose whether you would like state or federal exemptions, you must use a Californian set of exemptions. There are two sets of exemptions in California – known as System 1 or System 2 – from which filers can choose.  Which system you decide upon depends on your specific financial situation. A skilled bankruptcy attorney in Orange County can help you determine the best course of action.

In System 1, when a married couple files jointly, each spouse may claim the full amount of each exemption. System 2 exemptions only apply in bankruptcy cases. You should always speak with an Orange County bankruptcy lawyer to learn about which exemptions can be used in your local court.

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