Redwood City Bankruptcy: Exemptions Generally Speaking

By filing for a Chapter 7 bankruptcy, the entirety of his assets becomes subject to liquidation. The debtor’s property forms her “bankruptcy estate” and the trustee is empowered to seize all items within the bankruptcy estate and sell them for the benefit of the debtor’s creditors. Despite the trustee’s right to do so, a debtor can exempt certain items from inclusion within the bankruptcy estate to prevent their sale.  An exemption is a list (in Schedule C of the bankruptcy petition) the debtor creates to purposefully choose items to be excluded from the bankruptcy estate, and the trustee’s grasp.

In Chapter 13 in which the debtor retains all his possessions, the exemptions are used to determine whether the filing of the Chapter 13 treats the creditors equal to or better than he would have been treated under a Chapter 7. In order for a Chapter 13 payment plan to be approved by the court, this preferential treatment must be shown.
Exemptions are state specific. That is, when the federal bankruptcy laws were written, they included a default list of exemptions. States were permitted to create a list of alternate exemptions to citizens of their respective states. California has opted out of the federal exemption list, as have all states (although some allow their citizens to choose between the federal list of exemptions and the state list; California is not one of these states). Californians were given two options, however. These options are codified within California’s Code of Civil Procedure as sections 703 and 704. All persons who file in California must choose their exemptions from one of these two lists; the two lists may not be mixed-and-matched.

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