Redwood City Bankruptcy: Purchase Money Security Interest

A Purchase Money Security Interest is one that is taken by the seller of the collateral to secure all or part of its price or taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used.  Houses and cars are the most common examples: failing to make payments on a house or a car will cause banks to foreclose on the house or repossess the car; however, a purchase money security interest may apply to a new washer and dryer.

For example, when a person buys a new television for $1600 and paid for it in some form of credit and not cash, then that TC is a Purchase Money Security Interest until it is fully paid. By not making the payments on the credit cards, the bank has the right to retrieve that item and most people do not realize this factor when they are buying big purchases. To be safe, check the receipt to see that it states that the item belongs to the bank until paid for in full.

When a person files for bankruptcy and lists the credit card with used to pay for the purchase, the bank or the attorney will contact the individual and want to recover the property or continue getting paid for it. As a warning, buying big purchases as gifts will result in loss of that property and when the bank cannot get that item back, it can ask the court not to allow on discharge on the bank’s debt. The court will probably grant that request.

On the other hand, if the individual still has access to the property, it is best to give it up because after calculating the resale value of the property and the costs involved in retrieving it from it, the bank will often not do anything. Sometimes it is wise to work out a payment arrangement with the bank. Sometimes, the bank will ask to “redeem” the property, meaning they want a lump sum for it, albeit at a significant reduction in price. The banks hesitate to reaffirm the debt (i.e., keeping the payment terms and interest rate as they were) because a person’s credit reliability is low when he files for bankruptcy.

51. 703 v. 704
Having “opted out” of the federal exemptions, California now provides its resident-debtors a choice between two exemptions schemas. Each is found in the Code of Civil Procedure, one in section 703 and the other in section 704. For reference purposes, the 703 list is called the “wildcard exemptions” and the 704 list is known as the “homestead exemptions.” The most common exemptions are listed below:


Wildcard Exemptions:

Homestead (equity in a common dwelling used as residence)
- Up to $21,825
- Unused portion of the homestead may be applied to ANY property (the wildcard)
Equity in automobile
- Up to $3,300 in ONE motor vehicle
Personal property
- Household items (pets, appliances, furniture, etc.) have no cap but no item may be uncommonly expensive
- Jewelry, heirlooms, and art: up to $1350 collectively
- Clothes have no cap but no one item may be uncommonly expensive
Tools of the trade
- Up to $2075 collectively
Pensions and Retirement
- No cap on retirement, provided the funds are held within a qualified account


Homestead Exemptions

Homestead (equity in a common dwelling used as residence)
- Up to $75,000 for an individual ($100,000 if married)
- Up to $175,000 if single, 55 years of age or older, and earn less than $15,000 a year
- Up to $175,000 if 65 or older, or physically or mentally disabled
Equity in automobile
- Up to $2,550 in any or all motor vehicles
Personal property
- Household items (pets, appliances, furniture, etc.) have no cap but no item may be uncommonly expensive
- Jewelry, heirlooms, and art: up to $6750 collectively
- Clothes have no cap but no item may be uncommonly expensive
Tools of the trade
- Up to $6,750 (double if married and both spouses use the tools)
Pensions  and Retirement
- No cap on retirement, provided the funds are held within a qualified account

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