Protecting Your Assets In Bankruptcy
One of the schedules of assets and liabilities which will be filed by the individual debtor in a bankruptcy proceeding is a schedule of “exempt” property.
Every individual considering filing bankruptcy has concerns about their options for protecting property in bankruptcy. Federal bankruptcy law provides that an individual debtor can protect certain specified property from the claims of creditors either because it is exempt under federal bankruptcy law or because it is exempt under the laws of the debtor's home state (11 USC §522)(b)).
California has taken advantage of a provision in the bankruptcy law that permits each state to adopt its own exemption law in place of the federal exemptions. In other jurisdictions, the individual debtor has the option of choosing between the federal package of exemptions or exemptions available under state law. As a result, state law often determines whether certain property is exempt (protected) and may be kept by the debtor.
Bankruptcy Petition Preparers are specifically prohibited from providing any assistance in the selection of applicable exemptions (protection laws) for debtors; however we will provide you with valuable tools that will enable you to understand and learn about protecting property in Bankruptcy under California bankruptcy statutes.
Important Changes Since 2005 Bankruptcy Reforms
The 2005 changes in the bankruptcy laws changed the manner in which a debtor can select the laws they use to protect their property. You must have made California your home for at least two years in order to use the California exemptions. If you haven't lived within California for two years, you must use the exemptions from the state where you lived before the two years prior to the time of filing.
There are also new residency requirements for Homestead Exemptions (the law that allows you to protect the house you own or are buying). Under the new law, you must have acquired your home (or paid for your home with funds from the sale of another home within the same state) within 40 months prior to filing in order to claim that state's full Homestead Exemption. If a debtor has not met this residency requirement, the allowed Homestead Exemption will be capped at $125,000, even if the actual exemption for that state is higher.