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California Bankruptcy Laws Overview

Things happen. No matter how hard a person tries, sometimes events in a person's life turns everything on end and creates havoc. Often, this results in serious financial challenges which leads people to seek bankruptcy relief to help them recover from such problems. If you happen to live in California, then there are some California bankruptcy laws that apply specifically to that state.

In California, bankruptcy laws are basically derived from the US Federal bankruptcy statues and codes, or Title 11 of the United States Code. However, the state has allowed for some differences in the exemptions that are allowed when filing for bankruptcy. In general, the exemptions refer to income and assets that a debtor has which will not be affected by the bankruptcy, or in other words, which are exempt from the bankruptcy proceedings.

The bankruptcy laws in California allow for the use of the federally sanctioned supplemental exemptions, in conjunction with the allowed California State exemptions. This state is comprised of four areas for US bankruptcy court California districts and each of these courts is named for that district. The four districts are: the California Central bankruptcy court, the California Eastern bankruptcy court, the California Northern bankruptcy court, and the California Southern bankruptcy court.

Under the California bankruptcy laws, there are two categories of exemptions from which a person must choose. These two types of exemption categories are referred to as System One and System two. The debtor, with help and advice from someone providing bankruptcy help, can decide which of the two systems is best form them.

Under California law, the System One option provides for a homestead exemption of up to $50,000 for a single person who is not disabled, up to $75,000 for families, and up to $125,000 for those who are senior citizens. System One also allows for the following personal property exemptions: cash in the bank up to $2,000; building materials of up to $2,000; jewelry and heirlooms up to a value of $5,000; motor vehicles up to a value of $1,900; burial plots; appliances; home furnishings; personal clothing; health related aids; food; and any money that comes from personal injury or wrongful death claims. Additionally, System One also makes allowances 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 which includes such items as tools, uniforms, equipment, books and manuals needed to continue in a trade; and wages exempt at a minimum of 75%.

System Two exemptions of the bankruptcy laws in California differs a great deal from the System One exemptions. The homestead exemption in System Two allows for a maximum of $17,425 for all homestead categories. The jewelry and heirloom exemption is capped at $1,150. The motor vehicle exemption is up to $2,775 and the trade tools exemption is limited to $1,750. System Two also limits the total amount of personal benefits that can be exempted to $17,425 and also allows for a wild card exemption of up to a value of $925. Under System Two there is no wage exemption and only ERISA-qualified pension benefits are exempt.

Because these two exemption systems under the California bankruptcy laws tend to be complex, it is strongly recommended that people hire an attorney who specializes in this area of the law for help with bankruptcy. Generally, the attorney will review your complete financial situation and make a recommendation about which of the two exemption systems would be best to use when it is time to file bankrupt in this state.