The most common fear we hear from people considering bankruptcy is, “Will I lose my house or my car?” For most of our clients, the answer is no. Bankruptcy law is designed to give you a fresh start, not to leave you without a place to live or a way to get to work.

How California Bankruptcy Exemptions Work

Exemptions are laws that protect certain property from creditors and from the bankruptcy trustee. California is unusual because it offers two separate sets of exemptions, and you must choose one:

• The “homestead” system (Code of Civil Procedure section 704), which offers strong protection for equity in your home.
• The “wildcard” system (Code of Civil Procedure section 703.140), which offers smaller home protection but a flexible wildcard that can protect cash, bank accounts, tax refunds or other property.

Choosing the right system is one of the most important decisions in your case. Homeowners with significant equity usually benefit from the homestead system. Renters and people with cash or a refund often do better with the wildcard system.

Keeping Your Home

If your home equity is protected by the homestead exemption and you are current on your mortgage, you can usually keep your home in Chapter 7 by continuing to pay as usual.

If you are behind on payments, Chapter 13 can be a powerful tool. Filing stops a foreclosure sale, and the plan lets you repay the missed payments over three to five years while you keep making your regular mortgage payment.

Keeping Your Car

California’s vehicle exemption protects a certain amount of equity in a car. If you still owe on the loan, you generally have three options in Chapter 7:

• Reaffirm the loan and keep paying as before
• Redeem the car by paying its current value in a lump sum
• Surrender the car and walk away from the remaining balance

In Chapter 13, you may be able to catch up on missed car payments, and in some cases reduce the balance to the car’s value if the loan is old enough.

What About Retirement Accounts?

401(k) plans, IRAs and most other qualified retirement accounts are generally protected in bankruptcy. You should almost never cash out retirement savings to pay credit cards before talking to a bankruptcy attorney.

Talk to an Orange County Bankruptcy Attorney

Every situation is different, and the right choice depends on your income, your property and your goals. Call Madaen Law at (714) 782-7275 or send us a message for a free consultation. We help clients throughout Orange County, Los Angeles County and San Diego County.