Understanding California Bankruptcy Laws: What Property is Exempt in Chapter 7?

Will I Lose My Property if I File for Bankruptcy?

Most people who file for bankruptcy in Los Angeles don’t lose any property. That’s because California law provides two different sets of bankruptcy exemptions–protections for your property. The bankruptcy filer can choose the set of exemptions that best protects their home, car, and other property.

Bankruptcy exemptions are described in detail below, along with an explanation of how they work. But before we delve into the specifics about the California bankruptcy exemptions, let’s first address a few basic points about how property is treated in bankruptcy.

Background: The Bankruptcy Estate 

The minute a bankruptcy case is filed, all of your property becomes part of what is known as a bankruptcy estate. That means the bankruptcy trustee temporarily has control of your property.

The bankruptcy estate is handled differently in Chapter 7 bankruptcy than in a Chapter 13 case. In a Chapter 7 Bankruptcy,the trustee evaluates your assets to determine whether there is any non-exempt property. Assets that aren’t covered by exemptions can be sold to make partial payment to creditors. Most people who file for Chapter 7 don’t have any non-exempt property and don’t lose anything, but you’ll want to discuss this with your Chapter 7 bankruptcy lawyer and make sure your property is protected.

In a Chapter 13 Bankruptcy, you can typically keep all of your property, even if it’s not covered by exemptions. However, your monthly plan payment is dictated in part by the amount of non-exempt property you own and choose to keep.

How Bankruptcy Exemptions are Applied

Before we look at the specific types of property that are protected through exemptions, it’s important to understand exactly what the exemption protects. It’s your interest (also known as “equity” in the property. That isn’t necessarily the same as the value of the asset.

Imagine, for example, that you own a car worth $22,000. However, you’re still making payments on the vehicle, and you owe the lender $17,000. That means your equity in the vehicle is $5,000 ($22,000 – $17,000). In 2026, the maximum exemption for a motor vehicle is $8,625. That wouldn’t cover a $22,000 vehicle if it was paid off, but it is enough to protect the equity in a scenario like this one.

California’s Two Bankruptcy Exemption Systems

Many states allow bankruptcy filers to choose between state exemptions and federal bankruptcy exemptions. California does not. If you’ve lived in California for at least two years prior to filing, you must use California exemptions. If you recently moved, you may have to use another state’s exemptions, and you should consult a bankruptcy attorney about how that will affect your case.

Though California doesn’t allow the use of federal exemptions, the state does offer a choice between two sets of state exemptions. Which system is best for you will depend on the type of property that you own.

The main difference between the two sets is the dollar amount of protection offered for your home. One set provides a large homestead exemption, while the other offers more flexibility to protect other types of property.

California Bankruptcy Exemptions: System 1

This first set of exemptions is often called the “704” or “homestead” system because it is usually chosen by people with significant equity in a home. The exemptions are listed in California Code of Civil Procedure sections 704.010–704.200.

The dollar amounts listed below took effect on April 1, 2025 and will remain in effect through March 31, 2028 unless the legislature makes a change in the law. The one exception is the homestead exemption, which is updated in January of each year. The 704 homestead exemption is more complicated than most bankruptcy exemptions because it isn’t a fixed dollar amount that applies to every California bankruptcy filer. Instead, the law sets a minimum exemption (which increases annually), but allows for a possible larger exemption based on the median sale price for single family homes in your county. In 2026, the minimum homestead exemption for those who choose 704 exemptions is $317,547 and the cap is $743,459. Other exemptions in this set include:

1. Homestead (equity in your home). Under the current homestead law (CCP § 704.730), your equity in your principal residence is protected up to an amount tied to local housing prices. The exemption is the greater of:
   • a statutory minimum amount (adjusted annually for inflation), or
   • the prior year’s countywide median sale price for a single-family home,
   up to a statutory maximum (also adjusted annually). For 2025, this protects roughly $361,113 to $722,151 of equity, depending on the county. Because the exact amount is county-specific and changes over time, it’s important to check the current homestead figure for your county before you file.
2. Motor vehicle. Your equity in one or more motor vehicles is exempt up to $8,625 per debtor (CCP § 704.010), including certain proceeds from an execution sale or insurance if a vehicle is damaged or destroyed.
3. Building materials and home repairs. Materials purchased in good faith to repair or improve your residence are exempt up to $4,400 in equity (CCP § 704.030).
4. Jewelry, heirlooms, and works of art. Equity in jewelry, heirlooms, and works of art is exempt up to a combined total of $10,950 (CCP § 704.040). This particular exemption cannot be “doubled” in a joint case.
5. Health aids. Health aids reasonably necessary to enable you or your spouse or dependents to work or maintain health—such as medical devices, prosthetics, and similar equipment—are fully exempt (CCP § 704.050).
6. Household furnishings, clothing, appliances, and similar items. Ordinary household furnishings, clothing, appliances, and personal effects are exempt to the extent they are reasonably necessary and personally used by you or your family at your home (CCP § 704.020). Items of truly extraordinary value may not be fully protected.
7. Wages earned shortly before filing. Wages you received during the 30-day period before the bankruptcy filing are generally exempt up to 75% of the paid earnings, so long as the funds can be traced into cash or a deposit account (CCP § 704.070). Separate California wage-garnishment rules limit how much of future paychecks creditors can take; those rules are complex and change over time.
8. Pensions and retirement benefits. Most public and private retirement benefits are exempt under California law, including:
   • public retirement systems (CCP § 704.110);
   • private retirement plans such as employer pensions, profit-sharing plans, and similar arrangements (CCP § 704.115); and
   • distributions from those plans to the extent reasonably necessary for support.
   These protections exist in addition to any federal retirement exemptions that may apply in bankruptcy.
9. Public benefits. Many public benefits are fully exempt, including disability and unemployment benefits, workers’ compensation, certain public assistance programs, and student financial aid (see, e.g., CCP §§ 704.120, 704.130, 704.140–704.170, 704.190–704.200).
10. Tools of the trade. Tools, instruments, equipment, uniforms, materials, furnishings, books, and other personal property used in your trade, business, or profession are exempt up to:
    • $10,950 in total equity for one debtor; or
    • $21,900 if both spouses in a joint case work in the same trade or business,
    under CCP § 704.060. Within those amounts, the portion that can be applied to a commercial motor vehicle is capped at $4,850 for one spouse or $9,700 if both spouses are in the same business.
11. Life insurance. Unmatured life insurance policies themselves are exempt. The aggregate loan or cash value of unmatured life insurance policies owned by the debtor is exempt up to $17,525 per debtor (CCP § 704.100). In a joint case, that amount can effectively be doubled for spouses.

California Bankruptcy Exemptions: System 2

This second set of exemptions is often called the “703 system” or the “wildcard” system. It is usually more attractive for people who do not have much home equity but own vehicles, savings, or other personal property they want to protect. These exemptions come from California Code of Civil Procedure section 703.140(b).

System 2 can be used only in bankruptcy cases, and the exemptions in this system generally cannot be doubled for married couples filing jointly. The dollar amounts below are current for cases filed between April 1, 2025 and March 31, 2028, unless the legislature makes a change. Always verify the current figures before filing.

1. Homestead (equity in a residence). You may exempt up to $36,750 of equity in your residence (or in certain other real or personal property used as a residence) under CCP § 703.140(b)(1).
2. Wildcard (miscellaneous property) exemption. The wildcard exemption can be applied to any type of property—cash, bank accounts, vehicles, household goods, or other assets. Under CCP § 703.140(b)(5), it currently protects:
   • a base amount of $1,950, plus
   • any unused portion of the $36,750 homestead exemption under § 703.140(b)(1).
   If you do not use the 703.140(b)(1) homestead exemption at all, the wildcard pot can protect up to a total of $38,700 in value.
3. Motor vehicles. Equity in one or more motor vehicles is exempt up to $8,625 in total under CCP § 703.140(b)(2).
4. Household goods and furnishings. Household furnishings, goods, wearing apparel, appliances, books, animals, crops, and musical instruments held primarily for personal, family, or household use are exempt up to $925 per item under CCP § 703.140(b)(3).
5. Jewelry. Jewelry used primarily for personal, family, or household purposes is exempt up to $2,175 in total equity under CCP § 703.140(b)(4).
6. Pensions and retirement accounts. Most tax-qualified retirement plans such as 401(k)s, 403(b)s, and many pension plans are protected under federal non-bankruptcy law and CCP § 704.115, and are generally treated as fully exempt in bankruptcy. In addition, traditional and Roth IRAs are protected in bankruptcy under 11 U.S.C. § 522(n) up to a combined limit that is adjusted every three years. For cases filed on or after April 1, 2025, that cap is $1,711,975 in total IRA funds. Amounts above that limit may not be fully protected.
7. Public benefits. Many public benefits remain completely exempt, including unemployment benefits, disability benefits, workers’ compensation, veterans’ benefits, aid to the elderly or disabled, and crime victims’ reparations (see CCP § 703.140(b)(10) and related provisions).
8. Tools of the trade. Implements, professional books, and tools of the trade are exempt up to $10,950 under CCP § 703.140(b)(6).
9. Life insurance (dividends, interest, and loan value). Any unmatured life insurance contract (other than a credit life policy) owned by the debtor is exempt. Accrued dividends or interest, and the loan or cash value of such a policy, are exempt up to $19,625 under CCP § 703.140(b)(8).

How Do I Decide Which Bankruptcy System is Best for Me?

While there are similarities between these two systems, which route is best for you will depend on your individual circumstances. Not every form of exemption, or every detail regarding each exemption is listed here. This article provides insight on only some of the most common exemptions utilized.

If you are considering bankruptcy in California, it is recommended that you discuss your situation with an experienced bankruptcy attorney before taking any action.