Many individuals will start the New Year resolving to improve their financial affairs. Though bankruptcy is a great tool, which generally includes benefits such as the discharge of credit card and medical debt, a new exemption scheme, effective January 1, 2013, will give potential filers even more to be excited about.
A key protection offered by the Bankruptcy Code is found in Section 522. This section details a debtor’s rights regarding exempt property—property that is shielded from liquidation.
Exemptions are statutory provisions that generally protect individual assets from liquidation based on an assigned dollar value. For example, pursuant to CCP § 703.140(b)(3), debtors are permitted to shield up to $600 per “household” item. In other words, you can prevent creditors from seizing any of your appliances or furnishings if they are worth less than $600/item. Under CCP § 703.140(b)(2), you can shield up to $4,800 of the fair market value of your motor vehicle. There are numerous exemptions that apply in different contexts and can even apply in conjunction with each other. A vehicle that is valued at $6,000 can be fully protected by combining the Motor Vehicle (b)(2) exemption with the “Grubstake” (b)(5) exemption (see below).
The bottom line is that a careful application of the exemption statutes can often allow debtors to retain their assets during and after a bankruptcy filing.
The 2013 Exemptions
The assigned exemption values change every three years to account for inflation. On January 1, 2013 a new exemption scheme became effective allowing debtors to take advantage of even stronger protections. Whereas a person filing for bankruptcy protection in California on December 20, 2012 would have been able to exempt up to $23,250 in “any property” under CCP § 703.140(b)(5) & (1), a debtor that filed on January 15, 2013 would have been able to exempt up to $25,340 under the same statutes—a $2,090 difference!
More Than a “Fresh Start”
The Bankruptcy Code and the attendant exemptions were created to give filers a “fresh start.” They were designed with the idea that a person free from burdensome debt would be a more productive member of society. But the protections offered by the exemptions, particularly the new valuations, provide more than a fresh start—they provide an invaluable tool and an opportunity. Instead of rewinding and requiring individuals to begin their lives anew, the exemption scheme allows debtors to carry on—without the worry of losing invaluable possessions.