Under Protecting Your Assets in Bankruptcy
Bankruptcy Exemptions – What you need to know about exemption 704
A new way to protect your assets in bankruptcy goes into effect on September 1, 2020. California Civil Code section 704.220(a) states: (a) Money in the judgment debtor’s deposit account in an amount equal to or less than the minimum basic standard of adequate care for a family of four for Region 1, established by Section 11452 of the Welfare and Institutions Code and as annually adjusted by the State Department of Social Services pursuant to Section 11453 of the Welfare and Institutions Code, is exempt without making a claim.
So what does this mean in regular language? It means that about $2000 a month in cash in your bank account will not be available to your creditors when you file a bankruptcy.
704 Exemption
A lot of people have a lot of their wealth tied up in their home, and while having a lot of home equity is a good thing, it does not help pay the bills. When you have file bankruptcy and have a lot of home equity, the way to protect the home equity is to use the 704 exemptions to protect the home equity so you do not have to sell your home in bankruptcy to pay your creditors.
This leaves a different problem, protecting the rest of your assets. After your vehicles, the next concern for most people in bankruptcy is keeping money in the bank. With this new code section, with no discussion, with no examination, with no question a person will be able to protect a good portion of the cash in the bank.
This prevents people from having to make sure they spend their money in an approved fashion before filing for bankruptcy. This also makes it easier in preparing the bankruptcy filing as now there is less concern as to a specific bank balance on a specific date. This means less work for your bankruptcy attorney which should help keep the prices of paying for a bankruptcy attorney down.
Another good thing about this new exemption is that it will be adjusted annually. So every year the amount of cash in the bank you can exempt in a bankruptcy will probably increase. Every dollar matters, especially in bankruptcy, and by increasing every year this exemptions helps.
Using the 704 exemption in California
What is also unique about this exemption is part (e) (1): “The exemption applies per debtor, not per account.” This is fairly unique to California Bankruptcy Exemptions. In most circumstances, the exemptions in California are looked at through the lens of a family unit whether single or married. This means that if a married couple files bankruptcy , they get $100,000 of home equity and if a single person files bankruptcy, they also get $100,000 of home equity (if they have a qualifying dependent). With this new exemption, a married couple should be eligible for two separate bank deductions of around $2000, or $4000 total for the married family unit. This does not have to be in separate accounts, either. So if you file bankruptcy after September 1, 2020, and have $4000 in the bank and use the 704 exemption series in California, it is no longer a concern. Prior to this date, the bankruptcy trustee would be seizing this money and using it to pay your creditors.
Another helpful item about this bankruptcy exemption is that there is no proof required of the debtor or debtors to show that it is necessary for the support of the family. To use this exemption, all that a person has to do is have the money in a deposit account. This means a bank account, credit union account, an account at a savings and loan, or something else that is similar. This is not a difficult burden to meet while filing a bankruptcy.
