Once a Chapter 7 bankruptcy is filed, all of the assets of the debtor that filed becomes property of the bankruptcy estate.  Immediately upon filing, a Chapter 7  the bankruptcy court appoints a bankruptcy Trustee to sell your “nonexempt” assets or those things not protected by a bankruptcy exemption to pay your creditors.   The Debtor loses legal ownership of the assets of the bankruptcy estate.  The Trustee’s duty is to collect the assets of the bankruptcy estate to pay the Debtor’s creditors and at the end of the bankruptcy, ownership of the remaining assets reverts to the Debtor.  But certain assets may be exempt from this process.  Thus, Debtor’s often do pre-bankruptcy planning in order to maximize exempt assets.

Each state has a set of exemptions, and most states require filers to use the state exemptions.  However, some states let you choose either the state exemption system or the federal exemption scheme.  California does not recognize the federal exemptions and you must have lived in California for a specific period of time before the bankruptcy filing to take advantage of the California bankruptcy exemptions.   California has two separate lists of exemptions, referred to as the Wildcard Exemption and the Homestead Exemption.

a.) The Wildcard Exemption, which allows debtors $31,950 in assets that the Debtor selects (e.g. cars, deposit accounts, etc.);

b.) The Homestead Exemption, which allows up to about $670,000 of equity in a primary residence (Debtors with equity over the Homestead amount risk the Trustee selling their house to pay creditors);

c.) about $5,000 in resale value of each car; and

d.) money in 401k retirement accounts and up to about $1,300,000 in IRAs.

Pre-bankruptcy planning often focuses on maximizing these exempt assets.

While other assets may not be exempt, the process of the Trustee collecting them and selling them may make it unlikely to result in funds to pay creditors and the Trustee may abandon them.  So, additional pre-bankruptcy planning may entail using funds to pre-pay basic living expenses, car payments rent, health insurance premiums, daycare, etc.  Further the timing of the bankruptcy filing may be made to minimize funds in bank accounts, wait until a statute of limitations expires or taxes due age enough to become dischargeable by the bankruptcy.

Here at Epps & Coulson, LLP, we understand the bankruptcy process and can assist debtors and creditors.  Please feel free to contact Dawn at: for any questions.

Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.  It is likely considered advertising.  Epps & Coulson, LLP encourages you to call to discuss these matters as they apply to you or your business.

Attorneys admitted to practice in California, New York, Colorado, Texas, and Oregon