Overview: Why the exemption choice matters in California
When you file bankruptcy in California the set of exemptions you use determines which property you keep and which property may be available to repay creditors. Unlike many states, California has its own exemption rules and has opted out of the federal exemption scheme; debtors must use California’s exemptions and may choose between two mutually exclusive California systems (often called the 703 and 704 systems).
This article explains the practical differences between the California systems and the federal exemptions that many debtors ask about, summarizes the key dollar limits, and lays out a short strategic checklist you can use when deciding which exemptions will deliver the best outcome for your case.
What the law requires: California’s two systems (and the federal option question)
Because California has exercised the "opt-out" authority in the Bankruptcy Code, federal §522(d) exemptions are not available to California bankruptcy filers as a matter of state law; instead, California filers must choose one of two state exemption lists:
- CCP §703.140 exemptions (often called the 703 or "bankruptcy" set) — smaller homestead but a flexible wildcard that can protect many kinds of personal property.
- CCP §704.x exemptions (the 704 or "judgment debtor" set) — much larger homestead protection for homeowners but fewer flexible wildcard protections for other property.
These systems are mutually exclusive: you may elect either the 703 set or the 704 set, but not both. The choice is made at the time of filing and cannot be mixed.
Practical comparison: What each option protects (quick reference)
Below is a concise comparison to help you evaluate which system is likely to give you the better outcome based on typical asset profiles. These figures change over time (California adjusts some amounts annually and federal amounts were most recently updated in April 2025), so always confirm current numbers before you file.
| Feature | CCP 704 (System 1) | CCP 703 (System 2) | Federal §522(d) (note) |
|---|---|---|---|
| Best for | Homeowners with substantial equity | Renters or filers with valuable personal property | Not available to California filers (state opted out) except in limited, nonresident circumstances |
| Homestead | Greater of prior‑year county median sale price or $300,000 (capped at $600,000); adjusts annually. | Modest fixed homestead amounts (smaller than 704; bankruptcy‑targeted). | Federal homestead is much smaller (federal amounts increased April 1, 2025). |
| Wildcard / Flexibility | No general wildcard — exemptions are item/class specific | Generous wildcard that can protect many assets (e.g., cash, vehicle equity). | Federal wildcard exists but generally not available to California filers; federal wildcard rose on April 1, 2025. |
| Personal property & tools | Robust protections for household goods, heirlooms, and tools in many cases | Per‑item and aggregate limits; wildcard permits shifting protection | Federal per‑item/aggregate limits apply where federal exemptions are available (not in CA). |
Takeaway: If your primary goal is to protect significant home equity, the 704 exemptions usually give a better result. If your biggest assets are cash, a vehicle, or other personal property (and you have little or no home equity), the 703 exemptions often preserve more value. See a side‑by‑side chart for many filers.
Means test, trustees, and strategy — how the exemption choice affects outcomes
Important practical notes:
- The means test (median income test) is a federal calculation that determines whether you qualify for Chapter 7 or are presumed to abuse and steered toward Chapter 13. Exemptions generally do not change the means test’s income calculation itself, but they do affect whether a Chapter 7 trustee can liquidate non‑exempt assets to pay unsecured creditors. If you have significant non‑exempt value, the trustee may sell it; the exemption choice therefore affects the practical result of a Chapter 7 filing.
- Residency and timing rules: which state’s exemptions apply can depend on your domicile over the prior 730 days. If you’ve moved recently, that look‑back can force use of a previous state’s exemption law. Consult counsel on the timing before you file.
- Retirement accounts: Most qualified retirement plans are protected under both California and federal rules, but confirm limits and whether rollovers or recent withdrawals affect protection.
Practical filing checklist
- Inventory your assets (home equity, vehicles, bank accounts, collections, tools, retirement).
- Estimate equity and compare how much each system would exempt (run numbers for CCP 703 vs CCP 704).
- Consider Chapter choice: if means test pushes you to Chapter 13, evaluate plan feasibility and what exemptions will remain.
- Ask whether timing (recent move, recent asset transfers) changes which exemptions apply.
- Get a quick attorney review — a short consult can avoid costly mistakes when claiming exemptions.
Because the exemption numbers and county median home prices change, run updated figures before filing. The federal exemption schedule was adjusted effective April 1, 2025; California homestead rules are statutory and adjust annually under CCP §704.730.
Bottom line: There is no one‑size‑fits‑all answer. Homeowners with large equity usually benefit from the 704 homestead protections, while renters or filers with high‑value personal property often do better under 703’s wildcard approach. Run both scenarios before you file and consult a bankruptcy attorney to confirm which election preserves the most for you.