Bankruptcy Exemptions in California: What You Can Keep and How You Can Keep It
One of the most common concerns individuals have when considering bankruptcy is whether they will lose their property. The good news is that bankruptcy laws include a system of exemptions—legal protections that allow you to keep certain assets through the bankruptcy process. In California, debtors have access to two distinct sets of exemption rules, commonly referred to as System 1 (Section 704) and System 2 (Section 703). Choosing the right exemption system is crucial to protecting your property and achieving a successful bankruptcy outcome.
At Rounds & Sutter, LLP, we help individuals and small business owners in Oxnard, Camarillo, and Southern California navigate the complexities of California bankruptcy law. Below, our Ventura County bankruptcy lawyers explain the key differences between the two exemption systems and discuss how the right choice can make the difference between a no-asset discharge and the unnecessary loss of valuable property.
California’s Unique Dual Exemption System
The U.S. Bankruptcy Code has a list of items you can keep safe from liquidation in a Chapter 7 bankruptcy, and most states have their own set of exemptions that differ from the federal exemptions in important ways. Some states allow you to choose either the federal or state exemptions, and others require you to use the state exemptions only. While California is one of the states that requires you to use the state exemptions, we are unique in that here, bankruptcy filers have two sets of state exemptions to choose from.
When filing for bankruptcy in California, you must choose either System 1 (California Code of Civil Procedure §704) or System 2 (§703). You cannot mix and match between the two. Each set offers different strengths, and the best choice depends on your specific financial situation, the type of property you own, and your goals in filing for bankruptcy.
System 1 (§704 Exemptions)
System 1 is generally preferred by homeowners who have significant equity in their primary residence. One of its most valuable features is the generous homestead exemption, which protects a substantial amount of equity in your home.
The amount of the homestead exemption changes annually according to a calculation set out in the law. In 2025, you can protect between about $360,000 and $722,000 of the equity you have acquired in your homestead property, depending on the median home price in your county. For Ventura County residents, where home values are relatively high, this can be an especially powerful protection. If your home equity falls within this exemption amount, you can file for bankruptcy without risking the loss of your home.
In addition to the homestead exemption, System 1 offers protection for:
- Vehicles (up to a modest value)
- Personal property, such as household furnishings, clothing, appliances, and more
- Tools of the trade
- Pensions and retirement accounts
- Public benefits and insurance proceeds
While these exemptions are more tailored to those with substantial home equity, they may be less helpful if you have little or no equity in your home and more value in other types of personal property.
System 2 (§703 Exemptions)
System 2 is modeled more closely on the federal exemption scheme and is often a better fit for renters, those without real estate, or individuals with modest home equity but more value in personal assets. System 2 includes a smaller homestead exemption compared to System 1—currently $36,750 (for individuals, as of 2025 figures).
However, System 2 compensates for the smaller homestead protection with a “wildcard exemption” of $1,550 plus any unused portion of the homestead exemption (up to $36,750 total). This wildcard can be used to protect any property you choose, including cash in the bank, tax refunds, stocks, or valuable personal possessions like jewelry or collectibles.
System 2 also includes exemptions for:
- Motor vehicles
- Household goods and personal effects
- Retirement accounts
- Tools of the trade
- Public benefits
If you don’t have substantial home equity but want to protect a wide range of personal property, System 2 may offer more flexibility and a better fit.
Choosing Between System 1 and System 2
Selecting the right exemption system is a critical step in preparing your bankruptcy petition. Filing under the wrong system can result in losing property you could have otherwise protected. For example, a homeowner who automatically selects System 2 may unknowingly forfeit the more robust homestead exemption available under System 1. Conversely, a renter who chooses System 1 may miss out on the wildcard exemption that could shield thousands of dollars in bank deposits or other valuable assets.
A skilled bankruptcy attorney will carefully evaluate your assets and advise which system will maximize your exemptions. The goal in most Chapter 7 cases is to obtain a no-asset discharge, meaning that all your property is protected, nothing is liquidated by the trustee, and your debts are discharged without losing anything. This can usually be achieved with the right help.
The Role of Your Attorney in Maximizing Your Exemptions
Bankruptcy is a highly technical area of law, and missteps in the exemption process can lead to avoidable losses. At Rounds & Sutter, LLP, we provide our clients with a clear analysis of both exemption systems, tailored to their financial and property profiles. Our team ensures that your petition is accurately prepared and that your assets are listed and categorized to take full advantage of the chosen exemption scheme.
Whether you own a home in Ventura County with considerable equity or you’re a renter trying to protect savings and personal property, the right guidance can mean the difference between a smooth, stress-free bankruptcy and one filled with surprises.
Contact Rounds & Sutter for Help With Bankruptcy in Ventura County
Understanding California’s dual exemption system is essential for protecting what matters most during bankruptcy. While System 1 and System 2 both provide valuable tools, their effectiveness depends on your specific circumstances. Choosing the right system can protect your home, preserve your retirement accounts, and help you emerge from bankruptcy in the strongest possible position.
If you are considering filing for bankruptcy in Oxnard or elsewhere in Ventura County, contact Rounds & Sutter, LLP today. Our experienced bankruptcy attorneys will walk you through the exemption process and help you make the best choices for your financial future.