California Bankruptcy Laws & Exemptions

By Ronald W. Brilliant, Attorney at Law · Licensed in Idaho, Nevada & California · Last reviewed: September 2026

If debts have become unmanageable, bankruptcy can stop collection, protect your essential property, and give you a fresh start. Bankruptcy is governed by federal law, but what you get to keep depends on California law, and California gives you a choice between two exemption systems. This guide explains how bankruptcy works for California residents.

Chapter 7 or Chapter 13?

Chapter 7 (“liquidation”) wipes out most unsecured debts, like credit cards, medical bills, and personal loans, usually within a few months. A trustee can sell non-exempt property, but most filers keep everything they own because of California exemptions.
Chapter 13 (“reorganization”) sets up a three- to five-year repayment plan. It is often used to stop a foreclosure and catch up on missed mortgage payments, protect property that exceeds the exemptions, or deal with debts Chapter 7 cannot discharge.
Chapter 11 is available for businesses and for individuals whose debts exceed the Chapter 13 limits.

Do I Qualify for Chapter 7? The Means Test

Bankruptcy law is federal, but eligibility for Chapter 7 is measured against your state. If your household income is below the California median for a household of your size, you generally qualify. If it is above, a more detailed calculation of your expenses determines whether Chapter 7 is available or Chapter 13 is required. The U.S. Trustee Program publishes the current median income figures, which are updated periodically.

What Happens When You File

Credit counseling: you must complete an approved credit counseling course before filing.
The automatic stay: filing immediately stops most collection actions, including lawsuits, wage garnishments, bank levies, repossessions, and foreclosure sales.
The meeting of creditors (341 meeting): about a month after filing, you answer questions under oath from the trustee. Creditors rarely attend.
Debtor education: a second course is required before you receive a discharge.
Discharge: in Chapter 7, usually about three to four months after filing; in Chapter 13, after you complete your plan.

What You Can Keep: Choosing Between Two Exemption Systems

California filers cannot use the federal exemptions, but must choose one of two state systems. The choice is one of the most important decisions in a California bankruptcy.

The “704” system (Code of Civil Procedure § 704.010 and following) is usually best for homeowners with significant equity. The homestead exemption ranges from roughly $361,000 to $722,500 depending on the county’s median home price (2025 figures, adjusted annually for inflation). It also protects a motor vehicle (about $8,625 of equity), household goods, tools of the trade, and retirement accounts.
The “703” system (Code of Civil Procedure § 703.140(b)) is often best for renters or people with little home equity. It includes a flexible “wildcard”: about $36,750 of home equity, any of which you do not use for a home can protect other property, plus an additional $1,950 (2025 figures). It also protects a motor vehicle (about $8,625), household items, tools of the trade, and retirement accounts.

Married couples filing jointly must both use the same system. Exemption amounts are adjusted periodically for inflation, so current figures should always be confirmed before filing.

Residency Rules

To use California’s exemptions, you generally must have lived in California for at least 730 days (two years) before filing. If you moved more recently, the exemptions of the state where you lived before may apply. Federal law also caps the homestead exemption if you acquired your home within about 3 years and 4 months (1,215 days) before filing.

Where California Bankruptcies Are Filed

California has four federal bankruptcy districts: Central (Los Angeles area), Eastern (Sacramento and Fresno), Northern (San Francisco Bay Area), and Southern (San Diego). Your case is filed in the district where you live.

Debts Bankruptcy Usually Cannot Erase

Some obligations survive bankruptcy, including most recent taxes, child support and alimony, most student loans (absent a showing of undue hardship), criminal fines, and debts from fraud or intentional injury. Knowing which of your debts fall into these categories is essential before choosing a strategy.

Alternatives to Bankruptcy

Bankruptcy is not always the right answer. Depending on your situation, debt negotiation, settlement, a workout with a secured lender, or simply waiting out a collection when your income and assets are protected may be better options. I will tell you honestly if I think you should not file.

How I Can Help

I represent individuals and businesses in California in Chapter 7, 11, and 13 cases, and in the lawsuits, garnishments, and foreclosures that often lead to them. Because financial problems often overlap with divorce, business disputes, real estate, and estate planning, I look at the whole picture before recommending a path. Request a consultation to talk about your options.

This page provides general information about bankruptcy in California and is not legal advice. Exemption amounts change periodically; verify current figures before filing. Reading this page does not create an attorney-client relationship.