Wild Card Exemption

Your exemptions set forth what property you can keep.  There are Federal exemptions provided for by the Federal bankruptcy law, and state exemptions provided for by the laws of various states.  Federal exemptions have a "wildcard" exemption that you can apply to practically anything you want to apply it to.


The federal bankruptcy law gives the states the option of opting out of the federal exemptions so that the residents of that state are required to select the state’s exemption scheme when they file for bankruptcy relief.  Many states have opted out of the federal exemptionsCalifornia is one such state that has opted out of the federal exemption scheme.  But not to worry, California has also enacted an alternative set of exemptions that is almost identical to the federal exemptions.  If you are a California resident you can select either: (A) the California state exemptions; or (B) California’s federal-like set of exemptions.


So why all the fuss about federal exemptions?  Well, state exemptions typically provide a large protection of equity in your home through a homestead exemption, but they don’t protect much personal property assets, such as your car and money in your bank accounts.  If you don’t have any equity in your home, then you’re not concerned with protecting equity in your home.  If there is no equity in your home, then as long as you stay current on your home loan payments generally, you can keep your home.  If you don’t have equity in your home, you are likely more concerned about protecting your equity in your personal property assets. 


When it comes to protecting personal property, the federal bankruptcy exemptions, or in the case of California residents California’s federal-like exemptions, truly shine.  Both have what is called a wild card exemption that you can apply to pretty much any property or asset that you like.  As of 2013, California’s wild-card exemption allows you to protect equity of up to $25,340 in your personal property.  This means that, theoretically, you could have $25,340 cash in your bank account and file bankruptcy and keep the cash.  The analysis is a bit more complicated than that, and having such a large sum of cash in your bank account when you file bankruptcy could raise concerns of lack of good faith, but, theoretically, under the plain language of the bankruptcy law, you could do that. 


The analysis of what you can keep with the wild card exemption is a bit more complicated than discussed in this San Diego bankruptcy blog.  There are a multitude of factors that must be considered, such as whether you have equity in your other assets, such as your home or car, that you also need to protect when you file bankruptcy.  Before assuming that you can make full use of the wildcard exemption towards protecting any property that you want to keep, you should discuss your situation with an experienced bankruptcy attorney.  Remember, if the wild card applies to your unique situation, then knowing you have it and knowing you can use it can make your petition play out like a pair of pocket aces. 

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