Bankruptcy Law in California

What it means in California:
Bankruptcy in California follows federal bankruptcy procedures, but state exemption rules determine what property a filer is allowed to protect.

Key points:

• Filing is done in U.S. Bankruptcy Court — Central, Eastern, Northern, or Southern District
• California is an “opt-out” state — you must use California exemptions, not the federal list.
• Exemption options are arranged into two mutually exclusive systems that you must choose between.

California-specific considerations:

• Two exemption systems:
  • System 1 (CCP § 704) — often better for homeowners with significant home equity
  • System 2 (CCP § 703) — often better for renters or those with little home equity
• You must choose only one system and can’t mix exemptions from both.
• The homestead exemption under System 1 protects significant equity in your home (amount tied to median home prices in your county).
• System 2 offers a wildcard exemption that can apply to many types of property
• Exemptions apply to things like vehicles, household goods, tools of the trade, and retirement accounts.
• Retirement accounts are generally protected under federal/state law regardless of the system chosen.