Category Archives: Bankruptcy Exemptions

What Fake News Is There About Filing Bankruptcy?

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There is way too much fake news out there about bankruptcy. Look, I know bankruptcy is not looked at in the best light for many reasons. I am not going to try and convince anyone that believes bankruptcy is wrong. Most people will never understand until something happens that is completely out of their control and now they are looking at filing for bankruptcy protection. Bankruptcy is the law and absolutely necessary in our economic system.

So, what is the single most misunderstood part of bankruptcy? What is the most common “Fake News” I hear out there about filing bankruptcy? A little information about me first so you give my opinion some weight. I have been involved in the bankruptcy industry before I graduated law school. I did not jump on this band wagon during the mortgage meltdown like many other attorneys. I intended to be a bankruptcy attorney during law school and I have not been employed in any other area of law. I worked for a creditor’s right law firm. I worked for a debtor’s rights law firm. I worked for a Chapter 13 Trustee, David Burchard, for the San Francisco and Santa Rosa Divisions of the Bankruptcy Court for the Northern District of California. I then started my own practice to even better serve those in need of debt relief. I have touched easily over 5,000 bankruptcy cases. I have talked to thousands of potential clients and those that chose to file bankruptcy. The single most misunderstood part of bankruptcy is the relationship between assets and exemptions that protect the bankruptcy filers stuff and/or assets.

The Most Disturbing Fake News Is: You Will Not Lose All Of Your Stuff When Filing Bankruptcy

THIS IS NOT TRUE AT ALL. This is probably the most troubling part of being a bankruptcy attorney. I have to explain over and over again that you will not be left penniless and barefoot in the middle of the street after filing for bankruptcy under any chapter of the Bankruptcy Code. We all need a certain minimum stuff to survive in this world. Bankruptcy is designed to give you a fresh start, but not a head start either.

While bankruptcy is governed by Federal Law and created by Congress, each state can create their own exemptions to protect peoples stuff from those they owe money to. A bankruptcy filer in certain states can choose the state law exemptions or federal exemptions to protect their stuff. In California you must use the state law exemptions pursuant to California Civil Code 703.14 or 704. The theory behind protecting a certain amount of someone’s assets is it does no human on Earth any good if another human is stripped of all of their worldly possessions when filing bankruptcy. At the same time common sense should tell you that if you own a paid in full $60,000 Tesla you cannot get rid of $30,000 in credit card debt while still keeping the paid in full $60,000 Tesla. You would be right. Under California exemptions we get either (CCP703.14) $5,350 or (CCP704) $3,050 to protect your vehicles. I am not going to go into the differences between California’s two set of exemptions, the 703 or 704’s. Just know that there are two choices and one is probably more beneficial to you than the other. It all depends upon your assets.

So what are the problem assets? As the example provides above vehicles can have high values sometimes or if multiple vehicles are owned it can be difficult to protect all of them depending upon the vehicles value of course. Home equity in the Bay Area is now a huge issue again given how much home values have increased over the last 8 years. We can only protect so much equity in a home. For more information about how much California exemptions protect in home equity look up the homestead exemptions for California. During your consultation with a bankruptcy attorney you will discuss exemptions in much detail.

Filing Bankruptcy Is Not Financially Devastating Like The Media Or Your Friends Think

The other most common “Fake News” I hear is how financially devastating filing for bankruptcy protection is. This is simply not true at all. Most of the financial devastation already took place before I ever speak to someone. All the missed payments, late payments or repossession/foreclosure has already happened or will soon happen regardless of filing for bankruptcy protection or not. Four or five months of missed or late payments can tank a credit score. The damage is done. SO FILING FOR BANKRUPTCY DOES NOT LOWER YOUR CREDIT SCORE. THE NEGATIVE EVENTS LEADING UP TO THE BANKRUPTCY CASE BEING FILED LOWERS YOUR CREDIT SCORE.

What the bankruptcy does is eliminate the debts you are struggling to pay each month so that you can make regular on-time payments for the necessities of life. Then once you make regular on-time payments on everything your credit score will increase. How can you rebuild your credit while still making late payments or missing a payment on one card and not another? It really does no good to rob Peter to pay Paul. That is a vicious cycle of debt and increased interest payments that will never end.

You can buy a house. You can buy a car. You can continue to live life like you are now. It is just without all of the debt that keeps you from getting ahead in this very short life we have. You do not have to struggle each month. That is no way to live and you do not have to. Educate yourself about bankruptcy and other tools to help you get ahead in life.

How Do I Value My Stuff or Property When Filing Bankruptcy?

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Well, there really is no real good answer except do not intentionally undervalue the stuff you own. Value is in the eye of the beholder? Yes, sometimes that is true. Most of the time you just do the best you can and provide the fair market or replacement value of the asset. I do not know how much your used stapler that you bought in 1992 is worth. What about your house? The best we can do is look at comparable sales and how the market is at that moment in time. If the market is hot, like it is in San Mateo County, the listing price could be bid up by thousands of dollars. So was the house worth what it was listed for or what the house sold for?

Be Careful Filing A Chapter 7 Bankruptcy Case If The Client Owns A House

In the Bay Area and San Mateo County home prices are on the rise. So if you own a home and the value is close to what you owe be very careful filing a Chapter 7 bankruptcy. California has generous homestead exemptions to protect equity in primary residences, but what if there is a bidding war on the house and the price is bid up by twenty thousand dollars? Will you still be able to protect the equity and keep the house or will the house be sold out from under you in the chapter 7 bankruptcy case? The Chapter 7 Trustee assigned to the case will want to list the house for sale and let the market determine the value and see what happens. The Chapter 7 Trustee has a duty to administer the bankruptcy estate and liquidate unprotected assets for the benefit of creditors. Liquidating and disbursing funds to creditors is also how chapter 7 trustees make more money. Chapter 7 trustees get paid a percentage of the assets disbursed to creditors. So not only does the chapter 7 trustee have a duty to investigate your assets and liquidate them, but they have a financial interest in liquidating unexemptable assets also. If the chapter 7 trustee does seek to list the property for sale you can try and buyout the bankruptcy estate, oppose the listing of the property for sale or convert the case to Chapter 13 and pay the equivalent unprotected equity to creditors over 3 or 5 years to make sure you keep the home.

Do Not Intentionally Undervalue Your Assets

So after reading the preceding paragraph you may have the thought that you can just decrease the value of the asset to an amount that can be protected. Please delete that thought and never think it again. It is a dangerous game to play if you choose to manipulate the value of your assets. Just ask Jesus Bencomo. Mr. Bencomo filed for bankruptcy protection under Chapter 7 of the bankruptcy code for the first time in May of 1998. No real property was listed in his first bankruptcy case. On January 16, 2013, Mr. Bencomo’s bankruptcy lawyers filed his second Chapter 7 bankruptcy case listing in Schedule A that he owned real property located in Norwalk, California. Mr. Bencomo valued the real property at $175,000 with secured debt totaling $145,879. So there is approximately $29,121 in equity to protect. After the conclusion of the 341(a) Meeting of the Creditors the duly appointed Chapter 7 Trustee Wesley Howard Avery filed a motion with the court to employ a real estate broker to list and sell Mr. Bencomo’s house.

The trustee’s motion provides the value of the Norwalk property as around $305k to $333k. Two weeks later Mr. Bencomo’s bankruptcy attorneys amended the Schedule A to list the value of the Norwalk property as $245,000 with secured debt now totaling $214,929.27. Eventually the court approved the employment of the real estate broker.

The Chapter 7 trustee also filed an adversary proceeding, lawsuit in conjunction with the main bankruptcy case, objecting under Section 727(a)(2)(A) and (a)(4)(A). Section 727(a)(4)(A) provides that the debtor’s discharge may be denied where: (1) the debtor made a false oath in connection with the bankruptcy case; (2) the oath related to a material fact; (3) the oath was made knowingly; and (4) the oath was made fraudulently. Retz v. Sampson (In re Retz), 606 F.3d 1189, 1197 (9th Cir. 2010) (citation and internal quotation marks omitted). The adversary proceeding complaint alleges that Mr. Bencomo is an experienced real estate broker and therefore knew at the time of filing that the value of the Norwalk property was in the $300k range. Basically the Chapter 7 trustee is arguing Mr. Bencomo knowingly and intentionally undervalued the Norwalk property. Mr. Bencomo’s conduct in his first bankruptcy case became an issue in the second. Apparently Mr. Bencomo transferred the house out of his name, than back into his name, but failed to record the deed until 2002 and he failed to list the property in his first bankruptcy petition. Evidence of Mr. Bencomo’s prior bad conduct in the first case can be used in the second as impeachment evidence. So, the court ruled in the chapter 7 trustee’s favor and held that Mr. Bencomo knowingly made a false oath regarding the value of his house and that this is material. Mr. Bencomo was denied a discharge.

California Bankruptcy Exemptions May Increase Soon

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In California we have two set of exemptions to protect assets against collection efforts by creditors. There are limits to what can be protected and how much of the value of the asset can be protected. Under CCP Section 703 the defining feature of this set of exemptions is the Wild Card exemption that can be applied to anything under Section 703.14(b)(5) totaling $26,925.00. This Wildcard exemption can be used to protect equity in a home too. The other set of California exemptions under CCP Section 704 include homestead exemptions with higher limits. Recently the California State Senate passed SB 308 that proposes a number of great changes to California’s exemptions. One of the most important proposed changes is the exemption that protects equity in a primary residence. Right now the homestead exemptions in California to protect equity in a primary residence are: (1) single person $75,000; (2) married or have dependent children living in residence ($100,000); and (3) debtor is a senior 65 or older; disabled, or 55 years of age or older and has limited income. California Senate Bill 308, among other things, would change California’s exemptions to give everyone a $300,000 homestead exemption to protect equity in their primary residence. If California’s exemptions are changed as proposed in SB 308 California’s residence in financial distress will get little more help in recovering or staying afloat.

California Homestead Exemption Changes Under CCP Section 704 Exemptions

1. Homestead Exemption Limit Increased To $300,000

This is probably the most dramatic proposed change to the California exemption system. As the current limits are listed above an increase to $300,000 for everyone is a significant increase, especially for a single person. At the same time California’s exemptions have not kept pace with inflation and the cost of living in California. If you review the history of the increases in California’s exemptions you will clearly see the increases have not kept pace with California’s cost of living and inflation.

2. Removes The Six-Month Reinvestment Requirement

Right now CCP Section 704 homestead exemptions requires after sale of the home and the former owners receive the exemption amount of the proceeds they will lose the entire exemptions if they do not reinvest the proceeds in a new home. So if the bankruptcy trustee sells the home the debtors have six months from the sale date to reinvest the proceeds. Okay, but they just filed for bankruptcy and that means they most likely do not have the best credit. So how is someone supposed to qualify to purchase a new home? This is a badly needed change also. I far as I know exemptions are meant to protect assets to help someone in financial distress. Pulling the rug out from under someone in financial distress six months later does not seem to be consistent with the underlying goal of having exemptions to begin with.

Increase The Vehicle Exemption to $6,000 For Everyone

Right now under the CCP Section 703 vehicle exemption the limit of the exemption is $5,100 and under CCP Section 704 the vehicle exemption limit is only $2,900. These exemptions are badly in need of an increase. As a society we need everyone to be able to move about with reliable transportation period. It does not do anyone any good to someone with a car that cannot allow them safely to and from work or transport children. A $6,000 vehicle is usually just on the line of reliability anyway and getting up there if miles. This proposed increase will provide a modest increase in the type of vehicle that can be protected and is badly needed.

New Exemption for Small Business Owners

Right now a small business owner does not have a specific exemption to protect cash or deposit accounts, accounts receivable and business inventory up to $5,000 for debtors using the CCP Section 704 exemptions. For small business owners choosing the 704 exemptions this will be valuable addition to help them continue to operate their business and achieve success after bankruptcy. The limit of the proposed exemption is extremely reasonable at $5,000. This amount should not result in giving a windfall to a small business owner.

Amends California Code Section 2983.3 Regarding Vehicle Loans

Right now the law provides a person with a vehicle loan when filing bankruptcy has three options regarding the loan. They can surrender the vehicle to satisfy the loan, enter into a reaffirmation agreement and continue payments, or redeem the vehicle for its fair market value under Section 721 of the bankruptcy code and keep the vehicle. What is not supposed to be allowed anymore is someone just continues to make the payments and does not do either of the three options listed above. They are current with the payments, but technically under the law the lender can repossess the vehicle since the loan was not reaffirmed. This change would make the filing of bankruptcy not grounds for repossession if the person is current with their payments.

What Will These Proposed Changes Mean To Bankruptcy Attorneys and Their Clients?

The ramifications will most likely be far reaching and help thousands of California residents live happier and healthier lives by obtaining a fresh start. Regarding the increase in the homestead exemption, most bankruptcy attorneys will most likely see a decrease in the number of Chapter 13 cases they file given that same bankruptcy filer can protect more equity in their home and still file a Chapter 7 case. Currently one of the reasons to file a Chapter 13 case is to protect equity in a home while reorganizing debts and not have to liquidate the home in a Chapter 7 case. More people should qualify to file a Chapter 7 case if the homestead exemption is increased. At the same time the dynamic between someone’s assets and the available exemptions is complicated and there are compromises that have to be made given the limits to the amounts of the exemptions. Then you factor in the differences between the two sets of exemptions, CCP Section 703 and CCP Section 704, and bankruptcy lawyers will have a whole new evaluation to make when discussing which set of exemptions would be most advantageous.

In all these proposed increases will not provide windfalls, but make California’s exemptions consistent with the real world we live in. When pondering a perfect world I believe the exemption limits should be based upon a county by county measurement of income and cost of living. To truly treat everyone fairly based upon their circumstances we need to look at their circumstances more closely at the county level. In California the median income and cost of living vary widely throughout our huge state. Creating exemptions by county would be a huge undertaking and probably unmanageable by the bankruptcy courts. For now the increases of California bankruptcy exemptions proposed in California State Senate Bill 308 would be a huge and long needed improvement.

Depending Upon Your Circumstances Your Tax Refund Can Be Protected When Filing for Bankruptcy

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It is that time of year again. It is time to get your income documents together and figure out how much you owe to the government or how much of a refund you will receive. If you receive a tax refund each year from the Internal Revenue Service or the Franchise Tax Board it can be protected when filing for bankruptcy whether your file a Chapter 7 or Chapter 13 bankruptcy case.

When filing for bankruptcy protection the bankruptcy estate includes all legal or equitable interests in property. See Section 541(a)(1) of the Bankruptcy Code. Just because you have not received the tax refund yet does not mean it is not an asset of yours that should be listed in your bankruptcy petition in the schedule of assets, Schedule B. Whether you can protect the refund depends upon your other assets and the exemptions available to protect your assets. Exemptions protect your assets by exemption or removing your assets from the bankruptcy estate so that you can keep your assets to live life and continue to go to work and live. For example, California has a generous wild card exemption worth $26,925.00. This exemption can be applied to any combination of assets like bank account balances, tax refunds, high value household goods, vehicles or any other asset. Most state’s exemptions provide a limited amount for vehicles. If you have more than one paid in full vehicle in California you will most likely have to use some of the wild card exemption to protect both vehicles and remove them from the bankruptcy estate. So let us look at some numbers. If you have $12,000 in your bank accounts, a second vehicle that is paid in full and worth $7,500, a television worth $2,000 (just bought it on Black Friday), and an anticipated tax refund from the IRS and FTB of $5,300 you will max out the wild card exemption mentioned above. All of the assets just listed above will be exempted/protected/removed from the bankruptcy estate and you should keep all of it while still filing for bankruptcy protection. Different states have different limits to protect assets. So your state may not have as generous of exemptions. The bottom line is for your tax refund to be protected/exempted it should be listed in Schedule B and exempted by an applicable bankruptcy exemption so that you can keep the tax refund when you receive it.

Make sure you protect and keep your tax refund when filing bankruptcy.

Make sure you protect and keep your tax refund when filing bankruptcy.


In re Brittany Le’von Miller; Tax Refunds and Abandonment of Estate Property

Tax refund issues were just highlighted in a recent unpublished United States Bankruptcy Appellate Panel of the Ninth Circuit case, Case No. AZ-13-1307-JuKiD, In re Brittany Le’von Miller. For starters the debtor in this case filed her bankruptcy petition in August 2012, on October 25, 2012 the Chapter 7 trustee filed the notice of no distribution, debtor received her discharge and the case was closed and on May 9, 2013, over six months after filing the notice of no distribution, the Chapter 7 Trustee received the debtor’s tax refund totaling $3,259.00 directly from the Internal Revenue Service.

In this case the debtor in her originally filed schedules listed her expected tax refund in Schedule B with a value of “unknown.” The Chapter 7 trustee subsequently filed their notice of no distribution and the Chapter 7 case was discharged and closed. The notice of no distribution provides some case details and it says there are no assets to distribute for the benefit of creditors in the case. After the deadline for creditors to object to the discharge of the debtor’s debts has run out the bankruptcy court will sign the order of discharge and the Chapter 7 case is closed. When the case is closed Section 554(c) says all property is abandoned to the debtor. This is what happened in this case, but then the Chapter 7 trustee received the debtor’s 2012 totaling $3,259.00 refund directly from the Internal Revenue Service. Before going further, there is a question that is unanswered and unexplained. Why did the Internal Revenue Service send the debtor’s 2012 tax refund to the Chapter 7 trustee at all?

After the Chapter 7 Trustee received the 2012 tax refund the trustee immediately tried to reopen the Chapter 7 case and revoke/withdraw the notice of no distribution of assets. The debtors bankruptcy attorney argued the tax refund was abandoned upon the closing of the bankruptcy case. The trustee argued that Section 544(d) applied or inadvertent mistake as to filing the notice of no distribution. Apparently the bankruptcy court granted the Chapter 7 trustee’s motion and the debtor appealed. For an asset to be abandoned under Section 554(c) four requirements must be met: (1) the tax refund must have been properly scheduled; and (2) not administered by the trustee; (3) debtor’s case must close; and (4) abandonment is to the debtor. See DeVore v. Marshack (In re DeVore), 223 B.R. 193, 197 (9th Cir. BAP 1998). The court also recognized in Devore that the court has discretion to modify or revoke and technical abandonment under Section 554(c).

In the this particular case the Ninth Circuit Bankruptcy Appellate Panel held that the bankruptcy court needed to make findings of fact and law that could be reviewed and not just make a ruling with no explanation as to how it was arrived at. That did not happen, so this issue was remanded back to the original bankruptcy court for further findings. Time will tell what the outcome will ultimately be.

What Could The Debtor Have Done Differently?

The debtor arguably could have listed an estimated value of the tax refund. Would this have prevented the resulting problems from arising? Who knows, but at least the Chapter 7 trustee would have had a number to work with and evaluate the if creditors could be benefited. The debtor’s filed Schedule C clearly provided only 60% of her expected 2012 tax refund could be protected.

What Could The Chapter 7 Trustee Have Done Differently?

The Chapter 7 Trustee could have continued the 341 meeting of the creditors for the debtor to amend the Schedule B and actually list a value of the expected 2012 tax refund. It is unclear whether the Chapter 7 trustee questioned the debtor at the 341 meeting of the creditors as to potential value of the expected 2012 tax refund. Also, the Chapter 7 trustee could have not filed the notice of no distribution and held the case open until the amount of the 2012 tax refund was known and certain.

Possible Benefit to Creditors of the Bankruptcy Estate?

For some additional perspective, the amount of the 2012 tax refund that is not protected and available to administer by the Chapter 7 trustee is a total of $1,303.60 (40% of the 2012 refund totaling $3,259.00), of which the Chapter 7 trustee is entitled to $325.90 (25% of the $1,303.60, of the unprotected assets to be distributed for the benefit of the debtor’s creditors). So without deducting additional administrative costs, like postage for example, the debtor’s creditors in this Chapter 7 case could potentially share a pro-rata distribution of around $977.70. That is if the bankruptcy court allows the case to be reopened and the revoking of the Chapter 7 trustee’s notice of no distribution. Time will tell.

Bankruptcy Exemptions Are Very Powerful: See Supreme Court of the United States Decision in Law vs. Siegel, Chapter 7 Trustee

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Filing for bankruptcy protection is a way to obtain a fresh start. But what if after bankruptcy you are left penny less and barefoot. How can you start over at all? Exemptions protect some or all of your assets when filing for bankruptcy. Whether the exemptions protect all your stuff really depends upon what you have and how much it is worth. There are Federal Exemptions and each state can choose not to follow the Federal Exemptions and create their own. California Exemptions are pursuant to California Civil Procedure 703 and California Civil Procedure 704. In the Law case recently decided by the Supreme Court of the United States the Homestead Exemption pursuant to CCP §704.730(a)(1) is the focus of the case and the debtor’s conduct.

The bankruptcy filer, Stephen Law, filed for Chapter 7 bankruptcy in the Bankruptcy Court for the Central District of California. Alfred H. Siegel was appointed as the Chapter 7 bankruptcy trustee to administer the bankruptcy estate. Mr. Law and his bankruptcy lawyers properly listed his primary residence as an asset in Schedule “A” and that the primary residence had to mortgages or liens recorded against it as listed in Schedule “D”. Mr. Law valued the house at $363,348.00. Schedule D listed the first deed of trust of $147,156.52 and the second Lin deed of trust of $156,929.04. So the alleged secured debt recorded against Mr. Law’s house at the time of filing was $304,085.56. If the house is worth $363,348.00 then there is in theory $59,262.44 in equity Mr. Law can protect with the CCP 704 homestead exemption totaling $75,000. That is exactly what Mr. Law did. In his Schedule “C” Mr. Law applied the $75,000 exemption to the equity in his home and therefore there is allegedly no value to the bankruptcy estate for the benefit of creditors.

Bankruptcy Exemptions Are Very Powerful: See Supreme Court of the United States Decision in Law vs. Siegel, Chapter 7 Trustee

See Law vs. Siegel regarding how powerful bankruptcy exemptions are.

But wait a second. The Chapter 7 trustee, Alfred H. Siegel, for whatever reason believed the second deed of trust was a fraud. If that were true, the bankruptcy estate would be entitled to around $140,000 in equity in Mr. Law’s home after applying the homestead exemption. Turns out Mr. Siegel was right and to prove the second mortgage was a fraud in a lengthy legal battle. The bankruptcy court then surcharged Mr. Law’s $75,000 homestead exemption to pay for attorney’s fees and costs of the Chapter 7 trustee. This is where things went wrong according to the Supreme Court of the United States. SCOTUS held that surcharging an exemption to pay for administrative fees and costs is not allowed pursuant to the Bankruptcy Code. Even though Mr. Law committed fraud and it was proven at great expense, the Bankruptcy Court could not try and help remedy this wrong in this way. Bankruptcy exemptions are very powerful and once applied and not objected to in a timely manner prevent assets from being available to the Chapter 7 trustee and creditors for payment.

What could have happened is the Chapter 7 trustees’ bankruptcy attorney could have objected to Mr. Law’s use of the CCP 704 homestead exemption before the deadline passed. What the outcome of that fight would be is for further speculation. What we do know is that the bankruptcy court may have been able to penalize Mr. Law for his conduct within the grant of power the Bankruptcy Code provides. Bankruptcy exemptions are very powerful as provided in Supreme Court case Law. Vs. Siegel, Chapter 7 Trustee.

Asset Protection Lawyers: California Bankruptcy Exemptions

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One of the biggest myths about bankruptcy is that the Bankruptcy Court will take all of your stuff.  At West Coast Bankruptcy Attorneys we discuss in detail the things you own and whether they can be protected or not by Bankruptcy Exemptions.  There are cases in which not all assets can be protected, in those situations settling with the Chapter 7 trustee assigned to your case could be the remedy, or filing a Chapter 13 bankruptcy to protect the assets may be best.

The most expensive asset most people have is there home.  Given the mortgage crisis and the crash of the housing market almost everyone in need of bankruptcy services no longer has any equity in their home to protect.  Remember, if you owe more on your mortgage than the fair market value of the house, the house is not worth anything

The next most expensive asset most people own is their vehicles.  If the vehicle is paid in full and there are no loans on the vehicle, it would be worth quite a bit of money.  The best way to determine how much a paid in full vehicle may be worth is to visit a Kelley Blue Book at www.kbb.com.  Kelley Blue Book will provide the value of the vehicle depending upon mileage and condition of the vehicle, excellent, good and poor.  Usually with California’s generous vehicle and wild card exemptions will protect all vehicles.

There are many types of bankruptcy exemptions available to protect assets such as household goods, jewelry and the money held in bank accounts.  Without the experience counsel of our bankruptcy lawyers your assets could be lost to your bankruptcy estate.  Contact us today toll free at 877-963-9543 and schedule a free consultation with our best bankruptcy lawyers.