703 vs 704 Exemptions

704 exemptions protect debtors who have sizeable equity in their homes by allowing more equity using the homestead exemption, and 703, the “wildcard exemption,” has more flexibility if you use the exemption up to a certain amount.

My team and I have been advising individual debtors whether they can pass the means test for almost 20 years. Passing the means test is a determining factor in whether you file Chapter 7 or Chapter 13 bankruptcy. The 703 and 704 exemptions are used for Chapter 7 only and offer an advantageous option for debtors when used correctly.

Using Bankruptcy Exemptions
A bankruptcy exemption allows a debtor to keep assets up to a specific amount. An experienced California bankruptcy attorney can advise you on the exact amounts you can utilize for your bankruptcy. When you file for Chapter 7 bankruptcy, you want to discharge your unsecured debt. There may be assets you want to keep and avoid the trustee from having the ability to liquidate these items. You can only stop the trustee from liquidating an asset if it is under exemption. A debtor filing Chapter 7 bankruptcy can choose between two sets of exemptions. The first set is 704 (Set 1) exemptions, which benefit debtors with much home equity. 703 exceptions (Set 2) offer debtors more flexibility with what they exempt by issuing a maximum use for an asset of their choice (wildcard exemption). Debtors must choose between the two exemption sets and cannot mix and match. In some cases, a couple may use double the exemptions, but joint filers must use the same set of exemptions.

Homestead Exemption
As of January 2024 the automatic and declared homestead exemptions have increased from $678,391.00 to $699,421.00.

Declared and Automatic Homesteads
The automatic exemption applies to homeowners' primary residences without the need to file any formal declarations. It protects a certain amount of equity from being forced to sell by creditors. The amount of protection depends on various factors such as age, family status, and income. Automatic homestead only applies to forced sales; it does not protect homeowners from voluntary sales to pay debts. The homeowner must be formally declared with the county's recorder's office to obtain the declared homestead status. The declared homestead offers additional benefits to the homeowner in legal proceedings. A declared homestead owner is allowed limited time to reinvest in a new home while the equity is protected.

Doubling Homestead Exemptions (Joint Filing)
Both sets of exemptions allow joint-filing couples to double their use of the exemption in one way or another. The 703 "Wildcard" Exemption will enable debtors to protect a certain amount of property. A married couple filing jointly can generally double the wildcard exemption. Each spouse can claim the exemption amount for their share of the property they jointly own, doubling the total exemption amount. The 704 Homestead Exemption protects a certain amount of equity in the debtor's home, which is fixed and cannot be doubled even during a joint filing.

Social Program Exemptions
Both 703 and 704 exemptions typically protect public retirement benefits, private retirement plans, and specific public employee pensions, including:

  • Social Security Benefits
  • Unemployment Compensation and Benefits
  • Local Public Assistance Benefits
  • Veteran's Benefits
  • Disability or Illness Benefits
  • Alimony, Child Support, Separation Maintenance
  • More with particular conditions
Personal Injury
Debtors with personal injury compensation or settlement would benefit more from the 704 exemptions as it provides an unlimited exemption. The 703 exemptions only offer $31,950 for personal injury compensation or settlement.

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