CCP 703.140: California’s System 2 Bankruptcy Exemptions

California’s System 2 bankruptcy exemptions, set out in Code of Civil Procedure section 703.140, let you shield specific amounts of equity in your home, car, household goods, tools, benefits, and other assets when you file bankruptcy. They are one of two exemption sets California offers, and they’re generally the right choice for renters or anyone whose home has little or no equity, because the small homestead rolls into a flexible wildcard that can cover almost anything else you own. The current dollar amounts took effect April 1, 2025, and run through March 31, 2028.¹

When System 2 Is the Right Choice

California is the only state that gives filers a choice between two separate exemption systems. On your petition you pick either CCP 704 (System 1) or CCP 703.140 (System 2). You cannot mix the two. Joint filers must agree on the same system, and if one spouse files alone, the non-filing spouse generally has to sign a written waiver before the filer can elect System 2, unless the spouses are already living apart on the filing date.²

The decision almost always comes down to home equity. System 1 protects between $300,000 and $600,000 of equity in a primary residence, depending on your county’s median home price.³ System 2’s homestead is $36,750.¹ If you own a home with real equity, System 1 wins without a close call. If you rent, your mortgage is underwater, or your equity is modest, System 2 is usually the better fit because of what happens to the unused portion of that homestead number.

The Wildcard: Why System 2 Exists

The wildcard exemption is the whole reason filers pick System 2. It starts at $1,950 and can be applied to any property you own, with no restrictions on asset type. On top of that base, you can add whatever portion of the $36,750 homestead you don’t use for a residence.²

A renter with no home equity gets the full stack: $1,950 plus $36,750, or $38,700 to spread across whatever needs protecting. That might be a tax refund, a bank balance, brokerage shares, cryptocurrency, equity in a car above the vehicle cap, jewelry above its cap, or any other asset that lacks a dedicated exemption or exceeds one. The wildcard is also the usual tool for shielding a Health Savings Account balance, since neither state nor federal law gives HSAs their own exemption.

What System 2 Protects, Category by Category

Each category below is its own exemption. You can claim all of them in the same case, and most of them stack with the wildcard when the asset’s value exceeds the specific cap. All figures are effective through March 31, 2028.¹

Your Home

Up to $36,750 of equity in real or personal property you use as a residence, including a house, condo, mobile home, or cooperative unit. Any amount you don’t use here becomes available as additional wildcard.

Motor Vehicles

Up to $8,625 in equity across one or more vehicles. Equity means fair market value minus the loan balance. If your car is worth $15,000 and you owe $10,000, the $5,000 of equity fits inside the cap. If your equity runs higher, you can add wildcard to cover the overage.

Household Goods

Furniture, appliances, clothing, books, animals, crops, and musical instruments held for personal or family use are protected up to $925 per item. Because the cap is per item rather than aggregate, a house full of ordinary belongings is almost always fully covered. Trustees rarely pursue used household goods because resale value falls well below the threshold.

Jewelry

$2,175 total for all jewelry combined, limited to personal or family use pieces. A ring appraised at $3,000 fits by applying the $2,175 exemption and $825 of wildcard.

Tools of the Trade

$10,950 total for tools, professional books, and equipment used in your trade or profession. The cap applies to combined value, not per item, covering anything from a mechanic’s diagnostic gear to a contractor’s power tools.

Health Aids

Professionally prescribed health aids for you, your spouse, or a dependent are fully exempt with no dollar cap. Wheelchairs, prosthetics, hearing aids, and vehicles modified for a disability all qualify.²

Wages and Leave

Up to $8,625 total in accrued vacation pay, unused sick leave, family leave, and unpaid wages owed at the filing date.

Public Benefits and Support

Social Security, unemployment compensation, local public assistance, and veterans’ benefits are exempt with no dollar limit. Alimony and child support are protected to the extent reasonably necessary for your support and your dependents’ support.²

Life Insurance

The cash surrender value of an unmatured life insurance policy is exempt up to $19,625. Cash value above that figure becomes part of the bankruptcy estate unless the wildcard can absorb it.

Personal Injury and Related Payment Rights

Payments from a claim for personal bodily injury are exempt up to $36,750. Several related payment rights carry no fixed cap and are instead protected to the extent reasonably necessary for your support:

Wrongful death recoveries for the loss of someone you depended on.
Life insurance proceeds from a policy on a spouse or someone you depended on.
Compensation for lost future earnings.
Payments from a settlement related to your employment.

Crime victim reparation awards are fully exempt without any support-necessity test.

Retirement Accounts Sit Outside the State List

Tax-qualified retirement accounts are protected under federal bankruptcy law regardless of which California system you choose, so they don’t consume any of your state exemptions. Employer plans — 401(k)s, 403(b)s, profit-sharing plans, and pensions — are fully exempt with no dollar cap.⁴

Traditional and Roth IRAs are also protected, but they share a combined cap of $1,711,975 per person across all IRA accounts for cases filed between April 1, 2025, and March 31, 2028.⁵ Any IRA balance above that cap is available to creditors.

Clearing Judicial Liens Off Exempt Property

Claiming an exemption does not, by itself, remove a lien. If a creditor has recorded a judicial lien against property you’re exempting, you need to file a separate motion to avoid the lien. Federal law lets you strip a judicial lien to the extent it impairs an exemption you’re entitled to claim.⁴

The impairment test adds the judicial lien, all other liens on the property, and the exemption you could claim if no liens existed. If that total exceeds the property’s value, the judicial lien can be reduced or eliminated. The same procedure reaches certain nonpossessory, nonpurchase-money security interests in household goods, tools of trade, and health aids. It does not touch consensual liens like a mortgage or car loan.

Skip the motion and the lien survives your discharge. The creditor can still enforce it against the property after your case closes, which is where filers lose equity they were otherwise entitled to keep.

Why System 2 Still Matters in Chapter 13

In Chapter 7 the trustee can sell non-exempt property, so exemptions are the frontline defense. Chapter 13 works differently: you keep everything and repay creditors through a three-to-five-year plan. Exemptions still matter because of the liquidation test. Your plan must pay unsecured creditors at least as much as they would have received in a hypothetical Chapter 7. The less property you can exempt, the more your plan must pay. A large unused wildcard under System 2 can lower that required payment, which lowers your monthly obligation for the life of the plan.

Switching Systems After You File

The exemption choice is often described as locked in at filing, but in practice courts generally allow debtors to amend Schedule C to change systems, at least before the case closes or someone objects. The Northern District of California, for example, accepts an amended Schedule C with no additional fee.⁶ Whether an amendment will be allowed depends on timing and whether the trustee or a creditor would be prejudiced. If you realize early in the case that you picked the wrong system, it’s worth pursuing. Don’t count on being able to switch after assets have been distributed.

1
California Courts. EJ-156 Current Dollar Amounts of Exemptions From Enforcement of Judgments
2
California Legislative Information. California Code CCP 703.140
3
California Legislative Information. California Code of Civil Procedure CCP 704.730
4
Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions
5
Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases
6
United States Bankruptcy Court. Amended Schedules and/or Creditors List and Matrix