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 dollar amounts of equity in your home, car, tools, bank accounts, and other property when you file bankruptcy. The current dollar figures took effect on April 1, 2025, and stay in place through March 31, 2028.¹ System 2 is generally the better choice for renters or debtors with little home equity, because it trades a much smaller homestead exemption for a flexible wildcard that can protect almost anything you own.

When System 2 Is the Right Choice

California is the only state with two separate exemption lists. When you file, you pick either the exemptions under CCP 704 (System 1) or the alternative set under CCP 703.140 (System 2). You cannot mix and match. Married couples filing jointly must agree on the same system. If only one spouse files, the non-filing spouse generally has to sign a written waiver agreeing to System 2 before the filer can elect it, unless the spouses were already living apart on the filing date.²

The choice usually comes down to home equity. System 1 protects home equity of at least $300,000 and up to $600,000 depending on your county’s median home price.³ System 2’s homestead is $36,750.¹ If you own a home with meaningful equity, System 1 almost always wins. If you rent, or your home is underwater or nearly so, System 2 gives you far more flexibility to protect everything else.

The Wildcard: Why System 2 Exists

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

A renter with no home equity gets the full combination: $1,950 plus $36,750, totaling $38,700 in wildcard protection. That money can be spread across bank accounts, stocks, a pending tax refund, cryptocurrency, an expensive musical instrument, or any other asset that doesn’t have its own line-item exemption or that exceeds a specific cap. That single number is what makes System 2 attractive.

What Each Category Protects

Your Home

The homestead exemption covers up to $36,750 of equity in the real or personal property you use as your residence, including a house, condo, mobile home, or cooperative unit.¹ Any portion you don’t use rolls into the wildcard.

Motor Vehicles

You can protect up to $8,625 of equity in one or more motor vehicles.¹ Equity is fair market value minus what you still owe on the loan. If your car is worth $15,000 and you owe $10,000, your equity is $5,000, which fits inside the exemption. If equity exceeds $8,625, you can absorb the difference with wildcard.

Household Goods and Jewelry

Furniture, appliances, clothing, books, and musical instruments are each protected up to $925 per item, provided they are held for personal or family use.¹ The cap is per item, not aggregate, so a house full of ordinary belongings is almost always fully protected. Trustees rarely bother with used furniture and clothes because their resale value falls well below the threshold.

Jewelry has its own combined cap of $2,175 for all pieces together.¹ A wedding ring appraised at $3,000 would be $2,175 exempt automatically, with the remaining $825 covered by wildcard.

Tools of Trade

Tools, professional books, and equipment you need for your trade or profession are protected up to $10,950 total.¹ This covers everything from a mechanic’s diagnostic gear to a contractor’s power tools. The cap applies to the combined value of all trade items.

Health Aids

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

Wages, Benefits, and Insurance

Accrued vacation pay, unused sick leave, family leave, and unpaid wages are protected up to $8,625 in total.¹ This matters when your employer owes you back pay or you have banked significant leave.

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

The cash surrender value of an unmatured life insurance policy is exempt up to $19,625.¹ Cash value above that amount joins the bankruptcy estate unless you can absorb it with leftover wildcard.

Personal Injury and Other Payment Rights

Payments from a personal bodily injury claim are exempt up to $36,750.¹ The cap covers settlement proceeds or judgments you have received or are owed at the time of filing, but does not extend to pain-and-suffering-type payments for purposes of this specific dollar cap.

Several other payment rights are protected under a “reasonably necessary for support” standard instead of a fixed cap:

Wrongful death payments for the death of someone you depended on, to the extent needed for your support.
Life insurance proceeds from a policy on the life of your spouse or someone you depended on, again to the extent needed for support.
Compensation for lost future earnings, to the extent reasonably necessary for you and your dependents.
Awards under a crime victim’s reparation law, fully exempt.
Payments from a settlement related to your employment, to the extent necessary for support.

The “reasonably necessary” standard lets a court look at your actual financial needs rather than apply a flat dollar cutoff, which usually favors debtors with modest incomes.²

Retirement Accounts Sit Outside System 2

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

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

Health Savings Accounts Have No Specific Exemption

Neither federal law nor California law provides a specific exemption for Health Savings Account funds. An HSA is property of the bankruptcy estate, so it needs to be covered by an applicable exemption or the trustee can reach it. The wildcard is the usual answer. If you have a substantial HSA and are already stretching the wildcard across other assets, the HSA balance can be at risk.

An Exemption Doesn’t Remove a Lien on Its Own

Claiming an exemption doesn’t automatically clear a lien off your property. If a creditor has recorded a judicial lien against something you’re claiming as exempt, you have to file a separate motion to avoid the lien. Federal bankruptcy law lets you strip a judicial lien to the extent it impairs an exemption you’re entitled to claim.⁴

The math: add the judicial lien, all other liens on the property, and the exemption amount you could claim if there were no liens. If that total exceeds the property’s value, the judicial lien is impaired and can be reduced or eliminated. The rule reaches judicial liens (like a money judgment recorded against your home) and 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.

Lien avoidance is one of the most underused tools in consumer bankruptcy. Skip the motion and the lien survives your discharge, so the creditor can still enforce it against the property after your case closes.

Changing Systems After You File

The choice is presented as final at filing, and that’s the general rule. In practice, courts typically allow debtors to amend Schedule C to switch systems, at least before the case closes or an interested party objects. Whether an amendment gets approved depends on timing and on whether the trustee or a creditor would be prejudiced. If you realize early in the case that you picked the wrong system, an amendment is worth pursuing. Don’t count on it after assets have been distributed.

Exemptions in a Chapter 13 Case

Everything above applies most directly to Chapter 7, where the trustee can actually sell non-exempt property. In Chapter 13, you keep all your property and repay creditors through a three-to-five-year plan. Exemptions still matter because of the liquidation test: your Chapter 13 plan has to pay unsecured creditors at least what they would have received in a hypothetical Chapter 7. The less property you can exempt, the higher your required plan payments. A large unused wildcard under System 2 can meaningfully reduce what your plan must pay to unsecured creditors, which lowers your monthly obligation for the life of the plan.

System 2 Amounts at a Glance

All amounts below are effective April 1, 2025, through March 31, 2028.¹

Homestead: $36,750 in residence equity
Wildcard: $1,950 plus any unused homestead, up to $38,700 total, applicable to any property
Motor vehicles: $8,625 in equity
Household goods: $925 per item
Jewelry: $2,175 total
Tools of trade: $10,950 total
Life insurance cash value: $19,625
Wages and accrued leave: $8,625 total
Personal injury payments: $36,750
Health aids: no dollar limit
Social Security, unemployment, veterans’ benefits: no dollar limit
Retirement accounts (federal): no limit for employer plans; $1,711,975 combined cap for IRAs

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