Bankruptcy in California (2026): Exemptions & Means Test

Bankruptcy is a federal process, but the property you keep is set by your state's exemptions, and California's rules are distinctive. California opted out of the federal bankruptcy exemptions, so you cannot use the federal menu, yet the state offers a choice between two of its own exemption systems, one built around a very large, inflation-adjusted homestead and one built around a generous wildcard for filers who rent. This guide explains both California systems, how Chapter 7 and Chapter 13 work, and the current means-test income figures, dated to primary sources.

This guide is part of our Bankruptcy by State series. It is general information, not legal advice, and exemption and income figures change, so confirm current amounts before relying on them.

California opted out, but offers two systems

Every state either keeps the federal bankruptcy exemptions available or opts out and requires its own. California opted out: Code of Civil Procedure section 703.130, enacted under the authority of 11 U.S.C. 522(b)(2), provides that the federal exemptions in 11 U.S.C. 522(d) are not authorized in California. So a California filer cannot mix in the federal list. What California does instead is unusual: it gives filers a choice between two of its own exemption sets, described in Code of Civil Procedure section 703.140. You elect one full system, not a blend.

Practitioners call them System 1 and System 2. System 1 is the standard set in Section 704 and following sections, which also applies outside bankruptcy when a creditor enforces a judgment; its headline feature is the large homestead. System 2 is the bankruptcy-only set in Section 703.140(b), modeled on the federal list, whose headline feature is a large wildcard. The right choice usually turns on home equity: homeowners with meaningful equity almost always use System 1, while renters and filers with little equity often prefer System 2.

The System 1 homestead under CCP 704.730 (high and indexed)

California's homestead under the Section 704 system is one of the most generous in the country. Code of Civil Procedure section 704.730 sets the exemption at the greater of a floor amount or the countywide median sale price of a single-family home in the prior year, capped at a maximum. As enacted for 2021 the floor was $300,000 and the cap was $600,000, but the statute requires both figures to adjust annually for inflation, beginning January 1, 2022, based on the change in the annual California Consumer Price Index for All Urban Consumers published by the California Department of Industrial Relations. Because the amounts have been indexed every year since 2022, the current floor and cap are meaningfully higher than the $300,000 and $600,000 base figures, and they continue to rise each January. The exact current amounts depend on the year's CPI calculation and on your county's median home price, so confirm the figure in effect when you file. This homestead applies automatically and does not require recording a declaration to protect equity in bankruptcy.

The System 2 wildcard and the two exemption lists

If you do not own a home or have little equity, the Section 703.140(b) system is often better because of its wildcard. The current dollar amounts for both systems are published by the Judicial Council of California on form EJ-156, effective April 1, 2025 and adjusted every three years for inflation. Under Section 703.140(b), the homestead (b)(1) is $36,750, the motor-vehicle exemption (b)(2) is $8,625, household goods (b)(3) are exempt up to $925 per item, tools of the trade (b)(6) are $10,950, and the wildcard (b)(5) is $1,950 plus any unused portion of the $36,750 homestead, meaning a renter can shield up to roughly $38,700 of any property, including cash or a vehicle. Under the Section 704 system, the motor vehicle is exempt up to $8,625 (CCP 704.010), household furnishings and apparel are exempt as ordinarily necessary, tools of the trade reach $10,950 (or $21,900 if spouses are in the same trade) under CCP 704.060, and there is no general wildcard, which is the main tradeoff for the large homestead.

The Chapter 7 means test and California median income

Chapter 7 erases most unsecured debt, but you generally must complete the means test, which begins by comparing your household income to the median family income for California and your household size. The U.S. Trustee Program publishes those medians from Census Bureau data and updates them periodically. For cases filed on or after July 15, 2026, the California median family income figures are $79,253 for one earner, $102,797 for a household of two, $116,541 for three, and $139,071 for four, adding $11,100 for each additional person. If your income is at or below the figure for your household size, there is no presumption of abuse (the rule that presumes a Chapter 7 case is an abuse when income left after allowed expenses reaches set thresholds) and you do not need to complete Form 122A-2, the second means-test form, but that alone does not make you eligible for Chapter 7. If it is above, you complete the full means-test calculation that subtracts allowed living expenses to determine whether a presumption of abuse arises or you should file Chapter 13. These medians change roughly twice a year, so verify the current table at filing.

Chapter 7 versus Chapter 13 in California

Chapter 7 is a liquidation: a trustee may sell non-exempt property to pay creditors, and most remaining unsecured debt is discharged within a few months. With California's large homestead, many homeowners keep their homes in Chapter 7, but a filer with equity above the homestead cap may prefer Chapter 13. Chapter 13 is a three-to-five-year repayment plan that lets you keep your property and cure missed mortgage or vehicle payments over time, which makes it the usual tool for stopping a foreclosure. The instant either case is filed, the automatic stay under 11 U.S.C. 362 halts most collection, including foreclosure sales, repossessions, lawsuits, and wage garnishment. Federal law requires an approved credit-counseling course before filing and a debtor-education course before discharge.

Where you file: California's four bankruptcy courts

California is divided into four federal judicial districts, each with its own bankruptcy court: the Northern District (the Bay Area and north coast), the Eastern District (Sacramento, the Central Valley, and the eastern counties), the Central District (Los Angeles and the surrounding region, the busiest bankruptcy court in the nation), and the Southern District (San Diego and Imperial counties). The California Central District court and the other district courts publish forms, local rules, and self-help resources, and you file in the district where you have lived for most of the prior 180 days.

What bankruptcy can and cannot do

Bankruptcy discharges most unsecured debts, including credit cards, medical bills, and personal loans, but several debts survive. Most student loans remain unless you prove undue hardship in a separate proceeding, and recent income taxes, domestic-support obligations such as child support and spousal support, and most court fines are not dischargeable. The System 1 or System 2 election is permanent for the case, so ask a California lawyer to compare both systems against your property in a free bankruptcy evaluation before you choose (attorney advertising). Nothing here predicts how a particular case will turn out; the result depends on your income, your property, your debts, and which exemption system you elect.

Frequently Asked Questions

Does California use state or federal bankruptcy exemptions?

California uses state exemptions only. Under Code of Civil Procedure section 703.130 the state opted out of the federal 11 U.S.C. 522(d) exemptions. However, California offers a choice between two of its own systems: the Section 704 set with the large homestead, or the Section 703.140(b) bankruptcy-only set with the large wildcard.

What is the homestead exemption in California?

Under the Section 704 system, CCP 704.730 sets the homestead at the greater of a floor of $300,000 or the countywide median home price up to a $600,000 cap, both indexed for inflation annually since 2022, so the current amounts are higher than those base figures. The alternative Section 703.140(b) system has a smaller $36,750 homestead but adds a large wildcard. Confirm the current indexed figure when you file.

What is the California median income for the means test?

For Chapter 7 cases filed on or after July 15, 2026, the U.S. Trustee Program lists California median family income as $79,253 for one person, $102,797 for two, $116,541 for three, and $139,071 for four, adding $11,100 for each additional person. The figures update periodically, so confirm the current table when you file.

Will I lose my house or car in a California bankruptcy?

Often not. California's large Section 704 homestead lets many homeowners keep their homes, and a Chapter 13 plan can stop a foreclosure by curing missed payments. A vehicle is typically protected by the $8,625 motor-vehicle exemption under either system, and the Section 703.140(b) wildcard can cover additional vehicle equity. Whether any asset is at risk depends on your equity and which system you elect.

What is the difference between the two California exemption systems?

System 1 (Section 704) includes the large, inflation-indexed homestead but no general wildcard, so it suits homeowners with equity. System 2 (Section 703.140(b)) has a smaller homestead but a wildcard of $1,950 plus up to $36,750 of unused homestead, so it suits renters and filers with little home equity. You must choose one system for the whole case.

Where do I file bankruptcy in California?

In one of California's four bankruptcy courts: the Northern, Eastern, Central, or Southern District of California. You file in the district where you have lived for most of the previous 180 days. The Central District, covering Los Angeles, is the busiest bankruptcy court in the country.

What is the difference between Chapter 7 and Chapter 13 in California?

Chapter 7 is a liquidation that discharges most unsecured debt in a few months, subject to the means test. Chapter 13 is a three-to-five-year repayment plan that lets you keep property and cure missed mortgage or car payments, which is why it is used to stop foreclosure. Both trigger the automatic stay that halts most collection.

What debts cannot be erased in bankruptcy?

Most student loans (absent proven undue hardship), recent income taxes, child support and spousal support, and most court fines generally survive a bankruptcy discharge. Credit cards, medical bills, and most personal loans are typically dischargeable.