The Senior Citizens Legal Advocacy Program
P ROTECTING E X EMPT P R OPERTY
The Legal Aid Society of Orange County, 2101 N. Tustin Ave., Santa Ana, CA 92705
www.lasoc.com; or to reach the Hotline, call (800) 834-5001 or (714) 571-5200
What happens when a creditor gets
TOPICS COVERED IN THIS ARTICLE
a judgment against me?
If a creditor gets a judgment against you,
California law may protect some of your income 1 What happens when a creditor gets a judgment
and some of your assets by making them “exempt” against me?
from collection. As a general rule, most people 2 What types of personal property are protected as
with debt problems find that California law allows
them to keep virtually all of their personal 2 When do these exemptions apply?
property (excluding very valuable items) and a 2 Are my retirement benefits exempt?
home, assuming there is not a great deal of 2 Is there a “second list” of exemptions that
“equity” in the home. applies if I file bankruptcy?
3 Who can claim exemptions?
These “exemptions” will also protect your 3 Do I have to file or assert a “claim” to protect
property if you file bankruptcy (see the fact sheet, my property?
“Bankruptcy”), but they are available to protect 3 Can a contract clause or a creditor make me
you in California courts when a judgment creditor “waive” my exemptions?
tries to take your property to collect a judgment. 3 If the exemption amounts increase, which
Using “exemptions” to protect your property may amounts apply to the judgment?
3 What if my “exempt property” is now deposited
in my bank account?
4 What if my social security payments in my back
The Senior Citizens Legal Advocacy Program account exceed the exemption amount?
and the City of Mission Viejo 4 How do I claim my exemptions?
5 Does my bank have to tell the judgment creditor
The Senior Citizens Legal Advocacy Program that my funds are social security or public
(SCLAP) is part of the Legal Aid Society of Orange benefits?
County (LASOC), a non-profit corporation funded 6 Are there some debts against which I can‟t use
by public and private sources. exemptions to protect my property?
6 What is the “loan value” of a life insurance
SCLAP provides services to Orange County policy?
residents age 60 and over and is funded in part
through the Federal Older Americans Act, as
allocated by the Orange County Board of
Supervisors. require some action on your part—the protections
This presentation is part of a program funded by a are not usually automatic (see below, “How do I
grant from the City of Mission Viejo. Any opinions claim my exemptions?”)
expressedare entirely those of SCLAP.
If you own a home, the “homestead exemption” will
Page 2 Protecting Exempt Property
commencing with section 704.010) apply to all
cases where a judgment creditor seizes or attempts
“…exemptions from to seize your property by levy or garnishment.
For a complete understanding of how your
enforcement of judgment… property could be affected by a judgment
apply to all cases where a creditor‟s enforcement proceeding, you should
judgment creditor… attempts to seek advice from an attorney.
seize your property… .” If you receive notice that a judgment creditor has
levied your property, you may have to act very
promptly to file a “claim of exemption” under the
law in order to keep the property. In other words,
protect a specified amount of equity in your home these exemptions do not necessarily provide
for your benefit—up to $150,000 for seniors that automatic protection for your property. See
are at least 65 years old. See the fact sheet, “The below, “How do I claim my exemptions?”
Homestead Exemption”, for more complete
information on this topic. Are my retirement benefits
What types of personal property
are protected as “exempt”? Social Security and public benefits are generally
exempt from judgment. In addition, other types of
California has a complicated scheme of retirement benefits, pensions, matured life
exemptions that protect your personal property. insurance and annuities are exempt under the law,
You will need to review your circumstances with a but only to the extent reasonably necessary for
lawyer in order to draw conclusions about how your support and the support of a spouse and your
these other exemptions may apply to you and your other dependents. A court may determine what is
property. reasonable based on your circumstances.
Generally, these exemptions are intended to If you receive a “public retirement benefit”
protect a reasonable amount of personal property (pension, annuity, disability, death or other benefit
that is ordinarily used in your household or for the paid by a public retirement system), your benefits
operation of your trade or business. A Judicial are fully exempt from collection except for any
Council of California form, EJ-155, lists property claims arising from a judgment for child, family or
that may be exempt from levy on a judgment. spousal support against you.
This form can be found at www.courtinfo.ca.gov.
These amounts will be adjusted every 3 years, Is there a “second list” of
following April 1, 2007, based on the Consumer exemptions that applies if I file
When do these exemptions apply? California has a “second list” of exemptions that
can only be used, at your option, if you file
These California exemptions from enforcement of bankruptcy (see, Calif. Code of Civil Procedure
judgment (Calif. Code of Civil Procedure, Section 703.140(b)). This list is distinctly
Protecting Exempt Property Page 3
different in the items protected and amounts
protected (some exempt amounts may be higher).
“Any contract or agreement …
The most significant difference in this second list
is that it does not allow a debtor to use the to waive or restrict your right to
homestead exemption. However, this second list claim your exemptions is void
does provide a so-called “grubstake exemption” in under the law.”
the amount of $20,725 that applies to any real or
personal property used as a residence by the
If you do file bankruptcy, you will be allowed to waive or restrict your right to claim your
choose either this second list or the traditional list. exemptions is void under the law. The only way
you can “waive” a claim of exemption is by your
Who can “claim” exemptions? failure to make or assert the claim at the
You may assert or file a “claim” for an exemption
if you are the judgment debtor. It‟s also If the exemption amounts increase,
appropriate for a conservator or some other person
to claim an exemption on your behalf. In the case which amounts apply to the
of community property that is seized, the spouse of judgment?
the judgment debtor may also assert or claim the
exemption. The exemption amount that will apply to you is the
amount in effect at the time the judgment creditor
Do I have to file or assert a “claim” gets a “lien” on your property. If a creditor has a
judgment, but hasn‟t used it to seize your property
to protect my property? or get a lien, you will generally be protected by the
new or larger exemption amount in effect when
In most cases, you must assert or file a “claim of the judgment creditor decides to use the judgment
exemption” or it will be deemed waived and the to put a lien on your property.
creditor will be allowed to take the property at
issue. Some limited types of property are
identified in the law as “exempt without making a What if my “exempt property” is
claim”. These types of exemptions are often now deposited in my bank account?
referred to as “automatic” exemptions. If property
under the statute is identified as “exempt without The law protects exempt property even if it is
making a claim”, then this property is not subject deposited into a deposit account (thereby
to the normal procedures for enforcement of a transforming the property to cash or cash
judgment. equivalent). However, when exempt funds are
“commingled” with non-exempt property or
Can a contract clause or a creditor simply deposited in your bank account, you will
have the “burden of tracing”—that is, you will
make me “waive” my exemptions? have to prove that the funds on deposit can be
legally traced back to the exempt source.
No. Any contract or agreement that purports to
This “tracing” can be a relatively easy exercise if
Page 4 Protecting Exempt Property
the protected amount in your bank account, and if
the funds are solely from social security payments
or public benefits payments, they are all exempt if
“…when exempt funds are…
you make a claim to protect them. See Calif.
deposited in your bank account, Code of Civ. Proc. section 704.080(c).
you will have the „burden of
tracing‟….” If this situation might apply to you, it is very
important that you avoid commingling these
funds with any other funds you might need to
“…you should avoid deposit. This is because you may have to prove
commingling these funds with that these funds all “trace” to social security or
public benefits deposited into your account. See
other money.” above, “What if my „exempt property‟ is now
deposited in my bank account?”
How do I “claim” my exemptions?
you maintain a savings or checking account using
direct deposit of your pension or other “exempt” When a judgment creditor levies (or forces
property into the account. But you should avoid seizure) of your property, the levy is handled by a
commingling these funds with other money. If disinterested “levying officer” (in Orange County,
you do not deposit other, nonexempt property into California, this is often the Sheriff or the
this account, you will be able to show that the Marshall‟s office). The levying officer will be
only funds in your bank account are, in fact, the identified on the notice that you receive.
exempt monies protected by the law. Following your receipt of this written notice that
the levy has occurred, you will have 10 days from
However, if you deposit other checks or money the date of this notice is served on you to assert
into the same account that you use for your social your exemption.
security, pension or other public benefit deposits,
you should expect difficulties in “tracing” and in Within 10 days of service of the notice of levy,
meeting your “burden of proof” if you have to go you must file a “claim of exemption” and a copy
to court because of a levy on your account. with the levying officer (not with the court). It is
best to get prompt assistance from an attorney in
What if my Social Security this process. If you can‟t afford an attorney you
payments in my bank account can contact the Legal Aid Society of Orange
County, a self-help center at the court, or you can
exceed the exemption amount? file the claim of exemption yourself. Forms for
asserting the exemption claims are available
Excess amounts of social security and public online through the Judicial Council at
benefits are still protected as “exempt”, but you www.courtinfo.ca.gov/forms.
may have to go to court to prove that the
exemption applies to these funds. If you file a claim of exemption and a copy with
the levying officer, you shift the burden to the
The exempt dollar amounts listed in California judgment creditor to take the matter before a
Code of Civil Procedure, section 704.080(b) for judge. The levying officer will serve the
social security and public benefits protect your judgment creditor with your claim of exemption
property “without making a claim” in those and the judgment creditor will have 10 days after
designated amounts. But if you have more than service to file a motion in court to dispute your
Protecting Exempt Property Page 5
claim. If the judgment creditor does not file that
motion, the levying officer will release the
property that was levied. “The law requires that your
If a motion is timely filed by the judgment bank notify the levying
creditor, the court must set a hearing on the officer… that your account is
judgment creditor‟s motion within 20 days. You one that receives direct deposits
or the person asserting the claim of exemption on
your behalf will have the burden of proof to of social security or public
establish your claim that the property or the funds benefits. The bank also has to
are exempt. inform the levying officer what
amounts… exceed the exempt
This legal process is designed to happen quickly,
but even with short notice periods, the dispute amounts allowed by the law.”
process can tie up your property or funds for over
40 days. For this reason, seniors that have
directly deposited social security funds in their
bank accounts are urged to avoid commingling
these funds with other deposits. In some cases, and release the funds. If the judgment creditor
once a judgment creditor is notified (by a properly decides to dispute the exemption and take the
filed claim or by your bank) that these account matter before a judge, you will receive notice and
funds are only social security “exempt” funds, the there will be a hearing that you must attend.
judgment creditor may choose to drop the matter Sometimes this can happen, even with social
or to instruct the levying officer to release the security deposits, if the judgment creditor wants
funds without a hearing or further delay. the “excess” amount in your account that exceeds
the exemption amount.
Does my bank have to tell the
You will not be required to file any papers if this
judgment creditor that my funds occurs. But you may have to attend the court
are Social Security or public hearing and you will still have the “burden of
benefits? proof” under the law to show that any “excess”
money in your account (that exceeds the stated
Yes, if your account receives direct deposits of dollar amount of the exemption) is only social
these benefits. The law requires that your bank security or public benefits that are still protected
notify the levying officer within 10 business days by Calif. Code of Civ. Proc. section 704.080(c).
after the levy that your account is one that See above, “What if my Social Security payments
receives direct deposits of social security or in my bank account exceed the exemption
public benefits. The bank also has to inform the amount?”
levying officer what amounts, if any, in your
account exceed the exempt amounts allowed by This process can be confusing even though it is
the law. designed to protect your social security or public
benefits without making a claim. The net effect is
When this notice occurs, a process is commenced that you might still have to go to court to protect
(without your action) that forces the judgment some of your money and the resulting delays
creditor either to—(a) dispute the exemption by
taking the matter to court; or (b) drop the matter
Page 6 Protecting Exempt Property
could substantially impair, temporarily, your value” by preventing the judgment creditor from
ability to pay your living expenses. extracting the protected amount from your policy.
This cash or loan value can change quickly over
Are there some debts against time, depending on the terms of your policy. You
may have to contact your insurance company to
which I can’t use exemptions to get an accurate and current statement of this
protect my property? “value”.
Yes, but the exceptions are limited, typically
involving debts for overpayment of government
benefits or debts for support payments. In
addition, the exceptions may only apply to certain
kinds of property for which an exemption may not
As an example, if you receive an overpayment of
Social Security, SSI or some other public benefit,
the government agency will have the right to
make deductions from your current payments or
benefits (called “offsets”) in order to collect the
debt. Your California exemption that protects
social security and public benefits payments can
not be used to stop these offsets.
In addition, even though public retirement
benefits are exempt under the law, they are not
exempt from enforcement of a judgment for child,
family or spousal support.
What is the “loan value” of a life
One of the above exemptions protects a certain
dollar amount of the “loan value” of life insurance
policies. Some life insurance policies accumulate
value that is often referred to as the “cash value”
(e.g., “whole life” or “universal life” policies can
have a cash value). These policies will typically
allow the policy holder to borrow against this
cash value and use the money today. This cash
value or “loan value” is considered an asset with
The exemption protects this “loan value” or “cash