The bank account levy laws prior to 2021
It used to be that if a creditor had a judgment against you, they could levy your bank account and potentially empty it down to $0. I vividly recall one case where my client had an extremely urgent medical emergency, was completely incapacitated, and the family only had the one bank account shared by my client and his spouse. After the ambulances took him away, his spouse needed some cash to hold down the fort, but her card was declined as the account had been drained down to $0. They also had no cash or access to credit. It was a terrible situation and highlights one of the major problems that existed with bank levies in that there is no specific calculation as to how much can be taken from a bank account. With a wage garnishment, creditors can only garnish up to 25% of your gross income, and even this can be lowered by filing a “claim of exemption” stating that you need at least some of that 25% for the health and well being of you and your dependents.
The New Bank Levy Exemption Laws in 2021
Minimum balance exemption: CCP §704.220
With the passage of this first new exemption (California Code of Civil Procedure §704.220), you can now protect a certain amount in your bank account. The absolute floor that creditors can levy down to is based on a calculation of numbers pulled from other sources and will be periodically adjusted – right now that floor is set at $1,788. This exemption does not require you to do or file anything as it arises automatically.
California Code of Civil Procedure §704.220 (a) Money in the judgment debtor’s deposit account in an amount equal to or less than the minimum basic standard of adequate care for a family of four for Region 1, established by Section 11452 of the Welfare and Institutions Code and as annually adjusted by the State Department of Social Services pursuant to Section 11453 of the Welfare and Institutions Code, is exempt without making a claim.
Exempting “to the extent necessary for support”: CCP §704.225
The other exemption protecting bank accounts (California Code of Civil Procedure §704.225) is much broader, but also very unclear as to how much can be protected. It states that funds that would not otherwise be exempt can be exempted “to the extent necessary for the support of the judgment debtor and the spouse and dependents of the judgment debtor.” Unlike the previously mentioned $1,788 exemption, this one will require that you show exactly how these funds are necessary for support.California Code of Civil Procedure §704.225 Money in a judgment debtor’s deposit account that is not otherwise exempt under this chapter is exempt to the extent necessary for the support of the judgment debtor and the spouse and dependents of the judgment debtor.
How these laws are applied in bankruptcy
Claiming exemptions to protect property in a Chapter 7 bankruptcy
These exemptions can also be claimed in the context of a bankruptcy. When filing a bankruptcy in California, you have a choice of two sets of state law exemptions which you can use to protect your property. The homestead exemptions or the wildcard exemptions. Prior to these new exemption laws, it was often difficult to protect bank accounts in a case where our clients were claiming the homestead exemption. Now, we are easily able to claim up to $1,788 as exempt and, depending on the circumstances, it is likely that we can substantially increase that amount.
Reducing “Liquidation Value” for Determining Chapter 13 Payments
In a Chapter 13 bankruptcy, you generally are able to retain any property that you wish to keep and can surrender any property that you do not wish to keep. The drawback is that you must make monthly Chapter 13 payments to the Trustee over a period of time, which is generally 3 to 5 years. There are several ways to determine the amount of a Chapter 13 payments. One factor in determining the payment amount is the so called “Liquidation Analysis”. This test looks at what would happen if you had filed a Chapter 7 instead of a Chapter 13. If unsecured creditors would have received a payment in the hypothetical Chapter 7, then your Chapter 13 plan must provide that these creditors receive at least as much. Since these new exemption laws would be applicable in that hypothetical Chapter 7, then the result is that you may be able to reduce your Chapter 13 payment accordingly.
