By: Jeena Cho

Tax season is right around the corner and this is a common question regarding tax refund. If you live in California and can use California exemption, chances are, you can keep your tax refund. The amount of property you can keep through bankruptcy is governed by exemption laws. Some states have its own exemptions (including California). Other states use the Federal exemption.

In California, clients have the option of using either the 703 or 704 exemption. 703 exemptions are great for clients without equity in their home. 703 has what is known as “wild card” of $21,825 that can be applied towards any property of the debtor. This includes potential refund from either the IRS or Franchise Tax Board (FTB). Certain items have its own separate exemptions, hence you do not need to use your Wild Card to protect it.

Let’s take an example. Suppose Jane has $5,000 in her bank account, $3,000 in IRS refund pending, vehicle worth $10,000 and household furnishings worth $5,000.

Starting with the household items, we would apply the $525 exemption towards each item in the home. If any item exceeds $525, the excess amount would get peeled off the Wild Card.

Next, the car. She would first apply the vehicle exemption of $3,300. Next, she would peel off $6,700 from the Wild Card to protect her car. Now she’s down to $18,525. This amount would be sufficient to cover both the money in her bank account as well as the IRS refund.

Assuming she is filing for Chapter 7, this would be a “no asset” case, meaning she loses the debt, and keeps all of her property.

If you have any questions regarding the property you can keep through bankruptcy, you should consult with a bankruptcy attorney. Jeena Cho is a San Francisco and San Mateo bankruptcy lawyer. The information contained in this article is meant to be educational in nature and should not be taken as legal advice. Please consult with an attorney regarding your particular circumstance.