How do I decide whether to use California's System 1 (703) or System 2 (704) exemption schemes to protect my assets?

The choice between System 1 and System 2 exemptions depends primarily on whether you own a home and the amount of equity you have in it. Generally, System 2 is for homeowners with significant equity, while System 1 is better for renters or homeowners with little equity. Here is how to decide which system is right for you: Step 1: List All Your Property and Debts Create a detailed list of everything you own (your assets) and everything you owe (your debts). For each asset, find its current resale value, not what you paid for it. For your home, you may need a real estate agent's opinion of value or a formal appraisal. You will need documents like property deeds, vehicle titles, and recent bank and loan statements. Step 2: Calculate Your Home Equity If you own a home, calculate your equity. To do this, take the home's current market value and subtract the total amount you owe on all mortgages and liens against the property. The result is your equity. For example, a $700,000 home with a $450,000 mortgage has $250,000 in equity. Step 3: Evaluate System 2 (The "Homestead" System) Compare your home equity to the System 2 homestead exemption provided under C.C.P. 704.730. This amount is very generous (currently between $300,000 and $600,000, adjusted for inflation) and can protect your home. If you have significant home equity that is less than the exemption amount, System 2 is likely your best choice. However, System 2 provides only small exemptions for other assets like cash and cars. Step 4: Evaluate System 1 (The "Wildcard" System) If you do not own a home, or if your home equity is very low, review the System 1 exemptions under C.C.P. 703.140. This system offers smaller, specific exemptions for a car, household goods, and tools. Crucially, it includes a large "wildcard" exemption that can be applied to protect any type of asset, such as cash in the bank, a second car, or other valuables not covered by specific exemptions. Important details and nuances: You must make your choice when you file your bankruptcy paperwork on Schedule C: The Property You Claim as Exempt. Once you file, you cannot change your selection. If you are married and filing jointly, both you and your spouse must choose the same exemption system. Warnings and limitations: The bankruptcy trustee has the right to challenge the values you assign to your property. An incorrect choice can result in the loss of important assets. For example, choosing System 1 when you have significant home equity could force the sale of your home. This is general information and does not constitute legal advice. Because this decision is critical and irreversible, you should consult with a qualified California bankruptcy attorney to analyze your specific financial situation before filing.