State law protects some property from the reach of the judgment creditor seeking to enforce a money judgment (and also from the reach of a creditor seeking to use a prejudgment remedy). Property so protected is known as exempt property.  Federal law other than federal bankruptcy law also protects some property from the reach of a judgment creditor (e.g. benefits of retired railroad workers, veteran's benefits, social security benefits, and certain property of military personnel).   The protection is extended to property of individual debtors, not to the property of corporations, partnerships, limited liability companies, or other legal entities.   The Bankruptcy Code, which is also federal law, protects some property of an individual debtor against all unsecured creditors (whether or not they are seeking to enforce a judgment) in the event that the debtor files a bankruptcy petition. 

     The nature and amount of property protected varies widely among the states. The exemption law of some states, such as the law of Texas and California, is generous; the exemption law of other states, such as Pennsylvania, is penurious. Typical state exemption laws protect some portion or all of the debtor's equity in a principal residence (known as the homestead exemption), in wearing apparel, household appliances and furnishings, in an automobile, in tools of the trade, in health aids and prosthetic devices, in jewelry, and in the benefits of a life insurance policy. Federal law (other than the Bankruptcy Code) and law in some states also protects a substantial amount of unpaid wages.  The California Judicial Council publishes a list of federal and California exemptions that accompanies the Notice of Levy that the sheriff serves on a judgment debtor in levying a writ of execution in California.   

     Consider the following example of how an exemption works. Suppose Valerie Victim has a judgment against Tom Tortfeasor for $50,000. Tom owns real property in California which he uses as his principal residence. An appraisal of the residence would reflect a fair market value of $150,000. The residence is encumbered by a deed of trust securing a debt of $120,000. Thus, Tom's equity in the residence is presently $30,000. Assume that California protects $45,000 of an individual debtor's equity in a residence. Valerie would be precluded from forcing the sale of Tom's residence through the execution process because the amount of his exemption exceeds the amount of his equity in the residence. However, she could still record an Abstract of Judgment to create a judgment lien on the real property, hoping that eventually Tom would refinance or sell, generating proceeds to pay her lien, or hoping that the equity in the property grows (either through appreciation of the property or the reduction of the debt secured by the deed of trust) such that the equity is no longer fully protected by the exemption.  She would not be precluded from forcing the sale if the residence were worth $250,000, although Tom would receive $45,000 from the proceeds of any forced sale prior to payment of any proceeds to Valerie. Valerie would also not be precluded from forcing the sale if Tom's real property were improved by a factory rather than a residence or if the real property were owned by a corporation or partnership, because in either event the exemption would not apply to the real property.

     Detailed exploration of state exemption law is beyond the scope of these materials. But it is important for you to understand that exemptions from the enforcement of a money judgment by a creditor do not protect a debtor from the enforcement of consensual or statutory liens. See, e.g., Cal. Code Civ. Pro. 703.010.   Suppose, using facts from the foregoing example, that Tom failed to make monthly mortgage payments to the lender whose debt was secured by the deed of trust on the residential real property. The lender would be able to foreclose on the residence (i.e. force its sale either in a judicial foreclosure sale, to be distinguished from an execution sale, or in a private sale pursuant to powers given in the deed of trust); the homestead exemption would not protect the debtor against enforcement of the consensual lien. On a moment's reflection, the reason for this should be obvious. When Tom obtained a loan to purchase his residence, he granted the lender a lien to secure his promise to repay the loan; the lender would not have made a loan but for this security. Tom is not thereafter permitted to assert an exemption to prevent the enforcement of a lien that he granted. Similarly, if Tom brought his car to an automobile mechanic for repair and refused to pay for the repair, the mechanic would have a statutory lien, dependent on possession, on the automobile and could sell the car to satisfy the repair bill. Tom could not resist the sale by asserting an exemption for equity in an automobile.

     In summary, exemptions protect some property of individual debtors against enforcement of money judgments by unsecured creditors but not against creditors seeking to enforce consensual or statutory liens. For those of you who play cards, another way to think of this is that consensual liens trump exemptions.