Using California’s 703 vs. 704 Exemptions


If you are a resident of the state of California you can take advantage of the state’s generous exemption laws to protect your property and other assets but it is important to understand the limitations of these laws and how they apply to your specific situation. When filing a Chapter 7 bankruptcy it is important to note that the majority of Chapter 7 bankruptcies are no-asset cases where the trustee does not make any attempt to sell your personal property. With that said, if you own a home or have other expensive assets you want to protect you will want to understand all of the rights you have under California law and apply them when possible. California has created bankruptcy laws in order to protect people and their property allowing them to become debt free and get their finances back on track. Exemptions enable you to retain specific assets following bankruptcy. It’s essential to choose the set of exemptions that aligns with your particular requirements. You cannot blend exemptions from both sets; rather, you must exclusively utilize exemptions from one set or the other. For married filers, both spouses must utilize the same set of exemptions without the option to double their exemptions.


Homestead Exemption:

Most states in the United States offer homestead exemptions to safeguard one’s primary residence in the event of bankruptcy. Unlike some other states, California does not permit the utilization of Federal exemption laws in a California bankruptcy proceeding. Instead, California offers two distinct exemption schemes as specified in Section 703 and Section 704 of the California Code of Civil Procedure. When deciding whether you should be Using California’s 703 vs. 704 Exemptions you need to understand the difference between and what best applies to your situation.  While it is possible to negotiate with your mortgage lender to bring your delinquent mortgage up to date in Chapter 7, it’s crucial to recognize that the lender is not obligated to cooperate, and a significant number choose not to. To safeguard your home from potential loss in Chapter 7, it is advisable to ensure that your mortgage payments are up-to-date, that you can shield all equity through a homestead exemption, and that you are capable of maintaining your mortgage payments even after the bankruptcy process.


704 Exemptions 

In accordance with the 704 Exemptions, debtors have the privilege of safeguarding the equity within their residence by using California’s recently enhanced homestead exemption (vs. the 703 which are not specifically geared towards housing). The updated homestead exemption now allows for the protection of equity ranging from $300,000 to $600,000, depending on the residence’s location. The primary aim of all homestead legislation is to establish a secure haven for the family and its surviving members, allowing them to live and savor the comforts of a home without the constant worry of it being forcibly taken away due to their own financial difficulties or creditor pressures. In essence, the homestead law is not creditor-focused; rather, it shields the home against creditors, ensuring the preservation of the family’s dwelling.


703 Exemptions (Using a Wildcard Exemption) 

The “703 Exemptions,” encompassing the concept of a “wildcard exemption,” offer a distinct level of versatility. With no constraints on the type of property it can shield, this exemption empowers you to safeguard your chosen assets, be it your vehicle, bank account funds, valuable artworks, or any other belongings in your possession. What’s more, you have the freedom to allocate it across multiple assets or combine it with alternative exemption options as well. These exemptions are particularly advantageous for individuals who do not possess real estate or have minimal home equity. To utilize these exemptions, they must be claimed on your bankruptcy Schedule C. 


Don’t Go It Alone: The Attorney’s Value

Using California’s 703 vs. 704 Exemptions can be a complex decision, and filing for bankruptcy is a challenging process that requires careful consideration of your financial situation. Without the guidance of an attorney, there’s a risk that you may overlook crucial exemptions or opportunities to protect your assets under the law. However, it’s essential to understand that the cost of seeking professional assistance is significantly less than the potential cost of missed opportunities or exceeding exemption limits. An attorney can help you navigate the intricate legal landscape of bankruptcy and ensure that you make the most of the protections available while staying within the boundaries of the law.


California 703 Exemptions (Set #1) 

A link can be found here: 703 Exemptions

We’ve put together a handy summary of California’s 703 exemptions to help you out. Just remember, for the precise legal definitions, it’s a good idea to consult the official government websites or reach out to a lawyer.


Money Judgment Procedures and Property Liens   703.010  

Exemptions applying to enforcing money judgments, with exceptions related to property liens.


Shielding Your Assets in Legal Battles   703.020    

This article provides insights into safeguarding your personal property when dealing with financial disputes and legal judgments. It outlines that exemptions in this chapter exclusively apply to assets of individual persons, and it clarifies who can assert these exemptions, which includes the judgment debtor, their representatives, spouse, or domestic partner in community property scenarios. These provisions aim to secure your assets from seizure during legal proceedings.


Preserving Your Assets in Legal Battles   703.030 

In the world of legal proceedings, your property can be safeguarded from money judgments through exemptions outlined in this chapter. If you don’t claim these exemptions in the designated manner and timeframe as per the applicable enforcement procedure, they are forfeited. Conversely, property classified as exempt without the need for a claim remains untouched by money judgment enforcement processes. Remember, the court retains the power to grant relief for failing to claim an exemption under Section 473, should it be deemed just.


Safeguarding Your Valuables in Legal Matters   703.040  

It’s crucial to understand that any attempt to waive the asset protections outlined in this chapter, or any other statute, is deemed against public policy and therefore null and void. These protections are designed to ensure your assets remain secure during legal processes unless they require a specific claim at the time enforcement is initiated.


Defining Property’s Exemption   703.050       

Determining what counts as your assets’ exemption or the extent of those exemptions is a critical part of the game. The rules governing these determinations depend on when a judgment creditor’s lien on your assets was established or the specific circumstances of overlapping liens. These rules apply universally, covering judgments based on various legal theories, and they remain relevant whether your case predates or follows their enactment. However, it’s essential to keep in mind that when it comes to executing levies, the law in effect at the time of execution governs the procedures.


Your Asset Rights in Legal Matters   703.060   

In the world of legal contracts and judgments, it’s crucial to recognize your asset rights. When entering contracts, it’s unlikely that you base your decisions on assumptions about future exemptions. Liens placed on your assets aren’t an inherent right but rather a privilege established by statute, impacting priority.

The law doesn’t create vested rights for exemptions or liens when contracts are formed. It’s vital to acknowledge that the application of exemptions and exemption procedures during judgment enforcement strikes a balance between debtors and creditors’ rights. This approach has minimal effects on economic stability, crucial for maintaining trust in commercial matters.

The state’s policy is to treat all judgment debtors equally regarding exemptions and exemption procedures applicable during judgment enforcement. The legislature retains the right to amend, repeal, or augment exemptions and their procedures as needed, applicable to all money judgments, regardless of their legal basis or the judgment’s timing.

Ultimately, all contracts are understood to have been created with an awareness of the state’s authority to modify statutes governing liens and exemptions in money judgments.


Asset Protections and Support Judgments   703.070     

In legal matters concerning child, family, or spousal support, asset protections play a significant role. Here’s a simplified overview:

(a) Exemptions provided by this chapter or other statutes apply to judgments for child, family, or spousal support.

(b) Property that is inherently exempt is safeguarded and cannot be used to fulfill a judgment for child, family, or spousal support.

(c) If property that’s subject to a judgment for support is found to be exempt as per (a), the court may decide, through a noticed motion by the judgment creditor, the extent to which this exempt property should still contribute to the judgment’s satisfaction. This determination considers the needs of both the judgment creditor and debtor, as well as the obligations the judgment debtor has towards dependents. The court will issue an order specifying how the exempt property should be applied to meet the judgment.

In simpler terms, while exemptions protect your assets, certain considerations come into play when it comes to support judgments, ensuring a balance between the parties involved.


Safeguarding Your Cash   703.080

In simple terms, this law tells us that when you have a fund or cash that’s exempt, it remains protected even if it’s turned into cash or is in a deposit account. But there’s a catch – you need to be able to trace this exempt money. It’s your responsibility to show where this money came from.

When it comes to tracking exempt funds in a deposit account, they typically use the “lowest intermediate balance principle.” This means they’ll look at the lowest balance in your account to determine what’s exempt, unless there’s a good reason to use a different method that’s more fair and just under the circumstances.

So, in a nutshell, if you have exempt funds, they can stay protected, but you need to be able to show where they came from. And when it comes to deposit accounts, they usually use the lowest balance to decide what’s exempt.


Handling Judgment Credits and Property   703.090  

If someone you owe money to doesn’t oppose you keeping your property, and the court agrees it should be yours, they can’t change their minds later and make you pay their additional collection costs, unless they actually use your property to pay off the debt.


Assessing Property Exemptions   703.100     

When it comes to determining whether you can hold onto your assets (like your home or other belongings) despite owing money, there are specific times the assessment is made. These include when your property is seized, when court proceedings to apply your property towards the owed money begin, or when a lien is placed on it. If circumstances have changed between these events and a hearing, the court may consider alterations in property use, value, or the financial situation of the debtor and their family if these factors affect property eligibility.


Exemptions for Married Individuals   703.110   

When a judgment debtor is married, exemptions that protect their property apply to all the assets subject to the money judgment, including the spouse’s interest in community property. Whether one or both spouses are judgment debtors or if the property in question is separate or community, the number and value of the exemptions remain the same. If an exemption must be applied first to property not currently in court and then to property within the court’s jurisdiction, it will extend to both spouses’ community and separate property, even if it’s not subject to the money judgment. If both the judgment debtor and their spouse claim the same exemption for different properties, they can choose how to apply it. If they can’t agree, the court will make the decision.


Considering Needs in Exemptions   703.115  

When determining an exemption based on the needs of the judgment debtor, their spouse, dependents, or family, the court must consider all the property of the judgment debtor. This includes the property of the spouse, dependents, or family, whether it’s community property or separate property, even if it’s not subject to enforcement of the money judgment.


Ineligibility of Certain Exemptions   703.130

In the state of California, the exemptions listed in the federal Bankruptcy Code are not allowed.


Eligible Property Exemptions in Bankruptcy   703.140    

In a bankruptcy case, certain property exemptions can apply. Here’s how they work:

  1. You can choose between different exemptions for your property.
  2. If you file for bankruptcy jointly with your spouse, you can elect to use certain exemptions.
  3. Each exemption has specific rules for the types of property it covers.
  4. For example, one exemption covers your home, another covers vehicles, and others cover household items or tools of your trade.
  5. Exemptions also apply to things like life insurance, health aids, and certain benefits or payments you receive.
  6. In a bankruptcy case, the value of your property and exemptions is determined when you file for bankruptcy.
  7. If the equity in your home is less than or equal to your homestead exemption when you file for bankruptcy, any increase in its value during your case is also protected.

This ensures that some of your property is safeguarded when you file for bankruptcy.


Periodic Adjustments of Dollar Amounts in Bankruptcy   703.150    

In bankruptcy, the dollar amounts that define which of your assets are protected are adjusted over time. Here’s how it works:

  1. Every three years, starting from April 1, 2004, and repeating on April 1 of each third year, the dollar amounts for certain exemptions are reviewed and may change.
  2. The adjustments are based on the California Consumer Price Index for All Urban Consumers, reflecting the cost of living changes over the past three years.
  3. The adjusted amounts are then rounded to the nearest twenty-five dollars.
  4. The Judicial Council maintains a list of current exemption amounts and the date of the next adjustment, which is published and made available to the public.
  5. Adjustments do not apply to cases that began before the adjustment date, except in some cases as specified by the federal Bankruptcy Code.

This system ensures that the value of your assets that can be protected in bankruptcy keeps up with changes in the cost of living.



California 704 Exemptions (Set #2)

A link can be found here: 704 Exemptions

We have included a full list of 704 Exemptions with links to complete Code 0f Civil Procedure for reference, along with a short description of what they mean.


Cars Trucks and other Motor Vehicles ($7,500)   704.010   

(a) You can protect up to $7,500 of your stuff related to cars. This includes the value of your cars, money you get from selling a car, or money from insurance if your car gets damaged or stolen.

(b) The money you protect in (a) stays safe for 90 days after you actually get it.

(c) To decide how much your car is worth, we use a guide that car dealers in California usually use, unless your car isn’t in that guide.

(d) If you only have one car and it’s sold because of debt issues, you can protect up to $7,500 of the money from that sale without asking. The officer in charge can check the Department of Motor Vehicles to see if you only have one car. In this case, the protection mentioned in (a) doesn’t count.


Household Furnishings Appliances Clothes and other Personal Effects   704.020  

(a) You can keep certain things like furniture, appliances, food, clothes, and personal items if they’re important for you and your family, and you use them at your main home. If you and your spouse live apart, the same rule applies to things they need at their place.

(b) To decide if something is “important,” the court will think about two things: how common the item is in a regular household and whether it’s way more valuable than similar items in other homes.

(c) If you claim something as important, but it’s very valuable compared to the same things in other homes, the court might not agree. However, if you have to sell it because of debt issues, you can protect some of the money you get, enough to buy a similar item. This protected money stays safe for 90 days after you get it.


Materials for Repair or Improvement or your Residence ($3,500)   704.030 

If you’ve bought materials to fix or improve your home, and you didn’t do it with any bad intentions, those materials are safe from being taken to pay off debts as long as they’re worth no more than $3,500. This rule applies in two situations:

(a) If you bought the materials in good faith to use in fixing or improving your own home.

(b) If you and your spouse are living separately, and you bought the materials in good faith to use in fixing or improving your spouse’s home.


Jewelry, Heirlooms and Art ($8,725)   704.040  

Jewelry, heirlooms, and art pieces can be protected as long as their total value is not more than $8,725. 


Health Aids, Prosthetics and Orthopedic Appliances   704.050 

(a) If you or your spouse or a family member you’re responsible for needs certain health devices to stay healthy or work, and also things like prosthetic limbs or support devices, you don’t have to give them up to pay off debts.

(b) These health devices also cover vehicles that have been changed to be used by you, your spouse, or a dependent family member with a disability. This includes changes to the inside of the vehicle, adding special equipment for wheelchairs, or modifying how the vehicle works.


Items like Tools, Materials, Equipment and More ($8,725)   704.060   

Certain property used for work is protected from being taken to pay off debts. This includes tools, equipment, and vehicles, but only up to a certain value:

  1. If the property is used by the person with the debt to earn a living, they can protect up to $8,725 worth of these items.
  2. If the property is used by the spouse of the person with the debt to earn a living, they can also protect up to $8,725 worth of these items.
  3. If both the person with the debt and their spouse use these items to earn a living in the same job, they can protect up to double the amount, but the individual protections from points 1 and 2 no longer apply.

If these protected items are sold or lost and the person gets money from the sale or insurance, that money is also protected for 90 days.

However, if there’s already a protected vehicle (like a car) under Section 704.010 that can be used for work, the additional protection for a vehicle doesn’t apply.

There are some limits on how much can be protected for commercial vehicles. For points 1 and 2 above, the maximum protection for a commercial vehicle is $4,850. For point 3, the protection can be twice that amount.


Wage Garnishment   704.070     

  • If your earnings were already held by a court order for things like child support, they’re protected.
  • If someone tries to take your earnings to pay a debt, but they weren’t already taken by a court order, a part of it is still safe from being taken.


Deposit Accounts in Wage Garnishment Law   704.080 

This law safeguards certain bank account funds from debt collection, particularly when they contain government benefits like public assistance and social security payments.

(a) If your account receives:

  • $1,750 for public benefits.
  • $3,500 for social security benefits.
  • $2,600 for multiple depositors of public benefits.
  • $5,250 for multiple depositors of social security benefits.

(b) Money beyond these limits is safeguarded if it originates from these benefits.

(c) When an attempt is made to collect these funds for debt repayment, the bank must protect the funds and notify authorities.

Should there be a dispute over whether these funds are exempt, a court will make the final determination.


Money in Inmate Accounts ($1,750)   704.090     

If you’re in prison or a similar facility, and there’s money held in your account by the state, county, or city, it’s protected. You can keep up to $1,750 without having to ask for it, and if you’re married, both spouses can have their own $1,750 protection or combine it. However, if your debt is related to certain fines or orders from before specific dates, you can protect up to $325, and this amount won’t change.


Life Insurance Policies in Money Judgments ($13,975)   704.100 

If you have life insurance policies that haven’t paid out yet, they are safe from being taken to pay off debts, and you don’t have to ask for this protection. The amount of money you’ve borrowed from these policies is also protected, up to $13,975. If you’re married, both you and your spouse can each have this protection, and you can combine them. If your policies have already paid out, you can keep the money you need to support yourself, your spouse, and your dependents.


Protection for Scholarshare Trust Act Funds   704.105 

Money in an account established under the Golden State Scholarshare Trust Act is safe from being taken to pay debts, and you don’t need to ask for this protection. There are limits based on the contributions made during certain time periods. If the contributions stay within those limits, the money is protected. This rule applies to all accounts with the same beneficiary. Unlike other rules, this one is not affected by Section 703.150.


Public Retirement Benefits   704.110     

Money held or controlled by a public entity from contributions for public retirement benefits and the benefits people receive from public retirement systems are safe from being taken to pay off debts, and you don’t have to ask for this protection. However, if someone owes child support or spousal support, the court may decide how much of the benefit can be used to pay those debts. If the benefits are paid periodically, they can be subject to specific rules for withholding the amount owed. Lump-sum payments can also be used to pay off debts. Any person who lives in the state and receives public retirement benefits or contributions from the United States, a public entity, or a public retirement system can keep that money; it’s safe from debt collection.


Alimony and Support Funds   704.111   

Money received for alimony, support, or separate maintenance is safe from being taken to pay off debts as long as it’s reasonably needed to support the person who received it and any dependent family members. This rule was added recently and is effective from January 1, 2023.


Vacation Credits and Accrued Leave Pay ($7,500)   704.113   

This law states that vacation credits accumulated by state employees or other public workers, along with related benefits like unused vacation pay, sick leave, or family leave, can be protected from being used to pay debts, up to a limit of $7,500. However, if you receive money for these credits regularly or as a lump sum, that money can be used to pay off your debts just like your regular earnings.


Lien on Employee Contributions for Support Orders   704.114   

When certain government orders for child support are issued to public entities (except the U.S. government), they create a legal claim on a portion of the employee’s contributions to satisfy the support judgment. The public entity must follow this order and deliver the specified amount to the court handling the support order unless they have proof that the support order has been terminated. The court then notifies all parties involved, and if no enforcement action is taken within 30 days, the money is returned to the public entity unless they request the release to the employee. The court cannot link support orders with requests for returning employee contributions.


Safeguarding Private Retirement Plans   704.115    

This law ensures that various private retirement plans, including union and profit-sharing plans, are protected from being used to pay off debts. Money held in these plans for annuities, pensions, retirement allowances, disability payments, or death benefits is exempt from debt collection. However, if someone owes child support or spousal support, the court may decide how much of these benefits can be used to pay those debts. After the retirement plan pays out, the money, contributions, and interest returned to the member are also protected. The law allows a portion of the benefits in individual retirement accounts to be used for support when the account holder retires, but the court considers the financial needs of the retiree, spouse, and dependents. Any lump-sum distribution from an individual retirement account is treated the same as a periodic distribution for debt collection purposes.


Exemption of Unemployment Benefit   704.120     

This law states that contributions by workers to the Unemployment Compensation Disability Fund and contributions by employers to the Unemployment Fund are automatically protected. Before payment, various types of benefits under the Unemployment Insurance Code, including incentives and employer-based plans, are exempt from debt collection. Once these benefits are paid out, they remain protected. However, if the recipient owes child support, the court may use a portion of the benefit payment to satisfy the support judgment. For other benefits, like those from a union or fraternal organization, the judgment creditor can seek to apply the payments to satisfy the debt through specific procedures. If benefits are payable periodically, a maximum of 25 percent of each payment can be withheld for debt repayment, or a lower amount as specified by court order, rounded down to the nearest dollar. The paying entity can deduct a small administration fee for each payment made under the order.


Health and Disability Insurance Benefits   704.130  

This article discusses the treatment of benefits from disability or health insurance policies or programs in California. It explains that these benefits are automatically protected both before and after payment, ensuring that individuals can maintain their coverage and access necessary healthcare. However, an exception applies when benefits are meant to cover healthcare costs resulting from a claim by a healthcare provider who is also the judgment creditor. Additionally, during the payment of disability benefits under a support judgment, certain procedures may allow for withholding to satisfy the judgment, subject to specific limitations.


Personal Injury Compensation   704.140      

This section outlines how California law protects personal injury compensation. It states that a cause of action for personal injury is automatically safeguarded, and any compensation received as a result of personal injury is protected to support the debtor, their spouse, and dependents. However, this protection does not apply if the creditor is a healthcare provider seeking payment for care related to the personal injury. Additionally, periodic payments from personal injury compensation are subject to specific rules under the Wage Garnishment Law.


Wrongful Death Compensation   704.150

This section discusses how California law protects wrongful death compensation. It states that a cause of action for wrongful death is automatically secured, and any compensation received due to the wrongful death of the judgment debtor’s spouse or a person they were dependent on is safeguarded to support the debtor, their spouse, and dependents. Periodic payments from such compensation are subject to specific rules under the Wage Garnishment Law.


Workers’ Compensation and Support Judgments   704.160 

This section explains how California law treats workers’ compensation in the context of support judgments. It states that a claim for workers’ compensation is automatically safeguarded before payment. After receiving workers’ compensation, it is exempt, except in cases of support judgments, where specific rules apply. The support judgment creditor may utilize workers’ compensation payments to satisfy the judgment, subject to limitations. The section also provides definitions for key terms used in this context.


Aid and Charitable Assistance   704.170      

This section describes how certain forms of aid are protected under California law. Aid provided through specific welfare programs or by charitable organizations and fraternal benefit societies is automatically safeguarded both before and after payment. This protection ensures that individuals in need can receive essential support without the risk of it being seized to satisfy debts or judgments.


Relocation Benefits   704.180 

Benefits designed to assist individuals who must relocate from their residences, whether under state programs or federal regulations like the “Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970,” are secured. These benefits maintain their protection both before and after disbursement, offering assurance to those going through the challenges of relocation.


Student Financial Aid   704.190    

In California, various forms of financial aid provided through welfare programs, charitable organizations, or fraternal benefit societies are protected from being taken to pay off debts or judgments. This safeguard covers aid both before and after payment, ensuring that individuals in need can rely on this assistance without fear of it being used for other purposes.


Cemetery and Family Burial Plots in California   704.200   

Terms are defined throughout this section related to cemetery plots, including “cemetery,” “family plot,” and “plot.” It emphasizes that family plots are automatically safeguarded under the law without the need for a special claim. However, it clarifies that land intended for sale or use for non-cemetery purposes does not enjoy this safeguard. The primary aim is to protect and maintain the sanctity of family burial plots while permitting appropriate land use for other purposes when it’s not designated for burials.


Property Not Subject to Money Judgment Enforcement   704.210      

To provide individuals with a measure of financial security, this article designates specific properties as off-limits to creditors seeking to enforce a money judgment. There’s no need for individuals to file a claim to secure this safeguard. The goal is to protect essential assets from creditors’ claims, ensuring that individuals can maintain these possessions despite their financial obligations.


Safeguarding Your Assets from Creditors in California   704.220    

In California, certain assets are shielded from creditors looking to enforce a money judgment. This protection ensures that essential belongings and, in some cases, homes are safe from seizure. You don’t need to file a claim for this shield; it’s automatically provided to qualifying assets.


Deposit Account Exemption for Support   704.225  

If you’re a judgment debtor in California, your money in a deposit account is protected from creditors to ensure the financial support of you, your spouse, and dependents. This protection helps secure essential funds, allowing you to provide for your family’s needs.


FEMA Assistance Exemption   704.230  

Funds from the Federal Emergency Management Agency (FEMA) are automatically safeguarded for the judgment debtor.

Frequently Asked Questions: Debt Consolidation in California
How does debt consolidation affect credit scores?

Initially, it might cause a slight dip due to credit inquiries. However, consistent payments can improve your credit score over time.

What is the difference between debt consolidation and debt settlement?

Debt consolidation involves taking a new loan to pay off debts, while debt settlement is negotiating to pay less than you owe. Settlement can negatively impact your credit score.

What are secured vs. unsecured debt consolidation loans?

Secured loans require collateral (like a house or car), usually with lower interest rates. Unsecured loans don't require collateral but typically have higher rates.

Is debt consolidation right for me?

It depends on your total debt, interest rates, credit score, and payment capability. It's suitable if you can pay off your debt within five years and secure a lower interest rate than your current debts.

Should I consider long-term financial planning?

Yes, debt consolidation should be part of a broader financial strategy including budgeting, cutting expenses, and building an emergency fund.

How do Chapter 7 and Chapter 13 bankruptcies in California differ?

Chapter 7 involves liquidating assets to pay off debts, while Chapter 13 allows debt restructuring over a set period, usually three to five years.

Can my spouse's bank account be garnished for my debt?

Bankruptcy laws offer protections against such actions, but specifics depend on individual cases and state laws.

How can I learn more about my options?

Consulting a California bankruptcy attorney can provide clarity. Firms like The Law Offices of Christopher Hewitt offer free consultations to explore debt relief paths.

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