Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a process in which you discharge unsecured creditors and get a fresh start in a very short period of time. Chapter 7 bankruptcy typically takes 4 months from filing a petition to receiving a discharge and you don’t pay any money back unless you have assets that are beyond California’s exemptions. 95% of chapter 7 cases are considered no asset cases so the trustee does not sell any property to pay back creditors and the debtor walks away without any unsecured debt and gets a fresh start.
To qualify for a Chapter 7 bankruptcy you have to pass the means test which looks at what your income was for the last 6 months and compares it to the median income of a household of your size in California. A single person in California is roughly around 48,000 dollars and for households of two its around 64k with 7k added per household member after that. If your income is below the median income, then you presumptively qualify for a chapter 7 bankruptcy. For some people the means test does not apply. If you are a business debtor then you fall into this category. That means that if over 50% of your debt is business related debt then the means test does not apply and you can get a chapter 7 bankruptcy much easier then other high income earners. The other exception to the means test is if you have high expenses and can show that you have no disposable monthly income to pay into a chapter 13. Its not any expenses that count, but if you have an expensive mortgage, high medical bills, spousal support etc.
California exemptions are very debtor friendly and you can protect between 75,000 to 150,000 dollars as a homestead exemption which allow you to keep that much in equity in your house. If you don’t own a house or your house is upside down then you can use a wildcard exemption which protects 22,000 dollars towards anything above and beyond other exemptions including cash.
I have included some of California’s exemptions below so you can get a general understanding of how you can protect all of your assets and discharge your debts in a Chapter 7 bankruptcy. Call me for any further explanations.
General Exemptions California
If you do not own real estate in California or if the Real Estate that you own has no equity then you can choose one set of exemptions that lets you use the “wildcard”
The wildcard will give you an exemption of up to $22,000 dollars that can be used towards anything including to maximize exemptions that may already be used up.
For example if your car is worth 10,000 dollars and the exemption amount for a car is only $3300 dollars then you can borrow $6700 from the Wildcard and you will still have 15,300 available for cash or other things that go over the exemption given.
Household goods: Everything unless the individual thing is worth more than $525. Remember you can use the wildcard if it is.
401K’s and retirement plans protected up to 1 million dollars
A payment under a a personal injury award not to exceed 20,725, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or individual of whom the debtor is a dependent.