What Is The Chapter 7 Bankruptcy Process
Filing for bankruptcy successfully requires timely and accurately completing a series of steps. Though each bankruptcy is different, the steps are quite similar and include but are not necessarily limited to the following.
Once all of these steps many of which overlap and all your responsibilities are fulfilled, the court will approve the bankruptcy. Your debts that were the subject of the bankruptcy will be discharged.
How To Determine If You Need A Consumer Or Business Bankruptcy
To be able to file for a Chapter 7 bankruptcy, the debt accumulated has to be consumer debt therefore, a person who has business debt does not qualify to file for a Chapter 7 bankruptcy. If you have debt relating to business expenses, a means test is not necessary.
If the debt collected is mainly comprised of business expenses, that individual will need to file for a business bankruptcy.
California Bankruptcy: Chapter 7 And Chapter 13
Laws of both Chapter 7 and Chapter 13 Bankruptcy involve individuals. However, there are fundamental differences between the two, as discussed below.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy also denoted as Liquidation Bankruptcy, allows the debtor to wipe out various debts and make a fresh start. Generally, individuals with large credit card debts and unsecured loans with few assets choose Chapter 7 Bankruptcy. It allows the discharge of various liabilities except for child support, alimony, student loans, specific taxes, and fraudulent debts.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is understood as reorganization Bankruptcy because debtors can reschedule their debt payments to manage their current financial crisis. It allows debtors to prevent a house foreclosure or make up for a missed car loan repayment. It also allows one to avoid interest from accruing on ones tax debt. It is the ideal bankruptcy for those who prefer to retain their secured assets. It proves useful when the debtor has valuable non-exempt property and a steady income source.
An adequate understanding of Chapter 7 and Chapter 13 Bankruptcy laws will provide clear guidance in the matter.
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California Chapter 7 Bankruptcy Credit Counseling And Debtor Education Courses
When you file for bankruptcy relief under Chapter 7 bankruptcy, you must complete two bankruptcy courses to receive a bankruptcy discharge. This includes a credit counseling course prior to filing a bankruptcy case, and a debtor education course after filing. See below the approved courses for California
The United States Trustees office has approved state-specific companies that offer bankruptcy courses. You can access a list of companies in California offering bankruptcy courses on the UST website. Both courses are available online for a small fee.
Means Test Options: Median Income Vs Full Means Test
To be eligible to file for bankruptcy under Chapter 7, you must satisfy the Means Test. The easiest way to qualify for Chapter 7 is to have an income below the state median. Even debtors whose household income is above the state median may qualify for Chapter 7 by going through the more thorough, full Means Test.
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What Assets Are Exempt In Chapter 7 Bankruptcy
Clients who turn to Weintraub & Selth, APC are often convinced that bankruptcy is their only option. While bankruptcy may be the right path, our attorneys are extremely savvy at finding alternatives to bankruptcy for many of our clients. However, no matter which path is best for your economic challenges, we may be able to protect your assets.
If filing for bankruptcy in Los Angeles remains the best option for you, we will identify which of your assets are exempt, allowing you to keep them if liquidation of other assets is appropriate. Too many people make the mistake of not properly planning their bankruptcy cases. They may give away assets in an attempt to protect them from liquidation in Chapter 7 bankruptcy. This choice is often misguided. The experienced attorneys at Weintraub & Selth, APC will consider your assets, income, property, and the type of debt you have before making a recommendation about filing. We may be able to protect your assets and help you secure your long-time financial health in ways you may have thought were impossible.
to determine which are exempt assets and how you can achieve real relief from debt while keeping your assets.
Mail Documents To Your Trustee
Filing bankruptcy is the hardest part, but thereâs still a little bit of work to do after your forms get filed. For example, youâll get assigned a bankruptcy trustee, which is an independent party to the case. The trusteeâs job is to help ensure the information youâve provided is accurate and that creditors get paid from the sale proceeds of any non-exempt property. To help accomplish these tasks, youâll need to send your trustee certain financial documents at least seven days before your 341 creditorsâ meeting. These documents include:
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Bank statements for any bank account you had open when you filed for bankruptcy. These statements must cover a time period that includes the date you filed bankruptcy.
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Your two most recent federal income tax returns.
If youâre not sure what to send or who to send it to, donât worry. Youâll most likely get a letter from your trustee explaining who they are and what they need from you.
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Will I Qualify For Chapter 7 Bankruptcy In California
Now that weve addressed treatment of property in a California bankruptcy, lets delve into whether you even qualify to file for Chapter 7. The Bankruptcy Code evaluates candidates for Chapter 7 based on income. Those who earn income below the California median, for a family of the same size, are presumably entitled to file for Chapter 7. They can bypass a government test, known as the means test, which those who earn more than the state median are forced to take.
Currently, the California median income for a single earner is $52,416. For a family of four, it is $84,059. If you are below the median, you can file Chapter 7. If you earn more than the median, the means test will determine whether you can file for Chapter 7. To check the most up-to-date income brackets for the bankruptcy means test, click here.
If you have too much disposable income after expenses, the means test tries to force you into Chapter 13 bankruptcy with the idea that, if you can afford it, you should pay something back to your unsecured creditors. I dont agree with this characterization, but thats the theory behind the means test. The means test is complicated to administer if you have specific questions, ask an attorney.
What Assets Will Be Liquidated In A California Chapter 7 Bankruptcy
Chapter 7 bankruptcy requires that you liquidate or sell your assets. The funds from the liquidation will be used to pay back the creditors part of what you owe them. Things like vehicles, jewelry, real estate, and more will be liquidated as part of the Chapter 7 bankruptcy process.
California, however, allows for considerable exemptions, including a homestead exemption. You may be able to protect your homestead equity, meaning it’s possible you won’t have to sell the home in which you live. Other assets could also be exempted. It’s important to disclose all your assets to your attorney so that you can protect them to the extent the law allows.
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When Should You Consider Filing Chapter 7 Bankruptcy
The cycle of debt can take a toll on both your financial and emotional well-being. If you are struggling with paying your bills, filing for Chapter 7 bankruptcy might be the right choice for you to get a fresh start.
If you can answer yes to any of these five questions, you should consider speaking to an attorney who specializes in bankruptcy
California Chapter 7 Bankruptcy Information
In a Chapter 7 bankruptcy you wipe out your debts and get a Fresh Start. Chapter 7 bankruptcy is a liquidation where the trustee collects all of your assets and sells any assets which are not exempt. The trustee sells the assets and pays you, the debtor, any amount exempted. The net proceeds of the liquidation are then distributed to your creditors with a commission taken by the trustee overseeing the distribution.
Certain debts cannot be discharged in a Chapter 7 bankruptcy, such as alimony, child support, fraudulent debts, certain taxes, student loans, and certain items charged. In most Chapter 7 cases, the debtor has large credit card debt and other unsecured bills and very few assets. In the vast majority of cases a Chapter 7 bankruptcy is able to completely eliminate all of these debts.
Reaffirmation agreements can be set aside during the earlier of 60 days after the agreement is filed with the Court, or upon the Courts issuance of an Order of Discharge.
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Do You Need A California Chapter 7 Bankruptcy Attorney
Its time to consider bankruptcy if your life has been taken over by looming foreclosure, constant badgering phone calls from creditors, lawsuits or garnishments of your wages or property. Or maybe your debt has you trapped due to the amount of each payment and the extent of the debt. There are many kinds of debt that can get you into these situations, including medical bills, credit card balances, falling behind on your mortgage, loans and back taxes owed to the government and even car repossessions.
California Bankruptcy Court Locations
As you may already know, bankruptcy law is federal law and the bankruptcy courts are located in federal courthouses. Each state is divided into federal districts, which are further divided into federal divisions. Typically, each division has its own courthouse to serve locals and to ensure that people arent forced to trek to far-away district courts when they file bankruptcy, bring a lawsuit, or participate in jury duty.
California is divided into four districts: the Eastern, Central, Northern and Southern districts. Below are links to each courts bankruptcy website if you are looking for information on court locations in your area and their contact information.
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Recovery Of Preferential Payments
Payments made to or on behalf of any relatives within twelve months prior to filing your bankruptcy case are recoverable by the Trustee in your case.
Thats right.
If you repaid money during that period to your brother, or made payments on a credit card that your mother let you use, they may have to pay back that money to the Bankruptcy Trustee.
The Trustee will then distribute it equally to all your creditors.
This is one of the biggest mistakes people make, often innocently, because they dont know they will be filing a bankruptcy.
But thats the law.
Its designed to prevent debtors from preferring one creditor over another.
The same is true for non-relatives, although the lookback period for them is only ninety days.
Does Every Debt Get Discharged
Most debts are discharged , including the following:
A debtor may have all of the debts denied a discharge if the debtor is not honest and cooperative in the bankruptcy process. A creditor that has a secured lien on property may foreclose on that lien even after a discharge, however some liens may be removed in the bankruptcy process if the debtor makes a motion to the Court for that relief.
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Can I File For Bankruptcy On My Own
While it is possible to file for bankruptcy without the help of a professional, it can be a tricky proposition. Even in cases that seem straightforward, complications can arise. Especially if you have any questions about Californias exemptions.
Some creditors may attempt to contact you after you have filed, or they may oppose your filing. It is also easy for laypeople to make mistakes in their filings, which can result in your discharge being denied or the trustee selling your property.
To protect your interests, it is recommended that you hire a certified specialist in bankruptcy.
Our Riverside office is run by attorney Frank X. Ruggier, an experienced litigator who is knowledgeable in both California and federal bankruptcy codes.
Understanding How A Chapter 7 Means Test Works
The Chapter 7 means test was designed to limit the use of a Chapter 7 bankruptcy to individuals who can no longer pay off their debts. The Chapter 7 bankruptcy works by subtracting certain monthly expenses from the individuals present monthly income. The current income will be determined by the persons last six months income prior to filing for bankruptcy. This will determine the persons available income.
If a person has a high amount of available income, the more likely it is that he or she will not be able to use a Chapter 7 bankruptcy to pay off the accrued debt. Instead, the individual will be expected to use the available funds to repay creditors.
Another important factor is that you only need to take a means test if the bankruptcy filer has predominantly consumer debts in California, not business debts.
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What You Must Know About California Bankruptcy Law
Bankruptcy in California works differently from that in other states. There are many different types or chapters of bankruptcies in California. As an individual, you should be concerned with two types: Chapter 7 and Chapter 13 Bankruptcy laws.
Before discussing Chapter 7 and Chapter 13 laws, let us understand the bankruptcy concept. An adequate understanding can help you choose the right option.
Bankruptcy is the legal process that helps debtors get relief from the debts they cannot pay. It is also simultaneously helpful to creditors to get paid from the debtors assets or property proceeds. Before filing for bankruptcy, one should know that it does not remove all debt. The debtor cannot discharge certain assets in bankruptcy. Therefore, seeking legal counsel is the right way to make the most of the Bankruptcy laws. As Chapter 7 and Chapter 13 are the most common California Bankruptcy Laws, let us look at the differences between the two.
Alternatives To Chapter 7
Debtors should be aware that there are several alternatives to chapter 7 relief. For example, debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be eligible for relief under chapter 13 of the Bankruptcy Code.
In addition, individual debtors who have regular income may seek an adjustment of debts under chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to “catch up” past due payments through a payment plan. Moreover, the court may dismiss a chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. § 707.
Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.
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Types Of Debt That Is Not Eliminated By Bankruptcy
You cannot discharge all debts in bankruptcy. Some of the most common debts that you cannot get rid of in bankruptcy are:
- Debts from child support or spousal support
- Most student loans
- Wages you owe people who worked for you
- Damages for personal injury you caused when driving while intoxicated
- Debts to government agencies for fines or penalties
How To File Bankruptcy In California: A Complete Checklist
The concept of erasing debt sounds fantastic but you might be unaware of how exactly to file bankruptcy. Understanding what is required of you and what debt relief you could gain helps see whether this process is worthwhile or not. Here are the significant steps you need to consider when partaking in your bankruptcy journey:
- Consider what chapter you would like to file. Its always a good idea to learn about Chapters 7 and 13.
- Check to see what debt you can erase when you file for California bankruptcy.
- Find out if you can keep your property after you file bankruptcy.
- Determine if you qualify.
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Will I Lose All Of My Property When I File Bankruptcy
You can retain any property that can be exempt under the law. In Orange County and Riverside County, that usually includes the home, furniture, clothes, household goods, pensions, profit sharing, IRAs retirement plans, 401ks and other family keepsakes. You can usually file bankruptcy and keep all of this property.