Filing for Bankruptcy in California: A Simple Guide
Most people encounter financial challenges at some point in their lives. If you are facing insurmountable financial difficulties because of an unexpected illness, injury, job loss, or other problems, bankruptcy could be a good choice. Filing for bankruptcy protection might help you find a way out of crushing debt and provide you with a new start.
Here is some information about the two most popular types of consumer bankruptcy in California, their processes, and how to prepare for them from experienced bankruptcy attorney Ike Shulman.
How Does the California Bankruptcy Process Work?
In California, bankruptcy follows a process controlled by federal law instead of state law, so the process of filing for bankruptcy in California is the same as it is if you file for protection in any other state. The bankruptcy process voids contracts between you and your creditors, which helps to provide you with a fresh financial start.
While the overall process is the same in all states, California laws control the property you can exempt from the bankruptcy estate. There are also some key things you will need to know about filing, which we will discuss later in this article.
Chapter 7 vs. Chapter 13: Which Is the Right Chapter for You?
The two most common and popular types of consumer bankruptcy are Chapters 7 and 13. Here is how they differ so that you can determine which might be the better option for your financial situation.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most popular type of consumer bankruptcy for a few reasons. When you file for Chapter 7 bankruptcy, the process only takes a few months. Chapter 7 is a liquidation bankruptcy, which means your non-exempt assets will be sold by the trustee to repay a portion of what you owe. If your assets consist only of items that you can claim exempt from liquidation, this type of bankruptcy might be the best choice. Once your debts are discharged, you will not have to pay most creditors anything else, and many Chapter 7 filers in California can exempt most if not all of their property. Some debts, however, may not be discharged, including support obligations and recent tax debts.
If you have non-exempt assets, however, you might lose them. For example, if you have substantial equity in your home exceeding your homestead exemption, your house might be at risk. California law does provide a significant homestead exemption, which in 2022 can be as high as $626,400, depending on how high the median home value is in your county. Chapter 7 bankruptcy also doesn't include a payment plan to allow you to catch up on your mortgage or auto loan, so you might lose your home or vehicle if you are behind on your payments at the time that you file.
There is also an income test for eligibility to file chapter 7. If your income is substantially higher than the median income for a family of your size in California, you may not qualify, so you will want your attorney to carefully review this issue with you.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy involves a repayment plan through which you will pay a portion or all of what you owe to your creditors over three to five years. While you will have to repay your creditors something, there are a number of benefits to filing for Chapter 13 protection. You can keep all of your assets while also being able to catch up on your mortgage or auto loan and save them. If you need additional time to repay a non-dischargeable debt such as back taxes, you can use Chapter 13 to force a payment plan and have more time to catch up. However, your budget must show that you have the means to pay the monthly Chapter 13 payments.
California Bankruptcy: Will it Eliminate Your Debts?
In a Chapter 7 bankruptcy, most unsecured debts will be discharged a few months after you file your petition, including medical bills, credit card balances, past-due utilities, personal loans, and others. If you want to give up a car for which you have an auto loan you can no longer afford, bankruptcy can also get rid of that debt by surrendering the car.
Some debts can't be discharged, however. Some examples of non-dischargeable debts include child support, spousal support, recent tax debts, and student loans in most cases. You will need to check the types of debt that you owe to decide whether filing bankruptcy will be worthwhile for you.
California Bankruptcy Steps
Using a checklist for bankruptcy in California can help you to track your progress and prepare. Here is a checklist of steps to use to guide you through the process.
Bankruptcy Checklist
- Learn the differences between Chapters 7 and 13.
- Review your debt types to determine whether they can be erased in bankruptcy.
- Determine which property you can keep and which you might lose in bankruptcy.
- Determine whether you qualify for Chapter 7 or Chapter 13.
- Cease paying your dischargeable debts, excluding car loans you want to keep.
- Gather your most recent financial documents.
- Take the required pre-filing credit counseling course.
- Fill out and file your bankruptcy paperwork with the Bankruptcy Court.
- Turn in your financial documents.
- Attend the 341 creditor's meeting.
- If you file Chapter 13, make the required payments on time under your plan.
- Complete the debtor education course and file your certificate.
- Receive the discharge of your debts.
For all of these steps, it is advisable to have an experienced bankruptcy attorney guide you. Many bankruptcy attorneys offer an intial free consultation, so you should take advantage of that opportunity before embarking on this serious step.
Property You Can Keep When You File for Bankruptcy in California
While the bankruptcy law is the same across the country, the amount of assets you can protect by claiming them exempt differs state by state. In California, filing for bankruptcy doesn't mean that you'll lose everything. Instead, the state allows you to claim exemptions for certain types of property. Exempted property won't be counted as a part of the bankruptcy estate and won't be sold by a bankruptcy trustee.
If an exemption doesn't cover a type of property, you'll either lose it if you file for Chapter 7 bankruptcy, or you can keep it while paying for it through your repayment plan in Chapter 13. All bankruptcy filers are allowed to protect their retirement accounts, including 401(k), 403(b), SEP IRA, SIMPLE IRA, money purchase, and profit-sharing plans. As of April 1, 2022, defined benefits, Roth IRA, and traditional IRA plans are also protected up to a total of $1,512,350.
California's Bankruptcy Exemptions
In California, you can choose between two separate asset lists for exemptions, but you can't mix and match the two lists.
Homestead Exemption
California's homestead exemption protects some of the equity in your principal home. Under one set of exemptions, which is often referred to as Section 704 exemptions, you can exempt real property or personal property in which you live, including a house, condominium, stock cooperative, boat, planned development, or a community apartment up to a value of $626,400 in equity, depending on your county’s median home value.
Under the other set of exemptions, which is often referred to as Section 703.140(b) exemptions, there is no specified homestead exemption, but you can protect up to for personal or real property used as your primary residence is $33,650 in equity, as of April 1, 2022.
Motor Vehicle Exemption
Under California's Section 704 exemptions, you can claim $3,625 in equity in your vehicle. California’s Section 703.140(b)(2) allows you to exempt up to $6,375 of the equity you have in a motor vehicle. Both of these numbers will increase to $7500 on bankruptcy cases filed on or after January 1, 2023, under a new law recently passed.
Household Goods Exemption
Under Section 704 an unlimited amount is allowed for necessary household goods. However, Section 703.140(b)(2) only allows you to exempt household goods individually valued up to $800.
Wildcard Exemption
There isn't a wildcard exemption available under Section 704. However, Section 703.140(b)(2) provides a wildcard exemption that allows you to exempt any amount of the $33,650 you didn't use to protect home equity.
There are also many other exemptions available in California. Your bankruptcy attorney can help you understand which exemptions might apply in your case.
Avoiding Exemption Issues
Be careful when you claim exemptions for your property. The trustee will review what you have claimed. If the trustee disagrees, they maay try to informally resolve the problem. However, if an informal resolution doesn't work, the trustee can file an objection with the court, and the judge will determine whether or not you can exempt the property. If you intentionally make inaccurate statements about your property, it could be considered fraud. Bankruptcy fraud is treated seriously and can result in up to 20 years in prison and a fine of up to $250,000.
How Do You Qualify for Bankruptcy in California?
There are time restrictions between filing for bankruptcy when you have filed in the past. If you haven't filed for bankruptcy before, you won't need to worry about it. However, if you have filed in the past, the specific waiting period that might apply will depend on which chapter you filed under before and the Chapter under which you plan to file this time.
There are also specific qualifications you will need to meet to file for either Chapter 7 or Chapter 13.
To qualify for Chapter 7, your income is measured and compared with families of the same size in California, and then is measured against your allowed living expenses. This is often described as the “means test”. If you make too much, you may not qualify for chapter 7 but still will normally qualify for chapter 13.
If you want to file for Chapter 13, you will need to earn sufficient income to make payments under your plan. You will need to pay whichever is larger:
The total value of your non-exempt property
Your disposable income, calculated under the bankruptcy “means test”.
Hire a California Bankruptcy Lawyer
While you are not required to hire a bankruptcy lawyer to file a bankruptcy petition, doing so is almost always a good idea. Bankruptcy cases can be complex and difficult for many people to comprehend. A bankruptcy attorney at the Shulman Law Office can help you to determine the chapter that would make the most sense for you, determine when it will be the right time to file, help you select the correct set of exemptions for your assets, and help you avoid serious problems that could result in the dismissal of your case or other negative consequences.
The great news about filing a bankruptcy petition is that the court will issue an automatic stay to your creditors once you file a petition. The automatic stay will stop almost all creditors from making further attempts to collect on your debt. To learn more about bankruptcy and your options, contact the Shulman Law Office today for a free and confidential case evaluation at 408-297-3333.
5 Things That Happen After Filing Chapter 7 Bankruptcy
FAQs - What Happens After Filing Chapter 7 Bankruptcy?
After you have completed the pre-filing credit counseling course and have assembled all of your documents and schedules, it will be time to file your Chapter 7 bankruptcy petition. Preparing your bankruptcy forms and debt and asset schedules is normally the most time-intensive process involved in a Chapter 7 bankruptcy. However, getting the documents completed and filed does not mean that you are finished. It is common for people to feel apprehensive about what might happen after filing Chapter 7 bankruptcy cases. To help you understand the process and what you might expect, here are five things that happen after people file for Chapter 7 bankruptcy San Jose from the Shulman Law Office.
1. Initial matters- Assignment of the bankruptcy trustee
When your Chapter 7 bankruptcy petition is filed and you pay your filing fee, the court will assign your case a case number and a trustee to oversee your case. The bankruptcy trustee will be tasked with reviewing your bankruptcy forms and identifying any non-exempt assets that he or she can seize to satisfy a portion of your unsecured debts. You might be asked to provide additional documentation about your assets by the trustee.
You are legally obligated to cooperate with the trustee assigned to your bankruptcy case while it is pending and until the court issues a discharge. In addition to other documents, you will need to provide the trustee with a copy of your income tax returns.
The trustee will also schedule the meeting of creditors.
Later on in your case, once the meeting of creditors has been held, the trustee will either file a report of no distribution if the creditors will not receive anything or a notice of the bar date for claims providing a due date for creditors to file claims for funds. Beyond these filings, you will likely not hear from the trustee after your meeting of creditors has been held.
Many people who file for protection under Chapter 7 have all of their assets protected by bankruptcy exemptions. Exempt property includes assets that cannot be taken by the trustee and sold to satisfy your unsecured debts. If you have any non-exempt assets, the trustee can seize and sell them to repay a portion of your unsecured debts. If you want to keep non-exempt property, you can negotiate with the trustee to pay the trustee the value of the non-exempt asset.
2. Automatic stay is issued
One of the most immediate benefits of filing Chapter 7 bankruptcy is the automatic stay. This is an injunction that will be issued by the bankruptcy court directing your creditors to immediately stop all further collection activities against you while your case is pending. The automatic stay will be sent to each creditor you have listed in your bankruptcy petition, so it is important that you list all of them. Once the automatic stay is issued, your creditors will have to stop all of the following things:
- Initiating or continuing with a creditor lawsuit against you
- Continuing to garnish your wages
- Enforcing, perfecting, or creating a lien against your property
- Calling you to collect debts
- Sending you debt collection letters
- Levying your bank accounts
- Foreclosing on your home
- Repossessing property
While the automatic stay will temporarily halt foreclosure proceedings or repossessions of your vehicles, the relief will be temporary. Since mortgages are secured against homes, and auto loans are secured against cars, these creditors can resume foreclosure or repossession proceedings after your bankruptcy is over. If you are in danger of losing your home in foreclosure, you might want to talk to your bankruptcy lawyer about whether Chapter 13 might be an option for you instead of Chapter 7.
If one of your creditors violates the automatic stay and continues trying to collect on a debt, your attorney can help you notify the court. If the court finds that the debt collector's actions were willful, the collector can face sanctions. Debt collectors who violate the automatic stay after knowing the bankruptcy case existed can be fined, ordered to pay attorney's fees, and ordered to pay damages to the debtors.
3. Scheduling of the meeting of creditors
Your bankruptcy trustee will schedule a meeting of creditors after you have submitted all of your required documents. The trustee might send a letter to you asking for any additional documents to provide. Make sure to comply with any requests from the trustee, and do so before the listed deadline. If you fail to submit documents the trustee has requested, the bankruptcy court could dismiss your case.
The meeting of creditors will likely be scheduled a month or two after you file your Chapter 7 bankruptcy petition. You will need to show a picture ID and your Social Security number when you attend the meeting of creditors. The meeting of creditors is held outside of the court and will generally be in the area where you live. At this meeting, your creditors can attend and ask questions of you. However, in many Chapter 7 cases, only the debtors, their attorneys, and the trustees will be present.
The meeting of creditors is required. While it might sound intimidating, many people who file for bankruptcy find that it is not as scary as it might sound. You will attend with your lawyer. You will meet with the trustee, and he or she will ask you questions about your bankruptcy documents. In most cases, the creditors do not attend. Typically, a meeting of creditors will only last around 10 minutes. If you do not have any non-exempt assets, the trustee will issue a notice of no distribution to your creditors. If you do have non-exempt assets, the trustee will issue a notice to your creditors of the date by which they must file claims to recover money.
If you have a vehicle on which you are still making payments, you will have a couple of options about how to deal with it. The automatic stay will expire 45 days after the meeting of creditors. If you have not reaffirmed your car loan debt, the company can repossess it. You will need to file a statement of intention with the bankruptcy court in which you explain what you plan to do with your secured debts.
You will have the choice of reaffirming your car loan so that you can keep your car and continue making payments. If you reaffirm your car loan, it will not be discharged. You will need to continue making your monthly payments, and if you miss payments in the future, your lender can repossess your car. If you choose this option on the statement of intention, your lender will send a reaffirmation agreement to you to fill out and return.
You can also choose to surrender your car. If you choose this option, your vehicle will be repossessed. Any remaining debt will be discharged in your bankruptcy case.
Finally, you can choose to redeem your vehicle. To do this, you will have to pay your lender the value of your vehicle. You will need to figure out how much your vehicle is worth and pay that amount in full. If your vehicle is worth a lot less than how much you owe, a redemption can make sense. To redeem a vehicle, you will need to file a motion to redeem with the bankruptcy court, and the judge will have to approve it. If you and your lender cannot agree to the value of your vehicle, the judge can determine it for you.
If you have a vehicle lease, you can also choose how to handle it in your statement of intention. You can assume the lease and continue to make your payments or reject the lease and return the car.
4. Second credit counseling course
Before you file a petition for bankruptcy, you are required to complete a credit counseling course and file a certificate of completion with the court at the time you file your petition. You will also be required to complete a second credit counseling course before the court will issue a discharge. The second course must be taken from an approved provider and will cover topics of personal financial management so that you can take advantage of the fresh financial start you will receive from discharging your debts in bankruptcy.
This course must be taken after your bankruptcy case is filed. You need to make sure that you complete it within 60 days of when the meeting of creditors is held. Once you complete it, you will receive a certificate of completion. Give this certificate to your attorney to file with the court.
5. Discharge of your debts
The final step of your Chapter 7 bankruptcy case occurs when your debts are discharged. However, not all of your debts will be dischargeable in bankruptcy. If you want to keep the property secured by a loan such as your vehicle or home, you will need to continue making your payments during and after your bankruptcy case. Your lenders will not be able to try to collect from you, so you won't receive statements. If you want to keep your vehicle, you will likely need to mail in checks during your bankruptcy.
Some debts cannot be discharged in bankruptcy and will continue after you receive your discharge. Some of these types of non-dischargeable debts include the following:
- Child support arrearages
- Alimony arrearages
- Most student loan debt
- Most tax debt
- Criminal restitution
However, your dischargeable unsecured debts can be discharged in bankruptcy, including personal loans, medical debt, and credit card debt. If your bankruptcy case is successful, you will no longer be responsible for repaying these types of debts after a bankruptcy discharge. The creditors also will no longer be able to collect on discharged debts, allowing you to enjoy a fresh financial start.
How do you find the best bankruptcy lawyer?
When you are considering whether to file for Chapter 7 bankruptcy, it is a good idea to get help from an experienced bankruptcy lawyer who is knowledgeable about bankruptcy laws. Your attorney should be able to communicate legal topics with you in a way that you can understand and be compassionate about the situation you are facing. To learn more about what to expect when filing for Chapter 7 bankruptcy in San Jose, call the Shulman Law Office at 408-297-3333.
What are the Upsides and Downsides of Filing for Bankruptcy?
Many Californians are struggling with unaffordable levels of debt. While many people qualify to file for bankruptcy, some never do. For some people, filing for bankruptcy is the best solution to managing their debts. Deciding if you should file for bankruptcy will depend on your financial circumstances and the potential ramifications. An experienced bankruptcy attorney at The Shulman Law Office can help you to determine whether bankruptcy is the right choice for your situation. Knowing the upsides and downsides of filing for bankruptcy can help you to decide if and when you should file a bankruptcy petition.
What are the upsides to filing for bankruptcy?
Filing for bankruptcy offers multiple benefits for people who are unable to afford their payments. Some of these advantages provide good reasons for people to consider filing for bankruptcy.
Issuance of an automatic stay
When you file a bankruptcy petition, the bankruptcy court will issue an automatic stay. This is an injunction that prohibits your creditors from engaging in any further collection activities. The stay does not eliminate your debt, but any debt collection activities will be suspended until the stay is lifted or your bankruptcy case is over. The automatic stay will end letters and calls from debt collectors, wage garnishments, foreclosure proceedings, creditor lawsuits, and repossessions.
If one of your creditors continues to engage in debt collection activities after the automatic stay has been issued, your bankruptcy attorney can file a motion with the bankruptcy court to hold the creditor in contempt of court. The court can then force them to stop trying to collect on the debt and order them to pay a fine and possibly pay damages to you.
An automatic stay in a bankruptcy case will not stop tax audits, criminal proceedings, child support, alimony, or efforts to collect the debt from cosigners. If you previously filed for bankruptcy during the last year, you can ask the court to extend the initial automatic stay. However, if you have filed for bankruptcy several times during the past year, the automatic stay will have to be ordered by the court.
Ability to discharge debts
While some types of debts are non-dischargeable in bankruptcy, others can be discharged. When a debt is discharged, it ends your obligation to repay it. When your bankruptcy case is over, the creditor for a discharged debt may not resume collection activities. Dischargeable debts include many types of unsecured debts, including medical bills, credit card debt, and personal loans. Secured debts will not be discharged, however. There are also certain types of debts that cannot be discharged in bankruptcy, including back child support and alimony, student loans, certain types of taxes, criminal restitution, and others.
Bankruptcy exemptions
California has two bankruptcy exemption systems that you can choose from. Exempt property is not included in your bankruptcy estate and cannot be sold by the trustee to repay your creditors. The exemptions let you keep the exempted property after you file for bankruptcy. Some exemptions apply to specific types of assets while others apply to property worth up to a specific dollar amount. Other exemptions can be applied to anything that you own. Bankruptcy exemptions help you to save some of your property during and after your bankruptcy case.
Surprising improvements of credit scores
When you file for bankruptcy, it will make your credit score fall and will remain on your credit history for seven to 10 years. However, many people who file for bankruptcy see score improvements once their debts are discharged. They can then begin to rebuild their credit and enjoy a fresh start. However, even if bankruptcy is the right option for you, understanding the consequences is also important before you file.
What are the downsides of filing for bankruptcy?
While filing for bankruptcy offers some benefits, there are also some disadvantages that you should consider. Knowing the downsides of filing for bankruptcy can help you to know what to expect.
Immediate drop of your credit score
When you file for bankruptcy, your credit will be immediately impacted. The bankruptcy will stay on your credit record for seven years if you file for Chapter 13 bankruptcy or 10 years if you file for Chapter 7 bankruptcy. Having a bankruptcy on your credit record can make it more difficult to get a mortgage or other loan for several years.
Losing your credit cards
When you file for bankruptcy, your credit card companies will likely cancel your cards. After your debts are discharged, you may receive credit card offers. While these can help you to rebuild your credit after bankruptcy, they will likely carry high rates of interest and annual fees.
Losing some types of property
While California has exemptions available for some types of property, not all property can be exempted. If you have high-value property or non-exempt assets, the bankruptcy trustee might seize them to sell and repay your creditors.
Some debts can't be discharged
Some types of debts cannot be discharged in bankruptcy. These include most student loans, certain tax debts, alimony, child support, and criminal restitution. Your obligation to repay these debts will continue after you receive a discharge of your dischargeable debts.
Cosigner liability
If you had a cosigner for a personal loan and file for bankruptcy, the creditor can still pursue your cosigner for payment. His or her liability to repay the debt will not be erased because of your bankruptcy. You should tell a cosigner that you intend to file for bankruptcy before you do. He or she will also be notified by the bankruptcy court after you file.
Stigma
Some landlords and prospective employers ask about bankruptcy cases. If you apply for a job or an apartment after you file for bankruptcy, it can hurt your chances.
Talk to an experienced bankruptcy lawyer today
The decision to file for bankruptcy is complex. Understanding the upsides and downsides of bankruptcy is important so that you can make a more informed choice. If and when you should file for bankruptcy will depend on your financial circumstances. To learn more about whether it is the right decision for you, contact the Shulman Law Office in San Jose today by calling us at 408-297-3333.
What is Chapter 7 & Chapter 13 Bankruptcy?
What is Chapter 7 & Chapter 13 Bankruptcy?
Hi, this is Ike Shulman of Shulman Law Office. Bankruptcy is provided for in the United States Constitution and is a way for honest folks who find themselves in impossible debt situations to cancel, or “discharge,” most debts in order to get a fresh start. Bankruptcy requires only that you act honestly and make full disclosure of your assets and debts.Read more
What Assets Can I Protect If I File Bankruptcy?
What Assets Can I Protect If I File Bankruptcy?
Hi, this is Ike Shulman of Shulman Law Office. Exemptions help you determine how much of your property you get to keep when you file for bankruptcy. Exemptions play different roles depending on whether you are filing a Chapter 7 or Chapter 13 bankruptcy. Exemptions allow you to keep a certain amount of assets safe in bankruptcy, such as an inexpensive car, professional tools, clothing, and a retirement account.Read more
Can Bankruptcy Stop Creditors From Garnishing My Wages, Taking Money From My Bank Account?
Can Bankruptcy Stop Creditors From Garnishing My Wages, Taking Money From My Bank Account?
Hi, this is Ike Shulman of Shulman Law Office. If you fall behind on your debts, your creditors might sue you and try to garnish your wages. This can make it impossible for you to pay other bills, or even pay your rent or mortgage. Should you find yourself in this situation, filing for Chapter 7 or Chapter 13 bankruptcy may be the best option for you.Read more
Can I Save My Home From Foreclosure In Bankruptcy?
Can I Save My Home From Foreclosure In Bankruptcy?
Hi, this is Ike Shulman of Shulman Law Office. Yes, you can save your home from foreclosure in bankruptcy. Chapter 7 can only temporarily stop a foreclosure, and does not resolve the underlying problem of catching up on back payments. In a Chapter 7 case, home lenders can fairly quickly ask the court for permission to complete a foreclosure sale. Read more