Many people in California find themselves in situations in which they are no longer able to keep up with their debt payments. Things like unexpected medical expenses, ballooning credit card debts, and job losses can all leave you facing unmanageable levels of debt. Filing Chapter 7 bankruptcy in California may be a good choice if you are unable to pay your bills. In this type of bankruptcy, any assets that are not exempt will be taken by the trustee to repay a small portion of what you owe to your creditors. Most of your leftover unsecured debts will be discharged, including medical bills, credit card debts, and personal loans. This means that you will no longer be obligated to repay them. Here is how Chapter 7 bankruptcy works in California.

What is Chapter 7 bankruptcy?

While there are four different types of bankruptcy that individuals can file in California, Chapter 7 is the most popular type. In a Chapter 7 bankruptcy, people who meet the means test can liquidate their non-exempt assets. However, in most cases, the exemptions allow people to keep most or all of the assets they have. When you file for Chapter 7 bankruptcy protection, the court will issue an automatic stay or injunction to your creditors to stop all collection activities. This stay will end garnishments, collection on judgments, creditor lawsuits, collection calls, and other attempts to collect on your debts by your creditors. If your Chapter 7 bankruptcy petition is approved, most types of unsecured debts will be discharged in as little as three months. Here are the steps that you can expect in a Chapter 7 bankruptcy case.

1. Making the decision to file for bankruptcy

Before you file for bankruptcy, you will need to decide whether it is the right choice for you. You will want to gather information about all of your debts and assets. You should divide your debts between your unsecured and secured debts. Your secured debts cannot be discharged in a Chapter 7 bankruptcy petition. Your unsecured debts, including credit card and medical debts, can be discharged.

Certain types of unsecured debts normally cannot be discharged in bankruptcy. Some of these include most student loan payments, tax debts, back child support, back spousal support, and restitution in criminal court cases. If you are overwhelmed by a combination of these types of debts as well as other unsecured and secured debts, you might want to talk to your bankruptcy attorney about filing for bankruptcy under Chapter 13. A Chapter 13 bankruptcy can give you the chance to catch up with your payments on certain types of priority debts at a lower rate of interest than you might otherwise have to pay.

2. Mandatory credit counseling

Once you have decided to file for bankruptcy and have figured out that Chapter 7 is the right choice, you will need to complete a credit counseling course no longer than six months before you file your petition. The government has a list of approved credit counseling agencies to provide this counseling session. The session can be completed in person, over the phone, or online, depending on the provider you choose. Once you complete the session, you will receive a certificate of completion. Make sure to save this. It must be filed together with your bankruptcy petition.

3. Meet with your bankruptcy attorney

While you are not required to hire an attorney to file for bankruptcy, working with a bankruptcy attorney can help you to avoid mistakes so that you will likely receive a discharge of your debts. Bankruptcy is a complicated legal process. When you meet with a bankruptcy lawyer at the Shulman Law Office, bring your financial information, including your debt and asset lists, with you. You will also want to bring your tax returns for the last three years and information showing your earnings from work. Your lawyer will review your documents and help you to understand whether Chapter 7 bankruptcy or Chapter 13 bankruptcy might be the appropriate choice.

4. Filing a bankruptcy petition

If you determine that Chapter 7 bankruptcy is the right approach for you, your lawyer will draft the paperwork and file it with the court. Your attorney will submit a petition, asset and debt schedules, information about your income and expenses, and several types of financial transactions from the past few years. He or she will also attach a copy of your certificate of completion from your credit counseling course and the required filing fee.

Once your petition is filed, the court will issue the automatic stay to order your creditors to halt all collection activities. If any of your creditors persist in trying to collect from you, they can face punitive measures from the court. Your attorney will want to know all of your creditors so that they can be properly notified that you have filed for bankruptcy.

5. Appointment of a trustee

Once your bankruptcy petition is filed, a trustee will be appointed to your case. The bankruptcy trustee will review your case and is tasked with managing all of the aspects of the process. The trustee will work to ensure that both you and your creditors act honestly. Your assets will be evaluated to determine whether they are non-exempt. While some states allow you to choose between the state exemptions and the federal exemptions, California does not. Instead, you will choose between two different state-offered lists of exemptions. Your attorney can help you choose the list of exemptions that allows you to keep more of your property.

The bankruptcy trustee will also analyze any major financial transactions over the past few years to determine if any of them can be undone to benefit your creditors. For example, if you transferred a vehicle or piece of property to one of your family members within a few months of filing for bankruptcy, the court might view it as a fraudulent transfer meant to protect the asset from bankruptcy. In most cases, however, most or all of your assets and property will be exempt, and the trustee will not find that you have made any fraudulent transactions.

6. The creditors’ meeting

Once the trustee has completed his or her review, your case will be scheduled for a meeting of creditors or 341 hearing. You will need to appear with your lawyer at this hearing. You can expect it to occur from 21 and 40 days after the date you file your petition. While your creditors can appear, they normally will not unless they have an objection to your bankruptcy petition. The trustee will ask you some questions after you are sworn in. You might need to bring some financial documents together with your photo ID and Social Security card.

Once the trustee has finished asking you questions, any creditors who have chosen to attend can ask you questions. A secured creditor might show up to your hearing to ask you about whether you will continue making your mortgage or auto loan payments, for example. After everyone is finished asking questions, you might be asked to return to a second hearing with additional documents. If this does not happen, this hearing will likely be the only one in which you have to appear in person during your bankruptcy case.

7. Deciding what to do about your secured debts

You will need to decide what you will do about your secured debts. If you have fallen behind on your payments, your creditor might ask for the automatic stay to be lifted so that it can pursue foreclosure or repossession proceedings. If you are not behind, you can either choose to reaffirm your debt or give the asset up. If you reaffirm your secured debt, you will agree to continue making your normal payments. Once you reaffirm a debt, it cannot be discharged in a future bankruptcy.

8. Surrender of non-exempt assets

If you have any non-exempt assets, you will need to surrender them to the trustee. The trustee will sell them and divide the proceeds between your creditors. However, most of your assets will likely be exempt, meaning you might not have to surrender any property.

9. Discharge of debts

After any non-exempt assets have been sold, and you have handled any of your secured debts, the court will issue a discharge of your remaining unsecured debts. You will no longer be responsible for paying your discharged debts, and your creditors cannot try to collect on them any longer. This means that you will have a fresh financial start.

10. Post-bankruptcy

Once you receive a discharge of your unsecured debts through a Chapter 7 bankruptcy, you can start afresh with a clean slate. While your credit score might be damaged, you can begin the process of rebuilding your credit. If you take out new credit, make sure to make the payments in full each month. By doing this, you can rebuild your credit much faster than you might realize.
Get help from an experienced bankruptcy attorney

At the Shulman Law Office, we understand that choosing to file for bankruptcy is not an easy decision for most people. However, it is the right choice for resolving unmanageable debt for many people. If you are facing levels of debt that you simply cannot handle, you should talk to an experienced San Jose bankruptcy attorney at the Shulman Law office. Contact us today at 408-297-3333 to schedule a free consultation.