California Bankruptcy issues to consider prior to filing

California Bankruptcy issues

If you are considering a California bankruptcy you may have questions about the property you can keep and what type of bankruptcy is best for you. Recently on our forum we had a user ask, “If I live in California what issues should I consider prior to filing bankruptcy?”

What type of bankruptcy can I file in California?
Most people choose to file either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. The type you can file depends on your income and whether you wish to retain your assets.

Chapter 7 bankruptcy allows you to keep exempt property but the remainder of your assets are sold and the proceeds are distributed to your creditors. Certain unsecured debts can be discharged within 4 to 6 months. Some debts such as child support and (most) tax debts will not be discharged.

Chapter 13 bankruptcy allows you to create a 3 or 5 year debt repayment plan to restructure your debt payments. The benefit of chapter 13 bankruptcy is it can stop a home foreclosure, certain wage garnishments, bank account levies and property repossession. If your income is above California’s median income you will have to file Chapter 13 bankruptcy instead of Chapter 7.

Am I eligible for a California Chapter 7 bankruptcy ?
Sweeping new bankruptcy laws created in forced many high income debtors to file Chapter 13 bankruptcy instead of Chapter 7 bankruptcy. The figure increases for larger families, and $10,355 is the figure for 10 people. If your income does not pass the income test you will have to pass a “means” test to determine if your total income and debt load is under the government’s requirements for Chapter 7.

What property will I keep in a California bankruptcy?
The good news is many assets are exempt from bankruptcy, which means the assets will not be considered part of your “bankruptcy estate” but can be used to start over after bankruptcy.

Under California bankruptcy laws you will have a choice of two sets of state exemptions, which are more generous than federal bankruptcy exemptions (which you are not allowed to use).” If you file a California bankruptcy, however, you must have lived in California for two years prior to the filing to claim the state’s exemptions. If you have not resided in California for at least two years you will have to follow the laws of your previous state.

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