Are you a California resident facing bankruptcy? Chapter 7 requirements have changed since the new laws were passed in 2005, but many people do not realize that they still qualify to file for Chapter 7 bankruptcy protection. You might want to set up a free consultation with a California bankruptcy attorney today to find out if you still qualify.
Bankruptcy: Chapter 7 Requirements versus Chapter 13 Requirements
How does a Chapter 7 bankruptcy differ from a Chapter 13 bankruptcy? A Chapter 7 bankruptcy is known as a “liquidation” bankruptcy, whereas a Chapter 13 bankruptcy is a “reorganization” bankruptcy. Here’s a look at what these terms mean for you.
In 2005, general bankruptcy, Chapter 7 requirements especially, underwent the biggest changes in twenty-five years. The law was changed because courts worried that bankruptcy laws were being abused by consumers as a way to get out of debts that they had irresponsibly assumed and never had an intention to pay back. The reason that particular bankruptcy Chapter 7 requirements changed is that in Chapter 7, your unsecured debts are completely discharged. In other words, if you owe your credit card company $30,000, after Chapter 7 bankruptcy it’s feasible that you will owe them $0.
However, nothing in life – not even bankruptcy – comes free. Under Chapter 7, your assets can be liquidated to pay as much of your debts as possible. From grandma’s old diamond ring to your car or home, the court has a right to seize and liquidate your assets to pay off your debts.
Given that this is the case, why would anyone opt for a Chapter 7 bankruptcy? There are two reasons. The first reason is that a Chapter 13 bankruptcy can sometimes leave you worse off than you were before. Under Chapter 13, your creditors and California bankruptcy lawyer negotiate a lower amount of debt to be completely paid off in a five-year payment plan. However, if you can’t complete the payment plan, in a best-case scenario the court would simply discharge your debt; in a worst-case scenario, your bankruptcy case would be dismissed and you would go back to owing the same amount that you did before you filed for bankruptcy.
The second reason some people accept the liquidation of their assets as part of the bankruptcy Chapter 7 requirements is the exemptions. Chapter 7 bankruptcy allows you to exempt a certain amount of property from the liquidation process. This exemption could mean that you can keep your house, or your car, or grandma’s diamond ring, protecting around $75,000 of your personal property.
To meet the requirements for Chapter 7 bankruptcy, you must take a “means test”. The means test will determine if your income falls below the median level of your state — in which case you will be eligible for Chapter 7. If you fail the means test, your bankruptcy lawyer will help you proceed through the Chapter 13 bankruptcy process.