Financial stress is an unfortunate part of life for most Americans. High credit card bills and other unsecured debts, like student loans, cause much of this stress. Delinquent secured debt accounts, like past-due mortgage payments, add to it. For many California families, filing bankruptcy is a way out.
The Bankruptcy Code offers a fresh start for honest yet unfortunate debtors like you. A voluntary petition enables families to retake control over their own finances. And with the help of a bankruptcy lawyer, most families quickly recover from bankruptcy, so they can move on with their lives.
Protecting Your Property in a California Bankruptcy
Many people believe they lose most of their property when they file bankruptcy. That's what happens in many board games, like Monopoly. But real life is different. As outlined below, most of your assets are exempt from creditor seizure, even in a so-called liquidation bankruptcy.
In most cases, an automatic stay takes effect immediately after you file for bankruptcy. You do not have to prove lender negligence or misconduct in order to stop:
- Utility shutoff
- Foreclosure
- Wage garnishment
- Repossession
- Creditor lawsuits
- Eviction
Am I Eligible for Bankruptcy in California?
Most people meet the formal and informal qualifications for bankruptcy. These qualifications help ensure that assistance is available to people who truly need it.Formal Qualifications
The qualifications are different for different types of consumer bankruptcy:- Chapter 7 is designed for people with unsecured debts, like credit cards and medical bills. You must pass a means test to qualify.
- Chapter 13 is designed for people with delinquent secured debt, like past-due mortgage payments. This "wage-earner plan bankruptcy" gives you up to five years to gradually erase this delinquency. As a bonus, the judge also discharges most unsecured debts.
Informal Qualifications
These things vary according to type and location of bankruptcy. These qualifications usually involve Schedules I and J. These are the monthly income and expense schedules in a consumer bankruptcy. Generally, Chapter 7 debtors should be in the red each month. If that's not the case, the bankruptcy trustee might question the need to file Chapter 7. The Chapter 13 qualification is usually the opposite. These filers must be substantially in the black every month. Otherwise, they might not be able to make the required monthly debt consolidation payment.California Property Exemption Laws
Bankruptcy is a federal law, and this law includes some property exemptions. But each state also has its own bankruptcy property exemptions. Many states allow debtors to choose between federal bankruptcy exemptions or state exemptions. Debtors in the Golden State do not have that choice. However, in California, you may choose between Section 703 and Section 704 exemptions. More on that below. First, let's take a step back and talk about some general principles. Creditors cannot seize exempt assets and sell them to pay your debts. They can seize and sell nonexempt assets. That seems like a straightforward definition, but there is lots of grey area. Assume that Rafael owns a mobile home that he uses on road trips. He is unable to apply a 703 or 704 exemption to it. So, it's theoretically nonexempt. But there are some practical considerations. The mobile home is several decades old and in rather poor condition. As a result, it has basically no financial value. Therefore, the trustee (the person who oversees the bankruptcy for the judge) may not be able to legally seize it. This is just one of the questions that a bankruptcy lawyer must deal with, even if the bankruptcy seems clear cut.Section 703 Exemptions
If you do not own a home, or you have lived in your home for less than ten years, 703 exemptions could be a good option. These exemptions protect:- Home equity ($26,800)
- Retirement accounts (full protection)
- Household goods (full protection if the item is worth less than $675)
- Social Security and other public benefits (full protection)
- Life insurance policy benefits (full protection)
- Motor vehicle equity ($5,350)
- Personal jewelry ($1,600)
- Wildcard ($28,255)
Section 704 Exemptions
If you have lived in the same home for more than ten years, California's Section 704 exemptions might be for you. That's especially true since the coronavirus outbreak prompted lawmakers to expand the 704 exemptions. These exemptions now protect:- FEMA benefits
- Motor vehicle equity ($3,325)
- Life insurance policy benefits (full protection)
- Checking or savings accounts with a $1,788 minimum balance
- Social Security and other public benefits (full protection)
- Home equity ($300,000 or $600,000, depending on median home prices in the area)
- Retirement account (full protection)
- Household goods (full protection)
- Personal jewelry ($8,000)