What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a legal process that allows individuals and businesses to eliminate most of their unsecured debts by liquidating their assets. This type of bankruptcy is also known as “straight bankruptcy” or “liquidation bankruptcy.”
The process starts by filing a petition with the bankruptcy court. Once the petition is filed, an automatic stay is put in place, which stops creditors from collecting on debts or taking any legal action against the debtor. The debtor must also provide a list of all their assets, liabilities, income, and expenses.
A trustee is appointed by the court to oversee the liquidation process. The trustee’s role is to sell the debtor’s non-exempt assets and use the proceeds to pay off as much of the outstanding debt as possible. Exempt assets are typically those that are considered necessary for daily living, such as a primary residence, personal belongings, and a certain amount of equity in a vehicle.
Once the trustee has completed the liquidation process, any remaining unsecured debts are typically discharged. This means that the debtor is no longer legally obligated to pay those debts, and creditors cannot take any legal action to collect them.
It is important to note that not all debts are dischargeable in a Chapter 7 bankruptcy. For example, child support, alimony, student loans, and certain taxes cannot be discharged through this process. Additionally, filing for Chapter 7 bankruptcy can have a significant impact on a person’s credit score and financial future.
In conclusion, Chapter 7 bankruptcy can provide relief to individuals and businesses struggling with overwhelming debt. However, it is important to fully understand the process and potential consequences before deciding to file for bankruptcy. Consulting with a qualified bankruptcy attorney can help individuals determine if Chapter 7 bankruptcy is the right choice for their financial situation.
What Is The Income Limit For Chapter 7 In California?
The income limit for Chapter 7 bankruptcy in California is determined by the means test. The means test compares the debtor’s average monthly income for the six months prior to filing for bankruptcy to the median income for their household size in California.
If the debtor’s income is less than or equal to the median income for their household size, they are eligible to file for Chapter 7 bankruptcy. However, if their income is above the median, they may still qualify based on their disposable income after subtracting certain allowed expenses.
As of 2023, the median income for a single-person household in California is $60,986. For a two-person household, it is $81,373. The median income increases for larger households.
It is important to note that the means test is just one factor considered in determining Chapter 7 eligibility. Other factors, such as the amount of debt and the type of debt, will also be considered. Additionally, the means test can be complex, and it is recommended that individuals consult with a qualified bankruptcy attorney to determine their eligibility and navigate the bankruptcy process.
What Debts Are Discharged In A Chapter 7 Bankruptcy?
Most debts are dischargeable. However, family support and some types of taxes are non-dischargeable.
Additionally, you may consider filing for Chapter 7 protections if you have income tax debts that are more than three years old and are not a result of tax fraud.
You should note, payroll taxes and trust fund taxes are not discharged.
What Assets Can I Keep In A Chapter 7 Bankruptcy?
In California, Chapter 7 bankruptcy exemptions include:
- $600,000 in equity in the home in which you reside or intend to reside within;
- Some equity in one car;
- Personal belongings;
- And more…
Are There Downsides To Chapter 7 Bankruptcy?
A poorly-planned Chapter 7 bankruptcy can result in the loss of your home and/or substantial assets. Trustees who are appointed in these Chapter 7 cases do not represent the debtor.
What Could I Potentially Lose In A Chapter 7 Bankruptcy?
Things you could potentially lose in a Chapter 7 Bankruptcy include:
- A house with too much equity;
- A second home;
- Some of your money;
- And more…
Many times people say, “I can do this myself.” They read the instructions on a website and they file their case. Then, when they go to court, they are in for a rude awakening and realize too late that they needed a lawyer all along.
You have to understand, the trustee is not going to cut you a break.
Some can still salvage their bankruptcy at this point, but you need to go see a lawyer. Only an experienced bankruptcy attorney will know the steps you could take and the exemptions that you could claim – so you must go to somebody with knowledge.
What Is The Means Test In A Chapter 7 Bankruptcy?
Since 2005, the Bankruptcy Court has used the means test. The means test is the median income of the state in which you reside combined with your household size.
If you make too much money to file a Chapter 7, you have to file a Chapter 13 and pay your net disposable income to your creditors over five years.
What Is The 341A Meeting Of Creditors? Does It Take Place For All Types Of Bankruptcy?
It’s the first meeting of creditors under Section 341A of the Bankruptcy Code. There is a 341A meeting, no matter what chapter you file, 7, 11, 13. In this meeting, the trustee meets the debtor about 30 days after the case is filed and asks questions about assets and liabilities.
How Long Does A Chapter 7 Bankruptcy Take?
Generally, Chapter 7 bankruptcies take 90 days from the filing date to the discharge of debt. However, this can sometimes take longer. For more information on Chapter 7 Bankruptcy In California State, an initial consultation is your next best step.