In Chapter 7 bankruptcy (also referred to as a “liquidation” bankruptcy), the debtor will surrender a portion of their nonexempt assets to a Bankruptcy Trustee. The Trustee will sell then move to sell those assets in order to pay the debtor’s unsecured debts. After this process, the remainder of the unsecured debt is discharged. Chapter 7 bankruptcy focuses mostly on unsecured debts, such as credit card debt or medical bills.

In contrast, secured debts, such as your mortgage or automobile loan, cannot be fully discharged in bankruptcy unless you are surrendering them.

Who can file for Chapter 7 bankruptcy?

In order to qualify for a Chapter 7 bankruptcy, you must pass the Means Test. If you earn less than the California median income, you will automatically be eligible for a Chapter 7 bankruptcy.

If you earn more than the state median income, you can still pass the Means Test, but it gets more complicated. The Means Test takes into account your income and your expenses and compares them to standards in California to determine whether you can reasonably repay your debts under Chapter 17. If you can, you will be required to file under Chapter 13.

What debts does Chapter 7 discharge?

Chapter 7 bankruptcy aims to discharge unsecured debts. However, you cannot discharge most student loan debts or spousal support debt. Personal injury debts, incurred while driving drunk, also are excluded from discharge.

Will bankruptcy protect me from foreclosure and repossession?

When you file for bankruptcy, you are protected under the automatic stay. The automatic stay forces creditors to stop all collection actions. Once you file for bankruptcy, all of your creditors must work through the bankruptcy court. As a result, foreclosure or collection attempts are halted to ensure a fair bankruptcy process for all parties involved.

What will I lose?

The Trustee can only sell nonexempt property. Under The California Code of Civil Procedure §703 and §704, California offers a choice of two different exemptions to protect a debtor’s property in bankruptcy

Under System 1 (§704), you can protect:

  1. Homestead: Equity in a residence up to $75,000 for a single person under the age of 65; equity in a home for a married couple of up to $100,000; and equity in a home up to $175,000 for those over 65, disabled, or low-income persons over the age of 55.
  2. Motor Vehicle: Up to $2,900 total may be applied to motor vehicles.
  3. Building Materials or Home Maintenance: Up to $2,875 in building materials to improve/maintain a home.
  4. Jewelry, Heirlooms, and Art: Up tot $7,625 worth. (Doubling not permitted by spouse)
  5. Health Aids
  6. Food, Clothing, Appliances, and Furnishings
  7. Wages: Up to 75% of wages earned 30 days prior to filing for bankruptcy.
  8. Pensions: Tax exempt accounts (e.g. 401(k)s, 403(b)s); IRAs and Roth IRAs up to $1,171,150; public retirement benefits; private retirement benefits.
  9. Public Benefits: Unemployment Benefits; worker’s compensation; aid to the elderly or disabled; student financial aid.
  10. Tools of Trade: Tools, materials, commercial vehicles, and equipment.
  11. Insurance

Under System 2 (§703), you can protect:

  1. Miscellaneous Property (“Wildcard Exemption”): The value of the homestead may be combined with the values of other forms of property up to a total of $26,425.
  2. Motor Vehicles: Up to $5,100 total may be applied to motor vehicles.
  3. Jewelry: Up to $1,425
  4. Pensions: Tax exempt accounts (e.g. 401(k)s, 403(b)s); IRAs and Roth IRAs up to $1,171,150; public retirement benefits; private retirement benefits.
  5. Public Benefits: Unemployment Benefits; worker’s compensation; aid to the elderly or disabled; student financial aid.
  6. Tools of Trade: Tools, materials, commercial vehicles, and equipment
  7. Insurance

Chapter 7 debtors can generally use exemptions to protect most, if not all, of their important assets. The overwhelming majority of Chapter 7 cases are “no-asset” cases, meaning the debtors keep all of their property through the exemptions.

How Barm Law can help

Although these are general tips, everyone’s financial situation is different. If you are currently struggling with overwhelming, we can discuss your unique circumstances, what your goals are, and discuss every option you can utilize to make you financially solvent again.

Contact Barm Law For Your Chapter 7 Bankruptcy Now

If you or someone you know are interested in filing chapter 7 bankruptcy, you need to contact BARM LAW offices in Los Angeles for your free case evaluation. Our lawyers will advise you for the best compensation for your injuries. We will investigate your case thoroughly and negotiate with the insurance companies aggressively, we are not afraid of going to trials with the insurance companies.

Call us now at 1 (833) BARM-LAW or 1 (833) 227-6529 or email us by filling the contact form.



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