Filing for bankruptcy is not an easy decision to make. But if you’re facing financial hardship and are unable to pay the minimum payments on your credit card bills, filing for bankruptcy may be the best option for giving you a fresh start.
WHAT HAPPENS WHEN YOU FILE CHAPTER 7 BANKRUPTCY?
To file for a Chapter 7 bankruptcy, you must first qualify according to a means test. The Means Test became part of the bankruptcy filings back in 2005, when Congress made changes to the federal Bankruptcy Code, due to concerns about people taking advantage of the bankruptcy process. Particularly those who were able to afford paying some or part of their debts, but chose to file for bankruptcy anyway.
In order to counterbalance this problem, “Means Test” was created to determine whether there is presumption of abuse by the debtor. When calculating the means test, our office uses a special software program to accurately determine whether you are eligible to file for a Chapter 7 petition. If after going through the entire calculations, we can show that there is no disposable income left at the end of the month, you generally would qualify to move forward with your Chapter 7 in California. Of course the amount of your other assets will come into play as well and would need to be exempted. If you have equity on your real property, our office would have to determine if the equity can be protected – otherwise a Chapter 13 bankruptcy may be more feasible.
NEW HOMESTEAD BANKRUPTCY EXEMPTIONS CALIFORNIA –
You have a choice of two exemption systems that you can use when filing for bankruptcy.
One choice is the standard California state law exemptions found in Code of Civil Procedure 704. These are the exemptions applicable in state law collections as well as bankruptcy.
Many debtors wonder, what they can keep and how much exemptions are allowed under a Chapter 7 bankruptcy. The California Legislature enacted a dramatic increase to the state’s homestead law, which became effective January 1, 2021. The dollar amount of the homestead increased to a minimum of $300,000 and a maximum of $600,000. Every homeowner is entitled to the homestead amount. Recognizing that home values vary widely in the state, the new law establishes the following: homestead greater than $300,000, where the median price of a home in the county exceeds that floor. Regardless of the median price of homes, no one gets a homestead in excess of $600,000. Lastly, the dollar amount of the homestead will be adjusted by inflation, going forward.
The new statute reads:
(a) The amount of the homestead exemption isthe greater of the following:
(1) The countywide median sale price for a single-family home in the calendar year prior to the calendar year in which the judgment debtor claims the exemption, not to exceed six hundred thousand dollars ($600,000).
2) Three hundred thousand dollars ($300,000).
(b) The amounts specified in this section shall adjust annually for inflation, beginning on January 1, 2022, based on the change in the annual California Consumer Price Index for All Urban Consumers for the prior fiscal year, published by the Department of Industrial Relations.
The second option can be – when you don’t have much equity in your home, you can choose the California bankruptcy exemptions found at CCP 703.140(b).
OTHER INCREASES IN CALIFORNIA BANKRUPTCY EXEMPTIONS – WHAT PROPERTY CAN YOU KEEP –
- Principal residence $29,275
- Vehicles $5,860
- Household goods per item $725
- Jewelry $1,750
- Grubstake $1,550
- Business assets $8,725
- Loan value of life insurance $15,650
- Personal injury claims $29,275
- Other misc. exemptions $140
An attorney from Aratta Law will review your assets and debts and properly apply all the relevant exemptions. If you file for bankruptcy and fail to properly exempt your assets, for instance, the equity of your real property, the Chapter 7 Trustee can sell the house and take the unprotected portion of the equity and distributed to your creditors. It is essential to speak to an attorney before filing any forms with the court to avoid any possible complications in the future.
WHEN TO FILE BANKRUPTCY CHAPTER 7
Chapter 7 bankruptcy is a useful legal option in the United States that allows debtors to completely erase many debts, including credit card debts, medical debts, car loans, and payday loans. It is estimated that over 39 million Americans have filed for bankruptcy. Bankruptcy filings are more common than most people think.
Many debtors try consolidating their debts – then end up filing for Chapter 7 Bankruptcy. Before you commit to any debt relief program, let’s sit and talk about your options. Further, many times our firm ends up assisting clients with settling their debts and avoiding bankruptcy. Whatever path you take, it is essential to make an informed decision without wasting time and money on programs that may not be beneficial to you.
BE CAREFUL FROM CONSOLIDATING AGENCIES – AVOID THE TRAPS
When you consolidate your debts, there is no guarantee your interest rate will be lower. Consolidating your bills means you’ll be in debt for a longer period. Unless you have money to pay your creditors, debt consolidation does not mean debt elimination. You may sign contracts and pay your debt consolidation agency for their fees. However, if any of the creditors decides not to accept the monthly payments offered by the consolidation agency, then you would get sued by those creditors. For that reason, calling Aratta Law before making any decision with regards to your financial situation is essential.
Our office will closely review your case and provide you the best possible option, so that you’re not trapped into signing pointless contracts with agencies that won’t help your financial situation.
WHAT DEBTS CAN YOU ERASE IN A CHAPTER 7 BANKRUPTCY
Typically, Chapter 7 bankruptcy can erase the following dischargeable debts:
- Credit card debts
- Car loans
- Personal loans and payday loans
- Utility bills
- Medical bills
- Collection company debts
- Judgments from collection companies and or credit cards
Once you have filed for a Chapter 7 bankruptcy, an “automatic stay” goes into effect that temporarily stops your creditors from collecting any debts from you.
Some debts such as student loan debts, child support and alimony, recent tax debts and moneys owed to government are not dischargeable. Such debts are known as non-dischargeable debts. However, there may be certain exceptions relating to student loans depending on your circumstances.
341 (a) MEETING OF CREDITORS – WHAT YOU NEED TO KNOW
341 meetings are held in a meeting room. Once your bankruptcy petition is filed, your attorney will discuss and prep you for the hearing. You will get an official notice from the bankruptcy court, with all the relevant dates. You need to have your original driver license or ID card and your original social security card at the time of the hearing. Your attorney will be present to represent you at the time of the 341 hearing, depending on the retainer agreement with your attorney. Once your case is called, the bankruptcy trustee will place you under oath and check your DL or photo ID and your social security card. The Chapter 7 trustee will then ask a series of questions to confirm the accuracy of the information contained in your petition. The trustee will also try to identify if any of your assets are not protected according to the available exemptions. If any additional information is required, your attorney will guide you through the process of gathering the documents before it is submitted to your trustee. Creditors may be present to ask questions, but in most cases they won’t be present.
BANKRUPTCY CHAPTER 7 DISCHARGE
If your trustee files a no asset report, then you should be getting your discharge order within approximately 1-2 months from the date of your last 341 hearing. If creditors challenge the discharge of certain debts, then this will prolong the process – and you would most likely pay additional legal fees to challenge the objections to discharge. But if no objections are presented by the creditors, then you will receive the discharge as stated in your official notice of bankruptcy filing. Remember, that you would need to make sure that your pre filing and post filing bankruptcy certificates are timely completed in order to file the petition and get a final order of discharge in your bankruptcy case.
CHAPTER 7 vs. CHAPTER 13 BANKRUPTCY
Filing for either Chapter 7 bankruptcy or Chapter 13 depends on your circumstances. Chapter 7 bankruptcy liquidates your debts while Chapter 13 is a voluntary repayment plan for individuals with regular income. With Chapter 7 cases your disposable income must be low enough to pass the means test. Under Chapter 13 program, debtors cannot have more than $419,275.00 of unsecured debt or $1,257850 of secured debt (as of 2021). In a Chapter 7 case, the trustee can sell all unprotected (nonexempt) property to pay the creditors, unless you’ve properly and accurately exempted all your assets. On the other hand, under Chapter 13 bankruptcy, debtors may keep all their property but must pay the unsecured creditors depending on disposable income and the amount approved by the court in a Confirmation hearing. Feel free to contact Aratta Law for a detailed case evaluation – do not try to file your case yourself as this may jeopardize your assets.
UNITED STATES TRUSTEE’S INVOLVEMENT IN A CHAPTER 7 CASE
United States Trustee may decide to audit your case. Some issues in your petition may be flagged by the U.S. Trustee’s office and further evaluation of your case may be needed. If your debts seem to be high and you claim higher than average expenses, then your petition may be inspected more closely and possibly audited. U.S. Trustee’s office will most likely ask for more documents, such as tax returns, 2 years bank statements, credit card statements, paystubs and a declaration from the debtor to better understand the circumstances of your case. To avoid complication, you should not attempt to file the petition yourself nor trust non-attorney petition preparers.
Think of it this way, making an informed decision will save you time, money and future problems with regards to your financial state.