Chapter 7 Bankruptcy and the California Bankruptcy Laws
The Federal Bankruptcy Code can be confusing to a person new to the concept of insolvency. In this article, we will focus on the most common type of personal bankruptcy – a Chapter 7 – in relation to the California bankruptcy law. However, it is important to first know that personal bankruptcy can be done through the filing of any of the following chapters – 7, 11, 12 and 13.
Generally, a Chapter 7 bankruptcy is the process when a debtor files for personal bankruptcy in a federal court for liquidation of assets.
If it is granted, then the assets of the debtor (non-exempt) are sold or liquidated and the money derived from the sale is paid to the creditors classified by priority.
The administration of the liquidation and payment primarily goes to the trustee who is appointed by the court. In the state of California, individuals filing for bankruptcy can enter into one of the two systems of exemptions.
While all bankruptcy proceedings should be in line with the federal law, it is useful to know California bankruptcy law especially to get specific properties and assets exempted from liquidation.
Bankruptcy Laws in California
With the help of the California bankruptcy law, one can file for the first exemption system in order to protect his assets.
The first system can include the following exemptions so assets cannot be liquidated: personal as well as real property occupied by the debtor (only up to $75,000 value if debtor is single but up to $100,000 if debtor is a member of a family unit), motor vehicles $2550 and below, and jewelry $6750 and below.
As to the second exemption system allowed by the California bankruptcy law, personal and real properties like a home residence (for the maximum $20,725 value) can be exempted.
Vehicles, $3300 in value and below, plus household items, clothing, furnishings and appliances that do not go beyond the value of $525 for each item, can also be exempted. The debtor’s jewelries can also be exempted but the value should not go above $1350.
These are just some of the most common items (and their corresponding monetary values) that can be exempted from liquidation under the 2nd system under the California bankruptcy law.
Notice that the two exemption systems mostly differ in the property value or amount applied for exemption.
Both systems can exempt properties like homestead, personal properties such as bank deposits, burial plots, health aids, heirlooms and even vehicles but only up to a certain limit.
Before an individual files for Chapter 7 bankruptcy, it is therefore, important that he decides which system of exemption to apply for.
Another unique characteristic of the Chapter 7 filing in relation to the California bankruptcy law is the income limitation set by the state legislature.
This is determined by the means test. To qualify for a Chapter 7 filing in California, the income of the debtor should not go beyond the set median income in the state. To give you a general idea, individual median income of a single earner goes around $48,000.
Once the bankruptcy is filed in court, the automatic stay immediately takes effect. This means the debtor can be freed from any direct contact from the creditors to collect money or even to take property from him. Likewise, the “automatic stay” also puts a stop to foreclosures, repossessions, or even wage garnishments.
Take note, however, that the person planning to file bankruptcy should do so rightly. It is best to acquire the services of a bankruptcy lawyer especially one who is familiar with the federal bankruptcy law and the California bankruptcy law. Take note that improper activities can impede the bankruptcy process from giving him a fresh financial start.
Some examples of improper activities (which are also valid reasons for debt discharge denial) include destroying financial documents, transferring of properties before bankruptcy so as to defraud creditors, failing to obey the orders of the court, or failing to list all debts and assets.
Lastly, keep in mind that before a person can file bankruptcy and want to grab the advantage of exemptions offered by the state of California, you must qualify for certain requirements including at least 2 years of permanent residency in the state.