Many people think they will lose all of their property if they file for bankruptcy. This is what happens in many board games like Monopoly. Real-life is much more complicated. The good news is that creditors are not allowed to seize your assets, even in a liquidation bankruptcy.
An automatic stay is usually in effect right after filing for bankruptcy. To stop, you don’t have to prove negligence or misconduct by the lender.
- Shut off the utility
- Foreclosure
- Wage garnishment
- Repossession
- Creditor lawsuits
- Evacuation
Typically, the automatic stop ( Section 362 of the U.S. Bankruptcy Code) remains in effect until the judge closes a case. The stay can be bypassed by moneylenders in limited circumstances. A bankruptcy attorney can stop them if they attempt to bypass the stay.
The judge will discharge all unsecured debts at the conclusion of the case. Some obligations, like back taxes or alimony, are not dischargeable.
Am I Eligible For Bankruptcy In California?
The majority of people can meet both the formal and informal requirements for bankruptcy. These qualifications ensure that only those who really need assistance can receive it.
Formal Qualifications
Different types of consumer bankruptcy have different qualifications.
- Chapter7 is for those with unsecured debts such as credit cards or medical bills. To be eligible, you must pass a means check.
- Chapter13 is for those with delinquent secured loans, such as past-due mortgage payments. You have up to five years to erase your delinquency through this “wage-earner bankruptcy”. The judge can also discharge most unsecured debts as a bonus.
The means test qualifies you for Chapter 7 bankruptcy. If your family’s income falls below the Bankruptcy Code minimum, you can file under this section. This amount can fluctuate over time. California’s average family of four must earn less than $104,000 per year.
There are some regional variations. The cost of living in the Bay Area is higher than in the High Desert.
Federally mandated debt ceilings must be adhered to by Chapter 13 bankruptcy filers. The exact amount varies, however. Chapter 13 filers can have no more than $1.4million in secured debt and no more than $400,00 in unsecured debt. These amounts include past and current obligations. There might be some room for negotiation in certain cases.
Before filing, all debtors must complete a credit counseling course and a debt management course. These classes are usually offered online and take only a few minutes.
Informal Qualifications
These factors vary depending on the type of bankruptcy and where it is located. These qualifications typically include Schedules I or J. These are the monthly income or expense schedules for consumer bankruptcy.
Chapter 7 debtors should generally be in the red every month. The bankruptcy trustee may question whether Chapter 7 is necessary. The Chapter 13 qualification is typically the opposite. This means that they must be in the black each month. They might not be able to make the monthly debt consolidation payment.
California Property Exemption Laws
Bankruptcy, which is a federal law that includes property exemptions, is an example. Each state has its own bankruptcy property exclusions. Many states offer the option for debtors to choose whether they want federal bankruptcy exemptions or state exclusions. The Golden State does not allow debtors to choose between federal bankruptcy exemptions or state exemptions. California allows you to choose between Section 703 or Section 704 exemptions. We’ll discuss this further below.
Let’s first take a look at some basic principles. Creditors can’t seize assets that are exempt and then sell them to you in order to pay your debts. They can also seize and sell assets that are not exempt. Although this seems to be a simple definition, there are many grey areas.
Let’s say Rafael has a mobile home he takes on road trips. It is not possible to apply a 703 exemption or 704 exemption. It is therefore theoretically not exempt. There are practical considerations. It is quite old and in poor condition. It has no economic value. The trustee, who is responsible for overseeing bankruptcy proceedings for the judge, may not be allowed to legally seize the asset.
Even if it seems simple, this is only one of many questions that a bankruptcy attorney must address.
Section 703 Exemptions
The 703 exemptions may be an option if you don’t own a house or have lived in your home for less than ten years. These exemptions protect:
- Home equity ($26.800)
- Retirement accounts (full coverage)
- Household goods (full coverage if the item’s value is less than $675).
- Full protection: Social security and other public benefits
- Benefits of life insurance policies (full coverage)
- Equity in motor vehicles ($5,350
- Personal jewelry (1,600)
- Wildcard ($28.255)
Although the home equity exemption may seem small, if you’ve lived in your home for over ten years, it is usually sufficient. The bank will apply most of the monthly mortgage payments during the first half to equity instead of interest. Even if you have invested tens of thousands of money, you still have only a few thousand equities.
Similar motor vehicles exist. A majority of people don’t have any equity in a brand new car. A paid-off car has almost no value. This is especially true if the vehicle has been involved in minor accidents or is in poor condition. The same applies to jewelry and household goods.
California’s wildcard exemption permits you to protect property otherwise exempt. Many people use the wildcard exemption to money in savings or checking accounts. Some others use it for a vacation home.
Section 703 exemptions can only be used for bankruptcy. These exemptions are available only to bankruptcy debtors. Some courts view them as a violation of the Fourteenth Amendment’s Equal Protection guarantee. Ask a bankruptcy attorney if they are applicable to your case. These exemptions generally apply to both married couples and individuals.
Section 704 Exemptions
California’s Section 704 exemptions may be right for you if you have been living in the same house for over ten years. This is especially true after the coronavirus epidemic prompted legislators to expand the Section 704 exemptions. These exemptions protect:
- FEMA benefits
- Motor vehicle equity ($3,325)
- Benefits of life insurance policies (full coverage)
- Savings or checking accounts that have a minimum balance of $1,788
- Full protection: Social security and other public benefits
- Home equity (300,000 to $600,000 depending on the median home price in the area).
- Retirement account (full coverage)
- Full protection for household goods
- Personal jewelry (8,000 USD)
The main problem with 704 exemptions is that there is no wildcard exemption. This is partially compensated by the recent demand deposit account exemption (DDI).
These values do not reflect the fair market value. They are the cash value as-is. An example of this is home. A house may have a fair value of $500,000. The fair market value of your house might be $500,000. However, if you sell the house to an investor, the cash offer may be pennies per dollar. The bankruptcy value of your house (also known as the garage sale value), could be lower than what is listed on the tax appraiser’s website.
Complex issues such as bankruptcy values should only be addressed by an experienced bankruptcy lawyer. An honest error could lead to a probe into bankruptcy fraud.
What Does California Bankruptcy Cost You?
The costs of bankruptcy are often very different from the qualifications.
The law sets the filing fees. A new case generally costs around $350. This fee can be paid in installments. A fee waiver may be possible. For official motions such as a motion for a change of chapter or to amend the documents, filing fees may apply.
There are three levels of professional fees. Some people file for bankruptcy online because the forms can be found online. This is similar to filing a small company’s tax return online without consulting an accountant or following any official instructions. Others hire bankruptcy petition preparers who are not lawyers to assist them. These individuals may not have any training. They can also only fill out forms. They can’t give you advice and certainly not represent you in court.
Although it is the most costly option, a California bankruptcy attorney is also the most affordable. Many DIY filers miss deadlines and fill out incorrect forms. Even if they are not intentional, these errors can have severe consequences. An experienced bankruptcy attorney will help you file the proper paperwork and give solid advice if you have any problems.
Get a dedicated attorney to partner with you
Contact a California bankruptcy attorney today to get the best out of the Bankruptcy Code’s fresh start. An attorney can help maximize your exemptions and will be there to support you throughout the entire process.
This article was written by Alla Tenina. Alla is one of the best bankruptcy attorneys in Los Angeles CA, and the founder of Tenina law. She has experience in bankruptcies, real estate planning, and complex tax matters. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.
