Information for Bankruptcy in California
Bankruptcy is a federal procedure, which means that there are very few differences between declaring bankruptcy in California and declaring in any other state. However, there are a few key differences to be aware of as you prepare to declare bankruptcy in California.
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Definition
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Bankruptcy is a legal procedure through which the courts discharge, or cancel, the debts of a person or company. Legally, going bankrupt does not mean that you have no money or property, though that may be what it means in the vernacular. Bankruptcy declaration simply means that the U.S. courts have recognized that you do not have the financial resources available to you to pay off your debts.
Chapter 7
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Chapter 7, also known as liquidation bankruptcy, is the most radical of all possible bankruptcy cases. The court does not allow all debtors to declare Chapter 7. In order to qualify, an individual or business must pass the "means test," which calculates your current worth in terms of property, income, and other assets. If your assets place you above the median income in your state, then you are eligible to declare Chapter 7. In California, the median income for a household of four is $55,450 per year; however, your eligibility will be recalculated depending on how many people are in your household. If you qualify, then under Chapter 7 discharge laws you will likely be able to keep most of your property, and the majority of your debts will be fully discharged. Most Chapter 7 debtors do not have to repay their consumer debts.
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Chapter 11
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Chapter 11 is the bankruptcy option for all businesses that do not qualify for Chapter 7 under the means test. Chapter 11 debtors are able to keep more of their assets, but they must pay back their creditors in exchange for keeping their property. Chapter 11 debtors must list their creditors just like Chapter 7 debtors, but they must also propose a repayment schedule that in turn must be approved or adjusted by the court. Some debts may be discharged or partially discharged by the courts, and some property may be liquidated in order to repay debts. If a business's request to file Chapter 7 is rejected by the court, it will often be offered the opportunity to file for Chapter 11.
Chapter 13
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Chapter 13 is the bankruptcy option for private individuals who do not qualify for Chapter 7 bankruptcy. Generally, people will fail to qualify for Chapter 7 if they own a valuable piece of property, such as a house, which they do not wish to sell in order to discharge their debts. Much like Chapter 11, Chapter 13 bankruptcy is much more lenient in allowing debtors to retain the bulk of their personal property. However, Chapter 13 debtors are expected to repay the majority of their debts. As in Chapter 11, some debts may be discharged or partially discharged, and some property may be required by the courts to be sold in order to pay off the debts.
California lists of exemptions
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California state law does not allow bankruptcy debtors to claim the federal list of exemptions. Instead, California has two different lists of exempt property that protect different types of property. The debtor can select which set of exemptions to apply to his case when he declares bankruptcy. Generally speaking, System No. 1, which is found in California Code of Civil Procedure 704, protects big-ticket items such as homesteads at the expense of smaller items and financial assets. System No. 2, found in California Code of Civil Procedure 703, protects most financial assets, such as bank accounts, insurance policies and veteran or disability benefits, at the expense of big-ticket items such as homesteads.
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