Chapter 7 Bankruptcy – Eliminate Your Debts Quickly

 
 
It's not quite that simple, but that's the general idea. A Chapter 7 bankruptcy will eliminate ("discharge") your unsecured debts, meaning those debts (like credit card debts) that are not secured by your property (like your car loan or home mortgage). It will do that quickly, normally in 3-4 months after filing. It's the one most people want, so read on.
What do you have to give up in a Chapter 7 bankruptcy?
 Often, nothing or not much. You get to keep all of your assets (money and other things you own) that are "exempt" under the exemption laws of your state. In California …
  

If you don't have equity in a home that you want to keep, you can protect (exempt) up to the following:

$28,225 – Any combination of things (referred to as the "wildcard" exemption)
$5,350 – One or more vehicles (the resale value above the amount owed on it)
$14,335 – Life insurance (the current cash value to you of that policy)
$1,600 – Jewelry (at the resale value – craigslist, ebay, etc. – not the replacement value)
$8,000 – Items used for your occupation
All of your household items and clothing that individually are not worth more than $675
All (usually) of your retirement accounts
Note that the $28,225 wildcard exemption may be used to “pick up” excess amounts from any number of exemption categories, such as a car that's worth more than $5,350 above the amount owed on it.

  

If you do have equity in a home ("homestead") that you want to keep, you can protect (exempt) different amounts of that equity based on your age and other factors.

$75,000 – Single person, age 64 or younger
$100,000 – Married person with the spouse living in the house, age 64 or younger
$175,000 – Debtor or spouse (living in the house) is one of the following:
– 65 or older
– Physically or mentally disabled so as to be unable to engage in substantial gainful employment
– 55 years of age or older with a gross annual income of not more than $25,000 or, if the debtor is married, a gross annual income of both debtor and spouse of not more than $35,000.

If you need to use this set of homestead exemptions to exempt the equity in a home, you do not get the "wildcard" exemption. The other specific exemptions are different from, those listed above..

 

One more thing. If you have not lived in California for the two years prior to filing bankruptcy, you will probably need to use another state's exemptions or the federal set of exemptions. That's a whole other subject and way too complex to cover here.

That's enough to say about exemptions here, except that they are a very important topic in a bankruptcy and must be treated with a great amount of knowledge and attention.

 
What are the requirements for a discharge of debts in a Chapter 7 bankruptcy?
  

– You can't have received a discharge in a prior Chapter 7 bankruptcy filed within eight years of filing the new Chapter 7.

– You must pass the "Means Test":

 

The simple version: If the gross income (of you and your spouse) for the past six months x 2 (to make it a one-year value) is not greater than the official California median income for a household of your size, you pass. Here are the official California median incomes as of November 1, 2014:

1 person in family: $49,185
2 people in family: $63,745
3 people in family: $67,817
4 people in family: $78,150
Add $7,500 for each individual in excess of 4.

The full version: If your income is above the California median income, then you must pass the "full" Means Test which is a complex formula of income and official and actual expenses.

– The Disposable Income Test – If your expected future net monthly income less expenses is a significant plus number, you may be judged to have enough disposable income to pay off your creditors (in whole or only in part) in a Chapter 13 payment plan.
  – Credit Counseling (before filing) and a Financial Management Course (after filing). These are easy to do online and don't cost much.
When would you not want to file a Chapter 7 bankruptcy?
  

– When you essentially can't (see the section just above).

– When you have property that you want to keep but would be lost in Chapter 7 because (1) exemptions wouldn't protect that property or (2) you can’t pay the back payments owed on secured property (often a house or car).

In those situations, you would want to consider a Chapter 13 bankruptcy.

 
 
We are a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code.

  

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