Bankruptcy is a system of federal law, so the process to file for Chapter 7 bankruptcy or to file for Chapter 13 bankruptcy is nearly identical in every state, including California. However, California laws still play a major role, particularly in setting property exemptions, which determine what property you get to keep (if you file for Chapter 7) and how much you have to repay your creditors (if you file for Chapter 13). There are also important resources available to you by state.
Credit Counseling in California
Before you file for Chapter 7 or Chapter 13 bankruptcy in California, you will have to complete mandatory credit counseling with an agency that’s been approved by the United States Trustee’s Office. Here’s a list of California agencies that have been approved to provide this counseling.
Where to File
There are four federal judicial districts in California, each with their own bankruptcy courts. At each district’s website, you can find information on forms, local rules, and more. The districts are:
- The Northern District (the San Francisco Bay Area, North to Humboldt and South to Monterey
- The Southern District (San Diego and Imperial counties)
- The Central District (Los Angeles and Santa Barbara, among other places)
- The Eastern District (Sacramento, Fresno, the Sierras, and more)
Like every other state, California has its own set of property exemptions. (To learn more about how property exemptions work generally and which exemptions you may use, see Bankruptcy Exemptions: What Do I Keep When I File for Bankruptcy?)
Some states allow debtors to choose between the state’s exemption list and the federal exemption list. California isn’t one of them, but it is unique among the 50 states in that it has two state lists of exemptions. Debtors may use either list, but they can’t mix and match, choosing some exemptions from one list and some from the other.
Most California homeowners choose California System 1, and here’s why: It protects up to $75,000 of home equity. System 1 users can also protect up to $2,725 of equity in a vehicle and $7,175 worth of jewelry, heirlooms, and art.
Under System 2, the homestead exemption is much less generous: It protects only $22,075 worth of equity. However, debtors who don’t use the homestead exemption to protect a home can apply that amount to any other property they choose. Added to the System 2 “wildcard” exemption (another amount debtors can apply to any property) this gives debtors who use system 2 up to $23,250 they can use to protect property they would otherwise lose, whether it’s a boat, a grand piano, or valuable artwork.
The Means Test
When you file for bankruptcy, you must compare your income to the median income for a California household of your size. If your income is less than the state median, you will be eligible to file for Chapter 7 and, if you choose to file for Chapter 13, you can use a three-year repayment plan (rather than five years).
Currently, the median California income for a one-person household is just over $47,500; these figures change periodically. You can find the most recent amounts on the website of the U.S. Trustee at www.justice.gov/ust. Click on “Bankruptcy Reform,” and then “Means Testing Information.” Or go directly to the Census Bureau table here.
Debtor Education in California
After you file for bankruptcy but before you receive your discharge, you must take a debtor education course. Like the mandatory credit counseling you must take before filing your forms, you must receive debtor education from an agency approved by the U.S. Trustee’s Office. Here a list of agencies approved to provide this course in California.
Finding a Bankruptcy Lawyer
If you're considering bankruptcy, you may want to talk to an experienced California bankruptcy lawyer.