April 7, 2017
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). In this article, you'll learn some important distinctions.
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.
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:
Like every other state, California has its own set of property exemptions. (To learn more about how property exemptions work, 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 the only state with two state exemption lists. Debtors can use either list, but they can’t mix and match exemption from both lists. A debtor must use one or the other.
Most California homeowners with significant equity in a residential home choose California 704 exemptions, and here’s why: It protects up to $75,000 of home equity (more if you are married, disabled, over age 65, or over age 55 with a low income). 704 exemption users can also protect up to $3,050 of equity in a vehicle and $8,000 worth of jewelry, heirlooms, and art.
Under the 703 series, the homestead exemption is not as generous: It protects only $26,800 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 this is the $1,425 “wildcard” exemption (another amount debtors can apply to any property). Together, a debtor can protect up to $28,225 in property they would otherwise lose, whether it’s a boat, a grand piano, or valuable artwork.
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).
The median California income for a one-person household is about $52,416; these figures change frequently. You can find the most recent amounts on the website of the U.S. Trustee at www.justice.gov/ust. Click on “Means Testing Information.”
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.
If you're considering bankruptcy, you may want to talk to an experienced California bankruptcy lawyer.