Have you dismissed the idea of filing for bankruptcy protection because you’ve heard that you will lose your home, car, or other important possessions? The good news is for qualifying California residents who file for Chapter 7 bankruptcy, there are legal methods to strategically protect certain assets from being sold to repay creditors.
These methods are called exemptions and they are a significant, yet often complicated, consideration for anyone thinking about filing for bankruptcy in the Mission Hills area.
What is Chapter 7 Bankruptcy?
Chapter 7 is called the “liquidation chapter” because any of your nonexempt assets can be liquidated by a court appointed trustee to repay your creditors.
This rarely happens – around 95% of all Chapter 7 cases filed do not have any assets which are not protected by the state’s generous exemption laws.
Certain types of debts, such as credit card balances, business debt, personal loans, and medical bills, can be discharged through a Chapter 7 bankruptcy. Unlike other forms of bankruptcy, you are not placed on a repayment plan. This can mean that your credit score recovers more quickly.
When a Chapter 7 petition is filed, you are protected by an injunction called an automatic stay. Creditors can no longer contact you seeking repayment, nor can they:
- Foreclose on your house
- Have your utilities disconnected
- Repossess property like cars or the tools of your professional trade
- Garnish your wages
Filing for bankruptcy immediately protects your assets from creditors but understanding how to use the exemptions available in the state bankruptcy code is key to preserving ownership of your home, car, and certain financial accounts in Mission Hills.
What are Bankruptcy Exemptions?
The Federal bankruptcy code has provisions to allow debtors to exempt certain types of assets from liquidation by the bankruptcy trustee. Individual states have the option to “opt out” of those exemptions and implement their own set of exemptions for their residents.
California is an “opt out” state. This decision by state lawmakers means that California residents are restricted to only the state’s exemptions when filing for bankruptcy. Generally, filers will discover that California’s exemptions are more generous than those offered in the federal provisions.
California has two separate lists of exemptions which can often create confusion when it comes to figuring out the right path for you and your family.
For some California homeowners, using the “704” list is a better fit to preserve home equity. Others find the “wild card” option in the 703 list makes more sense for their situation.
Both options have their pros and cons, but you can only select one list. This means it’s critical to have a complete understanding of both your current and future financial situation before making a decision. It is imperative that you consult with an attorney before making this selection. Document preparation companies cannot advise you regarding which list to choose as giving such advice would be the unauthorized practice of law.
These state exemptions cover asset classes such as:
- Homestead exemptions designed to protect your home and preserve your equity.
- Personal property exemptions with upper limits that vary based on your marital status.
- Insurance proceeds like those from disability, homeowner’s and certain life insurance policies.
- Pensions and private retirement savings or other ERISA qualified benefits.
- Public benefits like student financial aid, relocation assistance, union benefits, unemployment benefits, and payments from worker’s compensation claims.
- Tools of your trade, including books, uniforms, vehicles, and equipment with special provisions for married filers.
- Wages either up to 75% paid within 30 days of filing or $0.
- Money in checking and savings accounts.
- Other miscellaneous and “wildcard” assets that don’t fit into other categories.
California residents cannot use federal exemptions.
Some California residents may also elect to use federal supplemental non-bankruptcy exemptions if they are beneficial in protecting certain specific types of retirement benefits, survivor’s benefits, death and disability benefits, or miscellaneous military deposits, seaman’s wages, and insurance policies.
Prior to filing for bankruptcy, it’s important for California state residents to consult with a qualified bankruptcy attorney to understand all their options.
Can I File for Bankruptcy in Mission Hills Without an Attorney?
You can go online and Google will direct you to the over 20 forms that make up a voluntary California bankruptcy petition. These forms demand a high level of detail of everything that you earn, own, and spend — from your domicile to your dogs. And there are dire consequences for appearing to withhold any financial information from the bankruptcy court.
As you can imagine, keeping all those details and computations straight gets complicated, fast.
Plus, you may get bad advice from well-meaning people that can create serious headaches or even serious legal problems for you.
And as we’ve discussed in this article, part of filing for bankruptcy in California means analyzing your current and future financial situation and deciding on whether using the 703 or 704 list is the right choice for you and your family.
Plus, creditors have the right to object to your exemptions. You want to be confident that your information is accurate on your forms and that you can defend your exemptions so you don’t lose access to assets you should be allowed to keep.
When you sit down with a qualified bankruptcy specialist, you begin the bankruptcy process on the right foot. Consulting with an attorney means that you won’t make the mistakes that people commonly make or miss critical information on the forms that can cause your petition to be thrown out, delayed, or allow your creditors and their representatives to take advantage of you.
The right bankruptcy practice helps you get out from under your past financial troubles and sets you up for future financial success.
Still Have Questions About California’s Bankruptcy Exemptions?
The California state exemption system is one of the most complicated in the country. Going it alone can put you and your family at risk for losing valuable assets and property that the bankruptcy code is designed to protect from liquidation to satisfy your creditors.
The right guidance can help you develop a bankruptcy strategy that breaks the cycle of debt and gives you the tools and education to make smart decisions about your money moving forward.
We will review your entire financial situation and determine if you have any assets that will require administration so you can file for the correct relief and get on with rebuilding your credit and your reputation.
We know that money-related issues are stressful enough without additional worries that things are being handled on your behalf. That’s why we promise that you’ll never get lost in the shuffle.
It’s easy to think that a big city firm is the right move to make sure your case is handled correctly. But the truth is, those big Los Angeles firms take on tons of clients and then pass your petition off to a paralegal to prepare and manage your case file.
At Janus Law, we think there’s a better way. Our attorneys take your case, and they handle it personally from day one to the day you receive your discharge.
We have in-person consultations in our Mission Hills office, or we can talk with you in a confidential virtual meeting space.
And if we don’t think bankruptcy is the right solution for you, we won’t pressure you to file. Our goal is to get you and your family back on your feet by giving you a fair, free, and no obligation assessment.
See what a fresh start could mean for you today and potentially how much property you can protect from creditors.
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- Protecting Your Mission Hills Property in Chapter 7 Bankruptcy - February 12, 2022
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