While most people never expect to face overwhelming debt, millions of Americans file for bankruptcy every year to navigate insurmountable financial obligations that completely control their lives. Between harassing phone calls from creditors and severely mounting bills, filing for bankruptcy serves as a valuable solution in situations that seem hopeless. In fact, bankruptcy can help you overcome your debt, provide financial stability, and deliver you much-needed peace of mind by giving you the opportunity to start fresh.
Review the information below to learn more about this debt relief solution and the exemptions it offers to allow you to retain your property, then contact an experienced Orange County Chapter 7 lawyer today. At the Law Offices of Christopher P. Walker, we offer personalized attention to each client, helping them make the best choices to regain their financial freedom and face the future with confidence. You and your attorney can discuss your unique circumstances, learn about alternatives, determine the right choice for you to protect your rights and pursue the optimal outcome for your family.
Do I Have to Give Up All My Property to File Chapter 7 Bankruptcy?
Unfortunately, many misconceptions exist regarding the bankruptcy process and the impact it has on your property. These misconceptions are especially prominent in liquidation bankruptcy, which requires debtors to surrender property to repay their debts.
As a result, when considering bankruptcy options, a common question posed by individuals is – What will I lose if I file Chapter 7? Certainly, after you have already lost so much due to collections and wage garnishment, the last thing you want is to surrender even more of your beloved property or watch the bank force your home into foreclosure. Thankfully, the concept that filing for Chapter 7 bankruptcy requires giving up all your assets is patently untrue.
How Does Chapter 7 Work?
A Chapter 7 bankruptcy case collects the debtor’s legal and equitable interests into an estate, which serves the role of temporary property owner and funds repayment of creditor claims. The goal of a Chapter 7 bankruptcy is to administer and liquidate a debtor’s property in a manner that will maximize the amount of compensation available to creditors. Filing this form of bankruptcy discharges all eligible loans and other outstanding financial obligations and legally forgives them. It prevents creditors from attempting to collect on these discharged debts in the future and imposes severe penalties for any creditors who do so.
Chapter 7 bankruptcies work by requiring debtors to relinquish any property considered “non-exempt” by the federal Bankruptcy Code. The property transfers into an estate controlled by a bankruptcy trustee, who is responsible for selling it and distributing the proceeds from this sale to all creditors with valid claims. The Chapter 7 option is the most pursued debt relief solution for California residents confronted with more liabilities than they can cover.
What Will I Lose if I File Chapter 7?
According to the Bankruptcy Code, debtors may label specific types of property as legally off-limits from the bankruptcy trustee and creditors. The courts refer to this property “exempt property.” While completing bankruptcy paperwork, you can identify exempt property and request that the court exclude it from the bankruptcy estate, allowing you to keep it following the completion of the bankruptcy process. If you honestly represent your property to the court and your Orange County Chapter 7 attorney, you have a strong chance of preserving exempt property and implementing it as a financial rebuilding tool after the case concludes. If the court raises no objections, exemptions become official 30 days following the creditor’s meeting.
In most situations, Chapter 7 bankruptcy cases are no-asset cases, meaning the courts do not require the debtor to give any specific property to the trustee. The goal of filing for bankruptcy is to obtain a fresh start, and the only effective strategy for achieving this outcome is to give debtors the means to regain their financial footing with some of their property intact. Exemptions allow debtors to retain property to fulfill the financial needs of everyday life, protected from creditor threats. In addition, while some exemptions are valuable, many personal property and household items feature insignificant resale value and therefore do not constitute a profitable resource for repaying creditors.
Equity and Chapter 7 Exemptions
Any property you wish the court to consider exempt must adhere to an exemption limit applicable to the equity you hold in that property. Equity comprises the difference between the property’s appraised value and the liabilities owed on the property. For example, a vehicle valued at $7,000 that includes a loan of $4,000 has an equity value of $3,000.
If your property has a lien against it, the exemptions encompass its equity, and you are up to date on payments, you can choose to continue making these payments and retain the property through the bankruptcy process. If exemptions do not cover the property’s equity, the trustee may liquidate the property and you will recover the value of the exemption in the form of a cash payment.
Chapter 7 Exemption Requirements
To qualify for exemptions in California, the law requires that you have resided in the state for a minimum of two years before filing for Chapter 7 bankruptcy. If you cannot meet this requirement, you must implement the exemptions of the state in which you lived during the majority of the six months before this two-year period.
For example, if you moved from Oregon to California on January 1, 2021 and file bankruptcy on July 1st, you have not resided in California long enough to qualify for California exemptions. You must consider the date two years before your filing date, which would be July 1, 2019, and use the exemptions available from Oregon to protect your property from liquidation. To keep any property you list as non-exempt, you must provide the bankruptcy trustee with a payment equal to the value of this property.
Chapter 7 Exemption Systems in California
In the state of California, you have two sets of exemptions systems to choose between:
Exemption System One
- Homestead – Real or personal property that you occupy as a primary residence, including a community apartment, development, condominium, mobile home, boat, or stock cooperative up to the following amounts based on your marital and disability status. Homestead exemptions exist up to the following amounts:
- $75,000 if you are single and not disabled
- $150,000 for families where no other member owns a homestead
- $175,000 if you are aged 65 years or older, or are physically or mentally disabled
- $100,000 if you are aged 55 years or older, single, and earn less than $25,000
- $100,000 if you are aged 55 years or older, married, earn less than $35,000, and creditors are pursuing the sale of your home
- Personal Property
- Clothing, food, furnishings, and appliances
- Health aids
- Bank deposits made by the Social Security Administration up to $2,000
- Building materials used to repair or improve your home up to $2,000
- Heirlooms, art, and jewelry up to $5,000 total
- Motor vehicles up to $1,900 or auto insurance up to the same amount if the vehicle is lost, damaged, or destroyed
- Causes of action for personal injury or wrongful death
- Recoveries from personal injury or wrongful death needed for financial support
- Burial plots
- Health or disability benefits
- Fraternal unemployment benefits
- Fidelity bonds
- Homeowner’s insurance proceeds for six months, up to the amount of the homestead exemption
- Life insurance proceeds if they are prohibited from use in paying creditors
- Matured life insurance benefits required for financial support
- Unmatured life insurance policy loan up to $8,000
- Business or professional licenses
- Property belong to a business partnership
- An inmate’s trust fund up to $1,000
- County or public employees
- County police officers
- County firefighters
- Public retirement benefits
- Private retirement benefits, such as IRAs
- Public Benefits
- Workers’ compensation benefits
- Unemployment benefits
- Union benefits from a labor dispute
- Relocation benefits
- Financial aid for students
- Aid for aged, disabled, blind individuals
- Aid to Families with Dependent Children (AFDC)
- Tools of Trade – Any tools, materials, instruments, implements, equipment, furnishings, books, vessels, or motor vehicles up to $5,000
- Wages – Minimum of 75% of wages and public employee vacation credits
Exemption System Two
- Homestead – Real or personal property you use as a primary residence up to $17,425
- Personal Property
- Household goods, furnishings, appliances, muscular instruments, clothing, books, animal, and crops up to $450 per item
- Health aids
- Motor vehicles up to $2,775
- Jewelry up to $1,150
- Personal injury recoveries up to $17,425, excluding pain and suffering
- Wrongful death recoveries required for financial support
- Burial plot up to $17,425 in place of homestead
- Disability benefits
- Life insurance proceeds needed to support family members
- Unmatured life insurance up to $9,300
- Unmatured life insurance policies without credit
- Miscellaneous – Alimony and child support needed to financially sustain the family
- Pensions – Benefits qualifying for Employee Retirement Income Security Act required for financial support
- Public Benefits
- Unemployment compensation
- Social Security benefits
- Veterans’ benefits
- Public Assistance
- Compensation for a crime victim
- Tools of Trade – Tools of trade, implements, and books up to $1,750
- Wages – None
- Wild Card – This can cover any property valued at $925, along with any unused portion of the homestead of burial exemption. Alternatively, you can add the wild card to another exemption. It allows you to protect property you consider valuable that would otherwise be liable for liquidation.
Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy
If you are behind on payments for your mortgage or business and prefer to keep your property at the conclusion of the bankruptcy process rather than liquidating it, a Chapter 13 bankruptcy may be a better solution. Chapter 13 gives you the opportunity to repay outstanding debts over time and re-establish your original mortgage agreement.
Chapter 13 is the best option when you own property that is valuable but not covered by exemptions, if you have debt non-dischargeable under Chapter 7, or if you earn too much income to file a Chapter 7 bankruptcy. However, for most California residents who desire to eliminate their debt burden and are willing to surrender some of their property, filing a Chapter 7 bankruptcy is the better choice.
Advantages of Chapter 7 Bankruptcy in California
If you are experiencing overwhelming debt or harassment by your creditors, Chapter 7 bankruptcy offers a number of advantages.
- You secure a fresh financial start. After Chapter 7 bankruptcy discharges your debts, the only debts you must repay are secured assets for which you sign a Reaffirmation Agreement. This forms an agreement between you and the creditor to circumvent discharge of a debt that would normally be subject to discharge in the bankruptcy process.
- You receive immediate legal protection against creditors. Starting on the date of filing, any attempts by creditors to collect payment or garnish your wages must cease or these creditors will be subject to serious federal penalties.
- You retain ownership of wages earned and property acquired after the date of bankruptcy filing. The bankruptcy court and creditors do not have access to these items.
- You can file Chapter 7 bankruptcy regardless of the amount of debt you owe.
- You can complete the bankruptcy process and have debts discharged within a period of approximately three to six months.
Find Relief and Secure a Fresh Start with My Help
If you are considering filing Chapter 7 bankruptcy, contact the Law Office of Christopher P. Walker today. With more than 25 years as the area’s premier Orange County Chapter 7 attorney, I offer clients comprehensive knowledge, formidable litigation skills, and extensive experience. I help individuals confront overwhelming financial obligations by creating low-cost bankruptcy solutions that allow them to successfully discharge their debts and move forward with a clean slate.
When you secure my services, I work closely with you to learn the unique circumstances of your financial situation. You will receive a thorough explanation of your options and an expert assessment to determine the right solution for you. Unlike other firms that employ paralegals or other unqualified associates to handle cases, I personally manage every case from beginning to end. As an individual lawyer with a small firm, I can offer you a degree of personalized attention larger firms often cannot provide.
Do not allow debt to overwhelm you – seek expert legal assistance from the best Orange County Chapter 7 lawyer with a long record of impressive results. For a free consultation, contact the Law Office of Christopher P. Walker today by submitting my individual contact form.