YORBA LINDA CHAPTER 7 LAWYER

There are several popular myths surrounding Chapter 7 bankruptcy and the process of filing for it. Here are five of the most common myths, as well as the truth of what it means to file for bankruptcy.

1. Filing for Bankruptcy Will Always Destroy Your Credit Rating
   It isn’t untrue that filing for bankruptcy will impact your credit rating—because it definitely will. However, it’s essential to keep a few things in mind. For one, filing for bankruptcy will not completely ruin your credit rating beyond repair. Instead, try to look at the situation like this: Each time you miss a payment and create more debt, your credit rating is harmed. The longer you keep up this pattern, the lower your credit rating is going to fall.On the other hand, when you file for Chapter 7 bankruptcy, you are providing yourself with a fresh start. After filing, it will be far easier to begin building your credit rating back up over time. All in all, Chapter 7 bankruptcy can be a more efficient way to build your credit score back up, rather than using other techniques of debt management.
2. Choosing to File for Bankruptcy Is Something You Can Only Do Once
   While no one would like to be put in a position to file for bankruptcy twice, this isn’t impossible. Technically speaking, an individual is allowed to file for bankruptcy howeveroften believe they need to file. Just remember: You will probably need to go through a waiting period after each filing before you will be eligible to make another filing.
3. Once You File for Bankruptcy, Everyone Around You Will Find Out About It
   This can be a terrifying prospect for many people. After all, as we have previously mentioned, there is a large amount of stigma and shame associated with filing for bankruptcy—even if this stigma is unwarranted.Nonetheless, it’s not true that anyone and everyone will soon learn about your bankruptcy, whether you like it or not. The reality is unless you tell those around you about the situation, your creditors will be the only parties to know about the filing.Had you chosen to file for Chapter 13 bankruptcy rather than Chapter 7, some of your payments would indeed be taken directly from your paycheck. In that sort of instance, your employer would indeed be made aware of the bankruptcy. However, with Chapter 7, you aren’t going to need to worry about that happening. Even if bankruptcy filings are a part of the public record, it isn’t true that they are in any way publicized.
4. Whenever You File for Chapter 7 Bankruptcy, You Will Lose All of Your Property
   This is false, despite it being a popular misconception. In reality, when a debtor opts to file for Chapter 7 bankruptcy, they will only be required to surrender their non-exempt property. Fortunately, in the state of California, most debtors will be fully protected by exemptions. As such, most people will not be determined to possess non-exempt property.More often than not, after filing for Chapter 7, an individual will not be required to give up any of their property—especially not their house or their car, which are common (and understandable) concerns for people considering bankruptcy.(We will expand upon this particular topic more later on.)
5. Once You File for Chapter 7 Bankruptcy, You’ll Never Be Able to Own Property Again
   Like we have said, Chapter 7 bankruptcy typically allows an individual to keep all of their property. This makes it a highly preferable option for debtors once they have decided to file for bankruptcy. In addition, so long as you are putting in the effort, your credit rating should bounce back relatively quickly. Once all of these factors are sorted out, then it is entirely possible for a debtor to go on to purchase a home or a car at a later time.

You will probably to relieved to learn that, more often than not, instances of Chapter 7 bankruptcy are considered to be “no asset” cases. This is the case for the vast majority of Chapter 7 filings. In these “no asset” filings, debtors are allowed to keep all of their personal property. This occurs thanks to exemptions.

So, there’s not much need to worry about losing your car or your home after filing for Chapter 7 bankruptcy.

Now, let’s talk a bit more about exemptions and how they apply to Chapter 7 bankruptcy.

Notably, the trustee is only allowed to sell non-exempt property. In California, there are two separate sets of exemptions, which are put in place to help protect the debtor’s property during Chapter 7 bankruptcy.

First, there’s System 1. This set of exceptions allows debtors to protect a maximum of $75,000 in real property equity if they’re currently single or $100,000 if they’re a family. (Additional protections are available for both low-income and disabled debtors.) Generally, the “real property” in question will be the debtor’s home.

Additionally, this first system protects a maximum of $2,900 in motor vehicle equity, as well as 75% of the debtor’s wages from the past 30 days before filing. System 1 includes a myriad of other exemptions, as well.

System 2, on the other hand, allows the debtor to protect a maximum of $26,925 in home equity, plus a maximum of $5,100 in motor vehicle equity, as well as other exemptions.

On top of this, the debtor’s retirement accounts, as well as their state and federal benefits, are also exempt in the state of California. Thus, those who opt to file for Chapter 7 can typically utilize exemptions to protect most (and often even all) of their most important assets.

In the state of California, only select individuals will qualify for Chapter 7 bankruptcy. Therefore, before you decide that you’d like to file, make sure that you qualify. These qualifications are in place to determine whether the debtor is actually able to sustain a Chapter 13 repayment plan; if this turns out to be the case, then the debtor is ineligible for Chapter 7.

First, the individual will have to make sure they pass the Means Test. What is the Means Test? Well, it’s actually a pretty simple concept, although there are some trickier aspects. If the debtor makes less than the state median income, then the Means Test is easy to determine. These individuals will automatically pass, making them one step closer to successfully filing for Chapter 7 bankruptcy.

Alternatively, if someone earning over the state median income, it is still possible for them to pass the Means Test. Nonetheless, in instances such as this, the process becomes a bit more complex.

The Means Test will account for both income and expenses before comparing them to the California standards. Using this test, it will be possible to determine whether a Chapter 13 repayment plan is actually feasible.

Once you’ve passed the Means Test, you will also need to prove to the California court that your current monthly income is being used solely to pay reasonable and necessary expenses. If it is discovered that, after you’ve paid your living expenses, you still have money to pay creditors, then it’s possible that you may have to file for Chapter 13 bankruptcy instead.