Chapter 7 FAQs

Chapter 7 bankruptcy, also called liquidation, if carefully planned and prepared, Chapter 7 bankruptcy is a way to permanently rid yourself of most debts such as credit cards, personal loans, medical bills, repossession deficiencies, auto accidents, etc.

There are numerous requirements to qualify for chapter 7 bankruptcy. You must not have received a previous chapter 7 bankruptcy discharge within the previous 8 years, and your income must meet certain guidelines.

The “means test” is an analysis of the previous six months of your income. If your income is low it’s usually not a problem, but if your income is high things can get much more complicated.

Bankruptcy exemptions in California are pretty generous compared to other states. In short, exemptions mean the things you get to keep after bankruptcy. California is unique in that it has two different “tracks” of exemptions, called the 703’s & 704’s, a reference to the code sections utilized in your particular case. The 704’s include the homestead exemption for homeowners and the 703’s include a “wildcard” that can be used for anything. Careful exemption planning is often crucial to the success of your case.

Most debts are dischargeable in a chapter 7 case, such as credit cards, personal loans, medical bills, repossession, auto accidents, business debts, etc. Careful planning is important to ensure success in the discharge of your debts.

Student loans are non-dischargeable with extremely limited exceptions. Among other debts that are non-dischargeable are child and spousal support obligations, debts obtained by fraud, auto accidents causing personal injury while intoxicated, and many (but not all) taxes are non-dischargeable.

Taxes in bankruptcy are by far the most complex of all debts. As a general rule income taxes that are old, for which you timely filed your tax returns and were assessed more than 240 days ago might be dischargeable. This area requires great care and planning before filing your chapter 7 bankruptcy.

The co-signer is still obligated for the debt.

If the bankruptcy petition is carefully prepared, most people are able to keep all of their belongings and other assets if they are within certain value ranges. Understanding what an asset is can be tricky and not obvious for most people so careful analysis is important. Even people who think they are poor can find themselves in a trap and lose very significant assets, such as an inheritance or personal injury claim.