Chapter 7
What is Chapter 7?
It is a law designed to eliminate your debt related to credit cards, medical bills, utility bills, personal loans and stop creditor harassment.
Chapter 7 is known as Liquidation
Each year, Chapter 7 helps tens of thousands of people start down the road
to a debt free and non harassment life. The U.S. Bankruptcy code was specially
written to provide fast, real, legally binding debt relief and protection.
Don’t wait any longer; you can get out of debt without sacrificing
your future.
The bankruptcy laws allow for strong protections with what are known as “exemptions,” and
they may play a big roll in your personal financial recovery.
Some new bankruptcy rules will make it harder to qualify for Chapter 7:
Debtors must pass the "Means Test," meaning when
they file, their income must be less than the median income in their state.
If a debtor's income is above the state's median and the person can afford
to pay $100 per month toward paying off debt, then the filer will be forced
to file under Chapter 13.
Whether someone can afford to pay $100 per month is based on a formula that
includes monthly income, expenses, and total amount of debt. Check your monthly
income against your state's median income.
What is a Means Test?
The bankruptcy "means test" determines whether your income is
low enough for you to file Chapter 7 bankruptcy. It's a formula designed
to keep filers with higher incomes from filing for Chapter 7 bankruptcy.
High income filers who fail the means test may use Chapter 13 bankruptcy
to repay a portion of their debts, but may not use Chapter 7 bankruptcy to
wipe out their debts altogether. You can earn significant monthly income
and still qualify for Chapter 7 bankruptcy if you have a lot of expenses,
such as a high mortgage payment.
Use this online means test calculator
http://www.bankruptcyaction.com/
Chapter_7_Means_Test_Calculator.php to
determine whether you can pass the means test and file for Chapter 7 bankruptcy.
What are Exemptions?
The Chapter 7 Bankruptcy Code allows you to keep property or assets
such as a car, home, land and other assets by claiming them as "exempt" under
Federal and State bankruptcy exemption laws.
California State
Exemption Statutes
(System 1)
Federal Bankruptcy Exemptions are not available.
CALIFORNIA has two systems; YOU MUST SELECT ONE OR THE OTHER.
All law references are to California Code of Civil Procedure unless otherwise
noted.
Asset - Homestead
Exemption - Real or personal property you occupy including
mobile home,
boat, stock cooperative, community apartment, planned
development or condo to $50,000 if single and not disabled;
$75,000 for families if no other member has a homestead
(if
only one spouse files, may exempt one-half of amount if home
held as community property and all of amount if home held as
tenants in common), $100,000 if 65 or older, or physically
or
mentally disabled; $100,000 if 55 or older, single and earn
under $15,000 or married and earn under $20,000 and
creditors seek to force the sale of your home; sale proceeds
exempt for 6 months after received (husband and wife may
not double).
May file homestead declaration
Asset – Insurance
Exemption:
Disability or health benefits
Fidelity bonds
Fraternal unemployment benefits
Homeowner’s insurance proceeds for 6 months after received, to homestead
exemption amount.
Life Insurance proceeds if clause prohibits proceeds from being used to pay
beneficiary’s creditors.
Matured life insurance benefits needed for support un-matured life insurance
policy loan value to $8,000
Husband and wife may double
Asset – Miscellaneous
Exemption - Business or professional licenses
Inmates’ trust fund to $1000 (husband and wife may
not
double)
Property of business partnership
Assets – Pensions
Exemption - County employees
County firefighters
County peace officers
Private retirement benefits, including IRAs and Keoghs
Public employees
Public retirement benefits
Assets – Personal Property
Exemption - Appliances, furnishings, clothing and food
needed
Bank deposits from Social Security Administration to $2000, $3000 for husband
and wife
Building materials to $2000 to repair or improve home, husband and wife may
not double
Burial plot
Health aids
Jewelry, heirlooms and art to $5000 total, husband and wife may not double
Motor vehicles to $1900, or $1900 in auto insurance if vehicle(s), lost,
damaged or destroyed, husband and wife may not double
Personal injury and wrongful death causes of action
Personal injury and wrongful death recoveries needed for support; if receiving
installments, at least 75%
Assets – Public Benefits
Exemption - Aid to blind, aged, disabled, AFDC
Financial aid to students
Relocation benefits
Unemployment benefits
Union benefits due to labor dispute
Workers’ compensation
Assets – Tools of Trade
Exemption - Tools, implements, materials, instruments,
uniforms, books,
furnishings, equipment, vessel, motor vehicle to $5,000 total;
to $10,000 total if used by both spouses in same occupation
Cannot claim motor vehicle under tools of trade exemption if claimed under
motor vehicle exemption
Assets – Wages
Exemption - Minimum 75% of wages
Public employees vacation credits; if receiving installments, at least 75%
Assets – Wildcard
Exemption – None
California State Exemption Statutes
(System 2) Federal Bankruptcy Exemptions are not available
NOTE: Married couples may not double any exemptions
Assets – Homestead
Exemption - Real or personal property, including co-op,
used as residence to
$15,000; unused portion of homestead may be applied to any property
Assets – Insurance
Exemption - Disability benefits
Life insurance proceeds needed for support of family
Un-matured life insurance contract accrued avails to $8,000
Un-matured life insurance policy other than credit
Assets – Miscellaneous
Exemption - Alimony, child support needed for support
Assets – Pensions
Exemption - ERISA-qualified benefits needed for support
Assets – Personal Property
Exemption - Animals, crops, appliances, furnishings, household
goods, books,
musical instruments and clothing to $400 per item
Burial plot to $15,000, in lieu of homestead
Health aids
Jewelry to $1,000
Motor vehicle to $2,400
Personal injury recoveries to $15,000 (not to include pain
and suffering; pecuniary loss)
Wrongful death recoveries needed for support
Assets – Public Benefits
Exemption - Crime victim’s compensation
Public Assistance
Social Security
Unemployment compensation
Veterans’ benefits
Assets – Tools of Trade
Exemption - Implements, books, and tools of trade up to
$1,500
Assets – Wages
Exemption – None
Assets – Wild Card
Exemption - $800 of any property
Unused portion of homestead or burial exemption, of any property
Chapter 7 Commonly used terms in Bankruptcy Court
Chapter 7 – The chapter of the Bankruptcy Code providing
for "liquidation," that is, the sale of a debtor's nonexempt property
and the distribution of the proceeds to creditors. In order to be eligible
for Chapter 7, the debtor must satisfy a "means test." The court
will evaluate the debtor's income and expenses to determine if the debtor
may proceed under Chapter 7.
Chapter 7 trustee – A person appointed in a Chapter
7 case to represent the interests of the bankruptcy estate and the creditors.
The trustee's responsibilities include reviewing the debtor's petition
and schedules, liquidating the property of the estate, and making distributions
to creditors. The trustee may also bring actions against creditors or the
debtor to recover property of the bankruptcy estate.
No-asset case––A Chapter 7 case in which there
are no assets available to satisfy any portion of the creditors' unsecured
claims.
Preferential debt payment – A debt payment made
to a creditor in the 90-day period before a debtor files bankruptcy (or
within one year if the creditor was an insider) that gives the creditor
more than the creditor would receive in the debtor's chapter 7 case.
Redemption – A procedure in a Chapter 7 case whereby
a debtor removes a secured creditor's lien on collateral by paying the
creditor the value of the property. The debtor may then retain the property.
Statement of intention – A declaration made by a
chapter 7 debtor concerning plans for dealing with consumer debts that
are secured by property of the estate.
Substantial abuse – The characterization of a bankruptcy
case filed by an individual whose debts are primarily consumer debts where
the court finds that the granting of relief would be an abuse of chapter
7 because, for example, the debtor can pay its debts.
Trustee – The representative of the bankruptcy estate
who exercises statutory powers, principally for the benefit of the unsecured
creditors, under the general supervision of the court and the direct supervision
of the U.S. trustee or bankruptcy administrator. The trustee is a private
individual or corporation appointed in all chapter 7, chapter 12, and chapter
13 cases and some chapter 11 cases. The trustee's responsibilities include
reviewing the debtor's petition and schedules and bringing actions against
creditors or the debtor to recover property of the bankruptcy estate. In
chapter 7, the trustee liquidates property of the estate, and makes distributions
to creditors. Trustees in chapter 12 and 13 have similar duties to a chapter
7 trustee and the additional responsibilities of overseeing the debtor's
plan, receiving payments from debtors, and disbursing plan payments to
creditors.
Typing service – A business not authorized to practice
law that prepares bankruptcy petitions. United States trustee an officer
of the Justice Department responsible for supervising the administration
of bankruptcy cases, estates, and trustees; monitoring plans and disclosure
statements; monitoring creditors' committees; monitoring fee applications;
and performing other statutory duties.
U.S. trustee – An officer of the U.S. Department
of Justice responsible for supervising the administration of bankruptcy
cases, estates, and trustees; monitoring plans and disclosure statements;
monitoring creditors' committees; monitoring fee applications; and performing
other statutory duties.