Chapter 7 bankruptcy is a type of bankruptcy that involves the liquidation of a person's assets to pay off their debts. In a Chapter 7 bankruptcy, a person's non-exempt assets are sold by a bankruptcy trustee to pay off their creditors. The bankruptcy process typically takes a few months to complete, and when it is finished, the person's remaining debts are discharged, which means they are no longer legally required to pay them. This type of bankruptcy is often referred to as a "fresh start" bankruptcy because it allows the person to start over financially with a clean slate.
Chapter 7 Bankruptcy
Filing for Chapter 7 bankruptcy helps individuals and businesses get relief from overwhelming debt. Chapter 7 bankruptcy is also known as "liquidation" bankruptcy because it involves liquidating a person's non-exempt assets to pay off their creditors.
Here are the basic steps for filing a Chapter 7 bankruptcy:
- Determine if you are eligible to file for Chapter 7 bankruptcy — To be eligible, you must pass a means test, which is a financial evaluation that determines whether you have sufficient income to repay your debts.
- Gather your financial documents, including income statements, tax returns, bank statements, and bills — You will need these documents to complete your bankruptcy petition and schedules.
- Take a credit counseling course — This is a requirement for all individuals who file for Chapter 7 bankruptcy. You should complete the course within 180 days before you file your bankruptcy petition.
- Calculate your exemptions — Exemptions are legal provisions that allow you to keep certain assets, like your home or car, even if you are filing for bankruptcy. You will need to determine the available exemptions based on your state and federal bankruptcy exemptions.
- Complete your bankruptcy petition and schedules — Your bankruptcy petition is a legal document that provides information about your financial situation, including your income, expenses, assets, and debts. Your schedules are additional forms that provide more detailed information about your property, obligations, and creditors.
- File your bankruptcy petition and schedule with the bankruptcy court — You will need to pay a filing fee when you submit your paperwork. You could request a waiver or pay in installments if you cannot pay the fee.
- Attend the meeting of creditors — After you file for bankruptcy, the court will schedule a meeting of creditors. The 341 meeting is an informal hearing where the bankruptcy trustee and your creditors can ask questions about your financial situation and bankruptcy case.
- Complete a financial management course — This is a requirement for all individuals who file for Chapter 7 bankruptcy. The course must be completed within 180 days after the meeting of creditors.
- Obtain a discharge of your debts — If the bankruptcy court approves your Chapter 7 bankruptcy, you will receive a discharge of your debts. This means that your creditors will no longer be able to collect on the debts included in your bankruptcy case.
Filing for Chapter 7 bankruptcy can be a complex and overwhelming process, and it is always a good idea to speak with a bankruptcy attorney before proceeding. An attorney can help you understand your rights and options and guide you through bankruptcy.
Chapter 7 Exemptions
In Chapter 7 bankruptcy, a person's non-exempt assets are sold by a bankruptcy trustee to pay off their creditors. However, certain assets fall in the exempt category, meaning they are not subject to being sold in a Chapter 7 bankruptcy. The specific exemptions available to a person will depend on their state, as each state has its list of exemptions.
Some common examples of exempt assets in Chapter 7 bankruptcy include:
- A person's primary residence, up to a certain value
- Personal belongings, including clothing, furniture, and household goods
- Tools of the trade, like a carpenter's tools or a plumber's tools
- Retirement accounts, like 401(k)s and IRAs
- Public benefits, like Social Security and unemployment compensation
In addition to these exemptions, some states also allow a person to use federal bankruptcy exemptions, which provide additional protection for certain assets. It is important to note that the exemptions available in Chapter 7 bankruptcy are limited, so not all of a person's assets may be protected. An experienced bankruptcy attorney can help you determine which assets are exempt and which may be subject to liquidation in a Chapter 7 bankruptcy.
How to Use Chapter 7 Bankruptcy Exemptions
When filing for Chapter 7 bankruptcy, you can use exemptions to protect certain assets from being sold by the bankruptcy trustee to pay off your creditors. Exemptions are specific legal provisions that allow you to keep certain assets, like your home or car, even if you file for bankruptcy.
To use exemptions in Chapter 7 bankruptcy, you must determine which exemptions are available to you based on the state you live in and the federal bankruptcy exemptions. As stated earlier, each state has its list of exemptions, so the specific exemptions available will depend on where you live. In addition to state exemptions, you could also use federal bankruptcy exemptions if available in your state.
Once you have determined which exemptions are available, you must identify which assets are eligible. This will typically involve a detailed review of your financial situation, including a list of your assets and debts. You will need to provide evidence to support your claim that an asset is exempt, for example, a deed or title for a piece of property or a bill of sale for a vehicle.
Once you have identified your exempt assets, you must claim the exemptions in your bankruptcy petition. This will typically involve filling out a form that lists the exemptions you are claiming and providing supporting documentation. It is crucial to be thorough and accurate when claiming exemptions, as any mistakes or omissions could result in your assets being sold by the bankruptcy trustee.
Speaking with a bankruptcy attorney before using exemptions in Chapter 7 bankruptcy is always a good idea. An attorney can help you determine which exemptions are available, identify which assets are eligible, and ensure that your bankruptcy petition is completed correctly and filed with the court.
How Much Property Can I Keep Using Exemptions in California’s Chapter 7 Bankruptcy Process?
In California, the amount of property you can keep using exemptions in Chapter 7 bankruptcy will depend on the specific exemptions available to you and the value of your assets. California allows you to use state or federal bankruptcy exemptions, but not both. You must choose which set of exemptions to use when you file your bankruptcy petition.
If you choose to use the state exemptions, some of the exemptions that could be available to you include:
- Your home, up to a value of $75,000 for a single person or $100,000 for a married couple
- Your vehicle, up to a value of $3,525
- Personal property, like clothing, household goods, and appliances, up to a total value of $600 per item and $8,100 in total
- Tools of the trade, like tools, equipment, and materials used in your work, up to a value of $2,550
- Public benefits, like Social Security, unemployment compensation, and public assistance
- Alimony and child support
If you choose to use the federal bankruptcy exemptions, some of the exemptions that could be available to you include the following:
- Your home, up to a value of $25,150 for a single person or $50,300 for a married couple
- Your vehicle, up to a value of $3,775
- Personal property, for example, clothing, household goods, and appliances, up to a total value of $13,400
- Tools of the trade, like tools, equipment, and materials used in your work, up to a value of $2,175
- Retirement accounts, like 401(k)s, IRAs, and pension plans
- Public benefits, like Social Security, unemployment compensation, and public assistance
It is important to note that the exemptions available in Chapter 7 bankruptcy are limited, so not all of your assets are protected. An experienced bankruptcy attorney can help you determine which assets are exempt and which could be subject to liquidation in a Chapter 7 bankruptcy in California.
Chapter 7 Bankruptcy Estate
The bankruptcy estate refers to the collection of a person's assets that are subject to liquidation by the bankruptcy trustee to pay off the person's creditors. The Chapter 7 bankruptcy estate includes all of the person's non-exempt assets, which are not protected by bankruptcy exemptions.
When a person files for Chapter 7 bankruptcy, the court will appoint a bankruptcy trustee to oversee the case. The bankruptcy trustee's job is to collect and liquidate the person's non-exempt assets to pay off the person's creditors. The bankruptcy trustee will take control of the person's non-exempt assets and sell them to generate funds to pay off their debts.
The Chapter 7 bankruptcy estate typically includes real estate, vehicles, bank accounts, investment accounts, and personal property. However, the specific assets included in the bankruptcy estate will depend on the person's financial situation and the exemptions available to them.
It is important to note that the bankruptcy estate is separate from the person's individual assets. It, therefore, means that the bankruptcy trustee has the legal authority to sell the person's non-exempt assets to pay off their creditors, even if the person does not want to sell them. However, the bankruptcy trustee must distribute the proceeds from the sale of the assets to the person's creditors per the priorities set forth in the bankruptcy code.
How Property Exemptions Work in a Chapter 7 Bankruptcy Proceeding
After completing your bankruptcy paperwork, list all your properties and any exemptions you can claim. If the asset falls in the exempt category, you will retain it. However, if it is not covered, the trustee will sell the property and use the proceeds to offset the creditor’s dues.
There are situations where your property is partially exempted. In other scenarios, the asset could be attached as collateral in a secured debt, for example, a mortgage or car loan. In this situation, the trustee will prioritize the creditor’s lien. Thus, he/she will be paid first.
Consider the following example:
Say your car is worth $10,000, and your exemption stands at $5,000 in the car’s equity. Additionally, your loan is $5,000. The trustee will pay the creditor $5,000, thus leaving an equity of $5,000. Considering you choose California’s exceptions, the following is the breakdown of the proceeds after the trustee sells the vehicle.
- Pay the creditor $5,000
- Pay you $3,525, your exemption amount
- Pay sales costs and fees out of the balance, $1,475
- Distribute the balance to other creditors
The Chapter 7 Bankruptcy Wildcard Exemption
A wildcard exemption in Chapter 7 bankruptcy in California allows a person to protect a certain amount of property not covered by other exemptions. In California, the wildcard exemption is available to individuals who use the state exemptions. It allows a person to exempt up to $1,325 of any property not covered by another exemption.
The wildcard exemption can be used to protect various properties, including cash, bank accounts, investment accounts, jewelry, or other personal property. It can also be used to exempt the excess value of property partially exempted under another exemption, like a vehicle worth more than the exemption amount.
To use the wildcard exemption in Chapter 7 bankruptcy in California, a person must first determine their eligibility to use the state exemptions. They must then identify any property that is not covered by another exemption and claim the wildcard exemption for the property on their bankruptcy petition. It is essential to be thorough and accurate when claiming the wildcard exemption, as any mistakes or omissions could result in the property being sold by the bankruptcy trustee.
What Happens When Bankruptcy Trustee Abandons Property You Could Not Exempt
If a person has no non-exempt assets or the cost of liquidating their assets is greater than the value of the assets, the bankruptcy trustee could choose to abandon the assets. The trustee will give up their interest in the property and revert to the person who filed for bankruptcy.
When the Chapter 7 trustee abandons property that a person could not exempt, it means that the property was not protected by bankruptcy exemptions and was, therefore, subject to liquidation by the trustee. However, the trustee determined that the property was not worth liquidating and decided to abandon it instead. This can happen if the property has little or no value or if the cost of selling the property is greater than the amount that could be recovered from the sale.
If the Chapter 7 trustee abandons property that you could not exempt, you will regain ownership of the property. However, you should know that the property could be subject to liens or other claims against the asset. You could still be responsible for paying any outstanding debts associated with the property. It is always a good idea to speak with a bankruptcy attorney if you have questions about the property that the Chapter 7 trustee has abandoned.
Buying Property Not Covered by an Exemption From The Bankruptcy Estate
A person can buy a property that was not covered by an exemption from the bankruptcy estate. This purchase can happen if the property was not included in the person's bankruptcy petition or if the property was not claimed as exempt.
If someone is interested in buying a property not covered by an exemption from the bankruptcy estate, he/she needs approval from the bankruptcy court. This is because the property is still considered to be part of the bankruptcy estate and is under the control of the bankruptcy trustee. To buy the property, the potential buyer must submit a motion to the court requesting permission to purchase the property.
The bankruptcy court will consider several factors when deciding whether to approve your request to buy property from the bankruptcy estate. These factors could include the property's value, the amount of the person's outstanding debts, and the potential impact on the person's creditors. The court could also consider whether the proposed sale is in the best interests of the person who filed for bankruptcy and their creditors.
How Much Cash Can You Keep in Chapter 7?
You can generally keep a certain amount of cash considered necessary to maintain a reasonable standard of living. The amount of cash that you can keep will depend on the specific exemptions available to you. They include the homestead exemption, which allows you to protect a certain amount of equity in your home, and the wildcard exemption, which allows you to protect a certain amount of property that is not otherwise exempt.
Contact a San Diego Bankruptcy Lawyer Near Me
Speaking with a bankruptcy attorney before using the wildcard exemption in Chapter 7 bankruptcy is always a good idea. An attorney can help you determine which exemptions are available, identify which assets are eligible for exemption, and ensure that their bankruptcy petition is completed correctly and filed with the court.
At San Diego Bankruptcy Attorney, our experience in California and the federal bankruptcy process puts us in the best position to help you. Contact us at 619-488-6168 If you are considering filing for bankruptcy.
