Those who are in financial trouble can opt to file for personal bankruptcy either under Chapter 7, 11, or 13 of the U.S. Bankruptcy Code, depending on their specific circumstances. Claiming bankruptcy under Chapter 7 is the traditional concept of liquidation bankruptcy and is the most common choice for those wishing to erase all their dischargeable debts. Since this is a federal matter, the procedure is the same across the nation, except for a few minor differences. So, how do I file for bankruptcy in California? This guide will walk you through the basic steps.
When claiming bankruptcy in California, the first step you must take is to complete the California Income Test, or the Means Test. This is based on your household income which is compared to the median income for that state. It is a complicated form with about 90 questions and calculations that need to be filled in and the result will determine if you are eligible to file under Chapter 7. Although the correct forms need to be filled in and submitted with your petition, quick online tests will give you an accurate indication of whether you will qualify or not. If your household income is too high, you may have to choose the option of filing bankruptcy under the wage-earners bankruptcy plan of Chapter 13. This would involve you using your disposable income to repay creditors over a period of 3-5 years.
The figures for California Median Income (2011) are as follows:
1-person household $48,009
2-person household $62,970
3-person household $68,670
4-person household $78,869
Additional persons + $7,000 per person
Prior to the actual filing of the documents you will have to take an approved credit counseling course. The certificate stating you have completed this financial education within 60 days prior to the filing of your petition must be submitted with all the other paperwork.
The procedure in California, as in other states, officially starts with the filing of the personal bankruptcy petition. At this time you will be required to pay the filing fee of approximately $300, and submit and additional required documentation. Once the file has gone for review at the California division of the U.S. Bankruptcy Court you will have to wait for the Creditors’ Hearing to be scheduled. The time this will take to schedule will depend on the complexity of your bankruptcy case and how busy the court is. If no objections are brought forth by creditors at the hearing, your bankruptcy will be finalized and your debts will be formally discharged.
Exemptions are basically protections for specific values of assets that you own of have an interest in, and they are governed by state law, not federal law. Since California has opted out of federal exceptions, it uses those found in the California Code of Civil Procedure. However, you will only be entitled to the California exemptions if you have lived in the state for 730 days (2 years) prior to filing bankruptcy. If this is not the case, the courts may look at the where you have living for the majority of the 180 days preceding the 730 deciding period.
California is one of the nine community property states that treats bankruptcy differently if you are filing but your spouse is not. Rather than assets being divided equally, state law dictates that spouses equally own property acquired during the marriage and, as such, it all becomes part of the bankruptcy estate, even if only one spouse files. This negative is offset by the fact that couples can actually take advantage of community property discharge, meaning that even the non-filing spouse gets the benefit of bankruptcy discharge.
Filing for personal bankruptcy can be a simple process but as it requires knowledge of both California State Law and Federal Bankruptcy Law, it is always best to consult a qualified bankruptcy attorney prior to filing the petition. They will be able to advise you as to which chapter would be best for you and they will be able to maximize your savings. If you are wondering how to file for bankruptcy in California, a bankruptcy attorney will be able to discuss the process in detail for you to make an informed decision about whether this is the right step for you.
To learn whether the personal bankruptcy process is right for you, consider filling out our free bankruptcy evaluation.