Under federal law, you have the right to bankruptcy protection if you are deeply in debt. Filing gives you breathing room to fix your finances, though bankruptcy can make it harder to get credit for up to a decade. Often, that won't matter because if you're struggling you probably have poor credit anyway.
There are two main types of bankruptcy filings for individuals:
- Chapter 7, or liquidation bankruptcy. You keep some property, divide other assets among creditors, and see most debts canceled, though you'll have to pay obligations such as property taxes and child support.
- Chapter 13, or debt consolidation and reorganization. You keep all property and come up with a plan to repay creditors over three to five years.
Living in California impacts bankruptcy in several ways — for example, the exemptions (how much property people are allowed to keep) may differ from those allowed under federal law. Whether Californians file under Chapter 7 or Chapter 13 depends on income requirements unique to the state.
Where Do You File for Banktruptcy in California?
California has four bankruptcy courts:
- Northern, based in San Francisco
- Southern, based in San Diego
- Eastern, based in Sacramento
- Central, based in Los Angeles.
Where you live determines where you file—there might even be a branch courthouse close to your home.
Chapter 7 Bankruptcy Eligibility
You are eligible to file for Chapter 7 bankruptcy in California if your average monthly income is less than the state median of $4,012 for a single earner. The figure increases for larger families, and $10,073 is the figure for 10 people. If your income is higher than the median, you can't file Chapter 7 unless you pass a stringent means test that examines your total income and debt load.
Chapter 13 Repayment Time
If you file under Chapter 13 and your average monthly income is less than the California median, generally you will have to repay your debts within 36 months, though the courts can extend that up to 60 months. If your income is equal to or more than the state median, you generally will be allowed 60 months to repay.
Exemptions Can Protect Property
Exemptions are another vital part of the bankruptcy equation. Under Chapter 7, exemptions determine how much property you get to keep, while in Chapter 13 they decide how much debt you repay.
For example, if the exemption for artwork and jewelry is $5,000 and you have $6,000 worth of equity in them, you will not be allowed to keep it all. Other exemptions cover clothing, automobiles and wages.
California's bankruptcy law offers a choice of two sets of state exemptions, which are different from federal law and often more generous. For example, under federal law, the homestead exemption is $43,250 for couples, while in California it's $100,000. Californians do not have the option of choosing federal exemptions.
You must have lived in California for two years before filing bankruptcy in order to use California's exemptions. Otherwise, you must follow the law in the state where you lived before moving to California.
As Californian bankruptcy laws are complicated you should contact a California bankruptcy lawyer for specific information.