Chapter 7 Eligibility Attorney in Los Angeles, California

Chapter 7 bankruptcy, often referred to as "liquidation" bankruptcy, is a popular option for individuals seeking to discharge their unsecured debts and achieve a fresh financial start. However, not everyone qualifies for Chapter 7 bankruptcy. Eligibility is determined by a combination of federal and state-specific criteria. In California, understanding these requirements is crucial for those considering Chapter 7 as a means of debt relief.

Understanding Chapter 7 Bankruptcy

What's Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is designed to provide individuals with relief from overwhelming unsecured debts, such as credit card balances, medical bills, and personal loans. In a Chapter 7 case, a bankruptcy trustee is appointed to liquidate non-exempt assets to repay creditors. The remaining eligible debts are discharged, meaning the debtor is no longer legally obligated to pay them.

Benefits of Chapter 7 Bankruptcy

1. Debt Discharge: The primary benefit of Chapter 7 is the discharge of qualifying unsecured debts, offering individuals a clean slate.

2. Immediate Relief: Filing for Chapter 7 initiates an automatic stay, which halts most collection actions, including creditor lawsuits, wage garnishments, and foreclosure proceedings.

3. Quick Process: Chapter 7 cases are typically resolved relatively quickly, often within a few months, compared to other bankruptcy chapters.

Eligibility Criteria for Chapter 7 Bankruptcy

Means Test

One of the primary eligibility requirements for Chapter 7 bankruptcy is passing the means test. This test assesses whether an individual's income is low enough to qualify for Chapter 7. It's designed to prevent high-income earners from using Chapter 7 to discharge debts when they could feasibly repay some or all of their obligations under a Chapter 13 repayment plan.

1. Income Calculation: The means test begins by calculating the debtor's average monthly income over the six months preceding the bankruptcy filing. This figure includes wages, salaries, bonuses, and other forms of income.

2. Comparison to State Median: The debtor's average monthly income is compared to the median income for a household of the same size in California. If the debtor's income is below the state median, they typically qualify for Chapter 7 bankruptcy.

3. Disposable Income Calculation: If the debtor's income exceeds the state median, the means test proceeds to a calculation of disposable income. This involves deducting allowable expenses and deductions from the debtor's income to determine whether there's sufficient disposable income to repay creditors. If the disposable income is below a certain threshold, the debtor may still qualify for Chapter 7.

Detailed Means Test Calculation

The means test is a detailed process that involves several steps:

1. Average Monthly Income: Calculate the average monthly income by adding all sources of income over the past six months and dividing by six.

2. State Median Comparison: Compare this average monthly income to the median income for a household of the same size in California. The median income figures are updated periodically by the U.S. Trustee Program.

3. Deductions and Allowances: If the debtor’s income exceeds the state median, they must then account for allowable expenses, including necessary living expenses and secured debt payments. The amount of disposable income after these deductions will determine if Chapter 7 is viable.

Residency Requirement

To file for Chapter 7 bankruptcy in California, the debtor must meet certain residency requirements:

1. State Residency: The debtor must have lived in California for at least 91 of the last 180 days before filing for bankruptcy. This confirms that the bankruptcy court in California has jurisdiction over the case.

2. Duration of Residency: If the debtor has recently moved to California, they must meet this residency requirement to confirm their case is heard in the appropriate jurisdiction.

Exemptions

In Chapter 7 bankruptcy, certain assets may be exempt from liquidation under California's exemption laws. These exemptions allow debtors to keep specific property while discharging other debts.

1. Homestead Exemption: California's homestead exemption allows debtors to protect a portion of the equity in their primary residence. The exemption amount varies depending on the debtor's age, disability status, and whether they're married.

2. Personal Property Exemptions: California also provides exemptions for personal property, including household goods, clothing, and vehicles. There are specific limits on the value of property that can be exempted.

3. Wild Card Exemption: The wild card exemption allows debtors to apply a certain amount of exemption to any property of their choice, offering flexibility in protecting assets.

Property and Asset Considerations

1. Non-Exempt Assets: Non-exempt assets are subject to liquidation by the bankruptcy trustee. This includes assets that exceed the value limits set by California’s exemption laws.

2. Secured Debts: Secured debts, such as mortgages and car loans, aren't typically discharged in Chapter 7 bankruptcy. Debtors must continue making payments on these debts to retain the secured property.

3. Asset Disclosure: Debtors must fully disclose all assets and liabilities in their bankruptcy petition. Failure to do so can result in the dismissal of the case or even criminal charges for bankruptcy fraud.

Additional Eligibility Factors

Prior Bankruptcy Filings

Debtors who have previously received a Chapter 7 discharge must wait a certain period before filing again. The waiting period is eight years from the date of the previous Chapter 7 discharge.

If the debtor previously received a discharge under Chapter 13, they must wait six years from the date of the previous discharge to file for Chapter 7, unless they repaid 100% of their unsecured debts or 70% of their unsecured debts under the Chapter 13 plan.

Criminal Convictions and Fraud

Certain criminal convictions or fraudulent activities can disqualify individuals from Chapter 7 bankruptcy. Debtors with recent criminal convictions, particularly for offenses related to fraud or dishonesty, may face challenges in obtaining a Chapter 7 discharge.

Debtors who have engaged in fraudulent behavior, such as hiding assets or making false statements, may have their bankruptcy case dismissed or face legal consequences.

The Filing Process

Pre-Filing Requirements

Before filing for Chapter 7 bankruptcy, debtors must complete a credit counseling course from an approved agency. This course helps debtors explore alternatives to bankruptcy and understand their financial situation. Debtors must gather and provide comprehensive documentation, including income statements, tax returns, bank statements, and information about assets and liabilities.

Filing the Petition

The bankruptcy process begins with filing a petition with the bankruptcy court. The petition includes detailed information about the debtor’s financial situation, including income, expenses, assets, and debts.

Debtors must also file schedules and statements, which provide additional information about their financial affairs. This includes a schedule of assets and liabilities, a statement of financial affairs, and a statement of income and expenses.

Meeting of Creditors

After filing the petition, debtors must attend a meeting of creditors, also known as a 341 meeting. This meeting allows the bankruptcy trustee and creditors to ask questions about the debtor’s financial situation and bankruptcy petition.

The bankruptcy trustee reviews the debtor’s documents, examines their financial situation, and determines whether there are non-exempt assets that can be liquidated.

Discharge and Completion

If the bankruptcy court determines that the debtor meets all eligibility requirements and no objections are raised, the court will issue a discharge order. This order releases the debtor from personal liability for qualifying debts.

Debtors must complete a financial management course before receiving a discharge. This course provides education on managing finances and avoiding future financial difficulties.

We Can Provide Legal Counsel

Chapter 7 bankruptcy offers a valuable option for individuals seeking to eliminate unsecured debts and start anew. However, eligibility for Chapter 7 bankruptcy in California involves meeting specific criteria, including passing the means test, fulfilling residency requirements, and understanding the implications of property exemptions.

By traversing these requirements and working with experienced legal counsel, individuals can effectively assess their eligibility and pursue the relief they need. Our attorney, Giovanni Orantes, has the knowledge to assist with your situation. The Orantes Law Firm serves clients in Los Angeles, California, and throughout Woodland Hills and Orange County.