What is a Chapter 7 Bankruptcy?
When you are filing for a bankruptcy, you are identified as the “Debtor” through the case. To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. 11 U.S.C. §§ 101(41), 109(b) . Subject to the “means test,” an individual debtor seeks debt relief under the bankruptcy code. The bankruptcy "means test" determines whether your income is below the median income level for your household size. Your household has to earn less than the median income level in your state in order to qualify for a Chapter 7 bankruptcy.
But what happens to your property and assets during a bankruptcy? Well, the Chapter 7 bankruptcy is also known as a “liquidation'“ bankruptcy. When people hear the word liquidation, they think that they are going to lose all, or some, of their property. Although that can happen, most individual are able to hold onto their property during and after they receive a discharge. Property must be protected throughout your bankruptcy case.
Under California law, you are allowed to choose from two different sets of exemptions to protect your property. The two sets of exemptions are called the 704 and 703 exemptions. 704 exemptions and 703 exemptions can be a bit complicated when it comes to protecting assets. You want to make sure you are working with an attorney that understands where your property falls. The best way to think about it is in terms of equity in real/personal property, A debtor with substantial equity in their home would file under the 704 exemptions while a debtor without real property can file under 703 exemptions. Knowing which set of exemptions to file under is very important and can determine whether some personal property will be at risk for liquidation.
Why file a Chapter 7? One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a "fresh start." Although an individual chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged.
Our office will review your assets and debts to advise you on your options.
Additional information about Chapter 7 Bankruptcy Basics can be found on the US Courts website. Click here for Chapter 7 - Bankruptcy Basics.
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