In this article I discuss Chapter 7 bankruptcy as it applies to the state of California. A Chapter 7 bankruptcy basically refers to the process in which a debtor's assets are administered by a court appointed Trustee and sometimes sold in order to satisfy certain outstanding debt that he or she is unable to pay. The Bankruptcy Code does allow those persons filing for bankruptcy, however, to apply certain exemptions in order to safeguard property from the Trustee's grasp. Generally speaking, bankruptcy falls into federal jurisdiction via the Bankruptcy Code; however, it is important for one to know that state laws can and do play a role in addition to federal laws as is seen within California.
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Specifically, California has "opted-out" of the Federal bankruptcy exemptions and instead, has prescribed that persons filing for Chapter 7 must apply one of two sets of California's own exemption systems found in Sections 703 and 704 of the California Code of Civil Procedure. This means that some of a debtor's property can be protected from liquidation under Chapter 7 as is defined by the laws of California. According to California law, a debtor can choose from California's two exemption systems to better protect his or her assets from the reach of creditors when filing bankruptcy. Under the first scenario, some important exemptions include: real or personal property occupied at the time of filing for bankruptcy by the debtor up to $75,000 of its value if he or she is single or $100,000 of its value he or she is a member of a family unit. In addition, personal property such as a motor vehicle can be exempt up to $2,550 as well as jewelry worth $6,750.
Under the second scenario, some important exemptions include: real or personal property used as a residence up to $20,725, a motor vehicle up to $3,300 as well as clothing, household goods, appliances and furnishings up to $525 per item. In addition, a debtor's jewelry can be exempt up to $1,350. It must be noted that these lists are non-inclusive which means that there are many more exemptions that have not been listed. For detailed and specific information about these exemptions it is best to consult with a bankruptcy attorney in your local area so that he or she can give you the best legal advice available to your individual situation.
Another important distinction of filing for Chapter 7 that is unique to California is illustrated in the income limitations set forth by the state legislature which is also known as the "means test". Specifically, a debtor's total income needs to be within a certain limit in order to qualify for Chapter 7 in California. This is enforced as a means of excluding high income debtors from filing for Chapter 7. In particular, one's income cannot be more than the median income found in California. The range in California begins at about $48,000 if one is a single earner and can reach up to $78,869 depending upon how many additional earners there are in one household.
It becomes obvious, therefore, that in filing for Chapter 7 in California, one needs to consider both state and federal law as it relates to his or her personal circumstances when filing a bankruptcy. In essence, one needs to consider California's property exemptions as well as income limitations as a means of evaluating if Chapter 7 is the right answer and in order to meet the requirements necessary to file within the state.
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