Chapter 7 Bankruptcy
In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors.
If you want to keep property like a home or a car and are behind on the mortgage or car loan payments, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.
If your income is below the median income for your household size, you will usually qualify to file Chapter 7 bankrutpcy without a "presumption of abuse." Higher-income consumers whose income is above the California median income for their household size must fill out “means test” forms requiring detailed information about their income and expenses. If the forms show, based on applicable standards, that they have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that they cannot file a chapter 7 case, unless there are special extenuating circumstances.
In many cases, you may qualify for Chapter 7 bankruptcy even if your income is greater than the California median income for your household size. Our office can prepare a "means test," upon request, to check.
The following chart shows the current median income numbers, as of April 1, 2013. Please note that these numbers change periodically--check with our office for the latest numbers and remember--just because you are "above median" does NOT mean that you will not be eligible for Chapter 7 relief.
|Period||1 Person||2 People||3 People||4 People||5 People||6 People||7 People||8 People||Add'l|
|Six Month Period||$24,208||$31,515||$33,701||$37,828||$41,878||$45,928||$49,978||$54,028||$4,050|
In addition to the eligibility requirements, it is important to speak with a qualified attorney before filing Chapter 7 bankruptcy so that you can be sure that any assets you intend to keep will be protected or “exempt” from creditor claims and ensure that Chapter 7 is appropriate in your individual situation. Exemption laws can be complicated and your situation should be evaluated to make sure that your assets are protected.