In some instances, removing "negative entries" on credit reports will remove the need to file bankruptcy; but in the event removing negative entries on your credit reports is insufficient, you will need to consider filing bankruptcy as it will discharge your debts completely.

While it may surprise most people, due to the high-cost of living in the State of California, California has one of the highest "poverty rates" in the nation. Its high cost of living increases debt in the absence of increased earnings. This is one of the main reasons for the increase in poverty rates in California.

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The Differences Between Chapter 7 & Chapter 13 Bankruptcy Filings

As discussed above, there are significant differences between Chapter 7 and Chapter 13 Bankruptcies filing, which are set forth below in this chart:

Bankruptcy Laws Are Federal; However, State Laws Control Property Exemptions

Because bankruptcy law is federal, many of the same principles apply in bankruptcy cases regardless of where the case is filed. For example, whether you’re filing in California or any other state, a bankruptcy estate is created when bankruptcy protection is claimed. For the time you are in the bankruptcy system, the court will have control over the proceedings and what you may or may not do with your property.

That said, each state, including California, has its own set of laws or rules that control how much property a debtor can shield from his or her creditors. These laws are called exemption laws.

When filing for Chapter 7 or Chapter 13 bankruptcy, California allows you to choose between two different sets of exemptions. Exemptions protect your property in any bankruptcy chapter that you file.

In a Chapter 7 Bankruptcy, the trustee will sell the property you cannot exempt and use the funds to pay unsecured debts, such as credit card balances, personal loans, and utility bills.

In Chapter 13 Bankruptcy, the trustee does not sell your nonexempt property; instead, you keep the property and pay the value of it to your unsecured creditors through your three-to five-year repayment plan that is constructed as part of your structured settlement.

Determining which form of bankruptcy filing is best for you and your needs depends on an analysis of your situation and of course, your end goal. You should contact an experienced Southern California Bankruptcy Attorney to assist you in determining which option is best for you and your family.

For Those Struggling With Debt, Bankruptcy May Be The Only Option

Those struggling with debt may feel that they have nowhere to turn; thus making bankruptcy the only option to stop the harassing calls from debt collectors and/or an increase in the number of negative entries on your credit reports, which make it impossible to obtain additional funding to pay your debts. If you find yourself in this type of financial situation, you need to speak with a Consumer Rights/Bankruptcy Attorney to determine whether it is better to repair your credit or file bankruptcy. The Consumer Rights/Bankruptcy Attorneys of the Law Office of Peter F. Iocona are the lawyers you should call to ascertain the answer to that all important question of whether you should repair your credit or file bankruptcy.

California’s Bankruptcy Exemption Laws Complicate Matters for Debtors

In California, the exemption laws are often more complicated than in other states because there are two (2) sets of exemptions. Additionally, California is what is referred to as an “opt-out” state, which means federal exemptions are not available. Thus, if you have lived in the State of California for two (2) years or more, you will eventually need to decide between the exemptions outlined in Sections 703 and 704 of the California Code of Civil Procedure.

Please remember that your property is only vulnerable to attack from creditors when it has a value over and above any outstanding liens. This is called "positive equity". Property that has positive equity can be and often will be attacked by creditors. Conversely, property that has "negative equity", meaning you owe more on the property than what it is worth, cannot and will not be attacked by creditors.

Property Vulnerability in Chapter 7 Versus Chapter 13 Bankruptcy Cases

In a Chapter 7 Bankruptcy case, your property is vulnerable to attack because your property could be sold as part of a "liquidation sale" by the bankruptcy trustee. You may have heard Chapter 7 Bankruptcies being referred to as a “liquidation,” and this is technically correct because in a Chapter 7 Bankruptcy, any property you own that exceeds the applicable exemption limit could be subject to sale by the bankruptcy trustee. As a practical matter, though, most people are able to retain their property through the Chapter 7 process; but protecting your property from being vulnerable to attack is complicated and must be carefully constructed to be protected. An experienced bankruptcy attorney can increase your chances of retaining your property as part of a Chapter 7 Bankruptcy proceeding.

A Chapter 13 Bankruptcy case works significantly differently than a Chapter 7 Bankruptcy case because the bankruptcy trustee will not sell or liquidate your non-exempt property, but you will likely have to pay the non-exempt value to the creditors as part of your re-payment plan.

A Comparison of Exemptions - Analyzing The Section 703 & Section 704 Exemptions 

What follows is a list of some of the more common Section 704 and Section 703 exemption paths; however, the list is not complete and the figures are updated every three years for both exemption paths. Thus, to be sure these exemptions are applicable to your case, contact an experienced Southern California Bankruptcy Attorney to discuss the pros and cons of each scenario to your factual situation.

California Exemption System 1: Protect Your Home

California Code of Civil Procedure Section 704 is most commonly used by debtors who wish to protect their residence and personal property in their homestead. The homestead exemption applies only to a home in which you reside and which is considered your "primary residence". Consequently, an "investment property" is not protected under the homestead exemptions. (See California Code Civil Procedure § 704.010).

Note: In California, neither exemption path permits married couples to "double their exemptions" despite the fact that some states permit this practice.

The Section 704 Homestead Exemption

The homestead protection offered by section 704 is far greater than 703, with single debtors under 65 able to protect up to $75,000 of their home's equity. Married couples and heads of households can exempt up to $100,000, and section 704 provides $175,000 of protection for persons over age 65, disabled persons, or certain low-income individuals over the age of 55 who have creditors seeking to force the sale of their home and personal property contained within the home.

Personal Property Exemptions

Personal property includes household items and health aids; building materials to repair or improve your home up to $3,200.00); jewelry, heirlooms, and works of art worth up to a total of $8,000.00; tools of the trade, including a commercial vehicle, worth up to a total of $8,000.00; and $3,200.00, (or $4,800.00 if the debtors are married) in Social Security bank deposits.

Vehicle Exemptions

Under Section 704, you can protect as many vehicles as you’d like, so long as their aggregate value does not exceed $3,050.00, which, for the price of vehicles today, this figure is relatively low.

Wage Exemptions

Under Section 704, up to 75% of wages paid within thirty (30) days before filing for bankruptcy are exempt, in addition to public employee vacation credits.

Retirement/Pension Exemptions

Per federal law, tax-exempt retirement accounts are exempt, in addition to IRAs and Roth IRAs, with some limitations. Public and private retirement benefits are also typically exempt.

California Exemption System 2: Protect Your Personal Property

California Code of Civil Procedure Section 703 contains California’s second exemption system, typically referred to as the “wildcard” exemptions. Typically, debtors without much equity in their home or those who do not own a home or other real estate elect to utilize the exemptions under Section 703 because it provides greater protection for personal property. (See: Code of Civil Procedure §703.140(b)).

The Section 703 Homestead Exemption

The homestead protection offered by Section 703 only applies to a home in which you resided and only up to $26,800.00 in equity, making it less advantageous for those who own a home with considerable equity.

Personal Property Exemptions

A burial plot of up to $26,800, if the homestead exemption is not taken, plus $675.00 per article of clothing, household items, furnishing, animal(s), book(s), and crop item(s). Up to $1,600.00 in jewelry, $8,000.00 in tools of the trade, plus personal injury recoveries of up to $26,800.00. The "wildcard exemption" also allows for $1,425.00 plus any unused amount of burial or homestead exemption in any property.

Vehicle Exemptions

Section 703 allows you to protect up to $5,350 of value in one or more motor vehicles. Keep in mind though, that if your vehicle should exceed the exemption limit, you can utilize a portion of the wildcard to exempt the rest.

Wage Exemptions

Section 703 currently provides no exemptions relating to wages and earnings.

Retirement/Pension Exemptions

The same exemptions as under 704 apply, though fewer benefits for public employees.

Will I Qualify for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy in California?

The Bankruptcy Code evaluates candidates for Chapter 7 based on income. Those who earn income below the California median, for a family of the same size, are presumably entitled to file for Chapter 7. In such a case, they can bypass a government test, known as the "means test", which those who earn more than the state median are forced to take.

Currently, the California median income for a single earner is $52,416.00. For a family of four, it is currently $84,059.00. If you are below the median, you can file Chapter 7. If you earn more than the median, the "means test" will determine whether you can file for Chapter 7 Bankruptcy.

If you have “too much” disposable income after expenses, the means test tries to force you into Chapter 13 bankruptcy based on the idea that if you can afford it, you should pay something back to your unsecured creditors. At least that is the theory behind the means test. The means test is complicated to administer — if you have specific questions, ask an experienced Southern California Bankruptcy Attorney.

How Much Does It Cost to File for Chapter 7 or Chapter 13 Bankruptcy in California?

The cost to file Chapter 7 bankruptcy is currently $335.00 nationwide, but there is a catch. The $335.00 only covers the filing fee to initiate the bankruptcy proceedings. If you want an attorney to represent you, which you should, you will likely have to pay anywhere between $500.00 on the low end and up to $2,000.00 on the high end depending on the complexity of your matter.

The Chapter 13 filing fee is currently $310.00, but cases themselves may be more expensive as you need to work out repayment plan with the court, which will take more of your attorney’s time and thus increase the cost of the representation. Thus, if you want an attorney to represent you, which again, you should, you will likely have to pay anywhere between $750.00 on the low end and up to $2,500.00 on the high-end; but this range could change depending on the complexity of the repayment plan with the Bankruptcy Court.

California Bankruptcy Court Locations

As previously stated, bankruptcy law is federal law and thus, the bankruptcy courts are located in federal courthouses. Each state is divided into federal districts, which are then further divided into federal divisions. Typically, each division has its own courthouse to serve locals and to ensure that people are not forced to travel to far-away district courts when they file bankruptcy, bring a lawsuit, or even participate in jury duty.

California is divided into four districts: the Eastern, Central, Northern and Southern districts. Below are links to each court’s bankruptcy website if you are looking for information on court locations in your area and their contact information.

Central District of California Bankruptcy Court

Northern District of California Bankruptcy Court

Eastern District of California Bankruptcy Court

Southern District of California Bankruptcy Court

The Law Office of Peter F. Iocona typically handles bankruptcy filings in the Central and Southern Districts; however, we have associates who will appear in the Northern and Eastern Districts. Thus, the Law Office of Peter F. Iocona can handle nearly any bankruptcy filing across the State of California in addition to primarily serving Southern California. The consultation is free, so call today: 949-235-2250.

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