Bankruptcy can seem intimidating. If you are completely new to the procedures of filing for bankruptcy, it is easy to become overwhelmed when you start doing your research.
But as with most things, the more you learn about bankruptcy, the less scary it seems.
Many people fear that bankruptcy will stain their financial life forever or trap them in a financial relationship with the government. In truth, bankruptcy is a powerful tool that can help a person eliminate debt and start over with a blank slate.
Today, we’re going to answer some of the most frequently asked questions we hear from our clients in Riverside and Mission Hills.
Will I Lose My Home If I File for Bankruptcy in California?
There are several chapters in the bankruptcy code that individuals can file under. Each has distinct qualifying terms, and their processes are different.
Filing for Chapter 13 bankruptcy in California, you do not have to surrender any assets. You propose a payment plan to repay a portion of your debts over a term of 3 to 5 years. At the end of this period, if you consistently made your payments, your remaining debts are discharged.
Chapter 7 is sometimes called a “liquidation bankruptcy.” In Chapter 7, your nonexempt assets will be sold. The profits of the sale are used to repay your creditors, after which your unsecured debts are discharged.
Many people fear that their house or car will be sold in a Chapter 7 bankruptcy, but 96% of California residents do not have any nonexempt assets.
Which Assets Are Exempt from Liquidation in a Chapter 7 Plan?
For single filers in California with equity in their primary residence, exempt assets include:
- Equity in your primary residence from $300,000 to $600,000 based upon where you live
- Vehicle valued up to $3,325
- Jewelry, heirlooms, and art up to $8,725
- Health aids
- Damages from a personal injury or wrongful death suit
- Unemployment benefits
- Retirement accounts
- And more
If you do not have a house with equity or do not own a house, you can protect a larger amount of personal property under a different set of exemptions.
System 1 is also called the “Homestead Exemption,” and is generally preferable for people or families with significant home equity. System 2, or the “703 System,” is helpful for people whose other property or belongings have substantial value.
What If I Have Lived in California for Less Than Two Years?
Residency requirements can make filing for bankruptcy tricky if you have lived in your current state for less than two years. Depending on your circumstances, you may be able to use the federal exemption guidelines, or the ones from the last state you lived in.
To minimize error, it is recommended that you work with a Certified Bankruptcy Specialist to ensure that your petition is filed correctly.
Are Economic Impact Payments Exempt?
A law passed on December 27th, 2020 protects the economic impact payments (or stimulus payments) from seizure by bankruptcy trustees.
This law states that the first three stimulus checks issued by the federal government cannot be claimed as part of your bankruptcy proceedings. Child tax credits are also exempt. These payments were made to U.S. residents to alleviate the impact of the novel coronavirus on the economy.
Not only can your trustee not seize these funds, but they cannot be used as income for the Chapter 7 means test, or for calculating payments under a Chapter 13 repayment plan.
However, this law does not protect any future stimulus checks. If the federal government decides to issue further economic impact payments, they may not be exempt.
How Much Debt Will Be Left at The End of My Bankruptcy?
Bankruptcy is intended to clear unsecured debts from one’s slate. Debt from credit cards, medical bills, personal loans, and overdue utility bills can be discharged by bankruptcy proceedings.
However, secured debts remain at the end of a bankruptcy. You will still be responsible for paying the loans on your house or car, assuming they were not liquidated under a Chapter 7 plan. Student debt also cannot be erased, except under extreme circumstances. Alimony and child support payments also remain.
Helping Southern California Residents Navigate Bankruptcy
If you believe bankruptcy is right for you, contact our Bankruptcy Certified Specialists at The Law Offices of Larry D. Simons right now. Our neighbors deserve to regain control of their finances, and we can help you do it. We have offices conveniently located in Mission Hills and Riverside.
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