Important Information Pertaining to Chapter 7 Bankruptcy in California
Income and Chapter 7 Bankruptcy
Any debtor who is seeking to file for relief under Chapter 7, will have to meet eligibility requirements that are imposed by the “Bankruptcy Reform And Consumer Protection Act” that was passed in 2005. The amount allowed will be determined through a “means test” that will review gross income from the previous 6 months before you started the filing process.
Your income must be under the median in order to meet the means test and allow you to proceed in filing for Chapter 7 Bankruptcy. If higher than the median, you will complete the entire process for the means test. It will:
- deduct expenditures from gross income
- determine your monthly income that is disposable
- determine income that exceeds the median
- determine if a Chapter 13 option is a more applicable option.
If you can prove that you will be unable to pay $100 a month, or $6000 over the coming 5 years, to creditors that are deemed unsecured, after all your expenses have been deducted then you will most likely qualify.
Chapter 7 will not be granted, if your means tests shows that you will be able to pay $166.67 monthly to unsecured creditors, or $10,000 in a 5 year period This will disqualify your application for Chapter 7, and will not proceed. If you can afford payments of 25% or higher on unsecured debt, Chapter 7 will be denied. If you are unable to meet the 25% payments then a Chapter 7 filing will likely be approved.
This term is used when creditors hold no collateral of the debtor. These can include:
- legal bills
- hospital bills
- credit cards *some exception may apply.
Items that cannot be part of a Chapter 7 bankruptcy filing include:
- student loans
- criminal fines
- restitution payments
- income taxes that are less than 3 years old
- money that was procured through fraudulent means
Also note that even should a debtor qualify for a Chapter 7 filing, they may still choose to use the Chapter 13 option.
In the State of California, median incomes for FFY, 2012 are as follows:
Household of 1 – $2128.66 Monthly – $25,544 Annually
Household of 2 – $2677.66 Monthly – $32,096 Annually
Household of 3 – $3,304.00 Monthly – $39,648 Annually
Household of 4 – $3,933.00 Monthly – $47,200 Annually
Household of 5 – $4,562.00 Monthly – $54,752 Annually
Household of 6 – $5,191.91 Monthly - $62,303 Annually
Starting the Process
In order to start your Chapter 7 bankruptcy process you’ll need to prepare some items.
You’ll need to:
- make an itemized list of all current income
- detail any transactions considered to be major for the past two years
- list all your monthly, cost of living expenses
- list all debts that are unsecured and secured
- list property – real estate, cars, and any items of value
- include tax returns going back two years
- deeds or titles to cars, land, and houses
- all documents that pertain to any loans you currently have
Once this is completed, you should review all items with your attorney in order to determine which items are exempt under California law.
Next, you attorney will file a 2 page petition, along with other forms to the District Bankruptcy Court in California. Together these forms will hence forth be referred to as schedules. Together they list your financial status, as of the day of filing, and transactions that have been recently processed. This forms need to be filled out honestly. If anything has been left out or hidden, your creditors or the judge could penalize you and this could put your petition in jeopardy.
The cost associated with a Chapter 7 Bankruptcy filing is under $500, and cannot be waived. If this amount is difficult for you, you may be able to set up a payment schedule with your lawyer.
What is an Automatic Stay?
After all paperwork has been filed, the court will grant an automatic stay. This legally prohibits your creditors from approaching you for further payments. This will not be allowed to visit you, call you, or send notices by mail. If there are any court proceedings outstanding against you these will immediately stop, including foreclosure.
There are exceptions to this and they include ongoing actions where modifying domestic support is in question, criminal actions, and any audits from the Internal Revenue Service.
Secured creditors may ask the court to remove the automatic stay, should the debtor have no equity in the asset in question, or if the order does not adequately protect the secured creditor. Only the court has to ability to lift the automatic stay in a Chapter 7 bankruptcy proceeding. This usually does not happen until you have been discharged, or when property you own is no longer part of your estate. Creditors who violate automatic stays risk being sanctioned by the court.
To get help with your bankruptcy issue from a competent attorney, call Legal Solutions 2 U today at (855) 77 LAW 2 U (855-775-2928).