Chapter 7 bankruptcy, sometimes referred to as liquidation bankruptcy, is among the most frequently filed bankruptcy forms. Let us observe how it works in California. An appointed trustee will be in charge of your case from the moment you file for Chapter 7 bankruptcy.
After exempting exempt assets, this trustee will assemble all of your assets and sell them for the highest possible value in order to settle your debt with your creditors. Getting a discharge against this will result in the majority of your debts being paid off. According to the chapter 7 bankruptcy california income limits, it can be decided if you fit the eligibility criteria.
Is Everyone Eligible For Chapter 7?
You Must Meet The Income Requirement
To be eligible for Chapter 7 bankruptcy, you must have an income below the median income set for your state and family size. This can easily be determined by the bankruptcy court, which uses a formula. This formula will account for your income, expenses, and family size.
You Have To Pass The Means Test
If you are thinking that a test involves writing long answers on some topic using pen and paper, you might be wrong. The means test is a formula that determines if you have enough disposable income to repay your debts.
To pass the means test, you have to demonstrate that you do not have enough disposable income to repay your debts. If you do not pass the means test, you will have to apply for Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy, where you can repay your loan over 3-5 years.
You Must Not Have Filed For Bankruptcy in the Past 8 Years
To be eligible for Chapter 7 bankruptcy, you must not have filed for Chapter 7 bankruptcy in the past 8 years or Chapter 13 bankruptcy in the past 6 years. This waiting period is designed to prevent individuals from making unfair use of the bankruptcy system by filing for bankruptcy multiple times.
The whole bankruptcy term is made to give individuals time to recover from all the financial difficulties they are facing and make a fresh start after all of them.
What Is The Process For Filing Chapter 7 Bankruptcy?
Filing a Petition With The Court
You will have to file a petition with the bankruptcy court. Once you file the petition, all the creditor collection activities will temporarily be halted. This means that all lawsuits and debt collection calls will be on hold for a while.
This petition will include a formal request to the court to declare bankruptcy and a detailed list of all your assets, liabilities, income, and expenses. You also need to pay a filing fee of about 300 dollars for Chapter 7 bankruptcy.
Getting a Trustee Appointment
After filing your petition, a trustee will be appointed to oversee your case. The role of your trustee is very important in the entire bankruptcy procedure. They will first review your petition and schedules to verify the accuracy of your financial information.
Once it is done, they will identify and sell all the non-exempt assets to pay off the creditors. If there are multiple creditors involved, the money from the asset sales will be divided properly by the trustee.
Meeting of Creditors
After 30-40 days of filing your petition, you will receive an invitation to attend the creditors’ meeting, also known as the 341 meeting. During this meeting, you will be questioned by the creditor and the trustee about various factors. You will have to provide additional documentation or clarifications on your financial information, such as your financial situation and the assets you hold.
Distribution Of Assets and Discharge
If you have non-exempt assets, the trustable sell them to pay off the creditors, and you will be able to keep certain assets such as your primary residence or retirement accounts if they are exempt. After the trustees have sold your non-exempt assets, the proceeds will be distributed among the creditors, and you will receive a notice of distribution. After 4 to 6 months of filing your petition, you will receive a discharge, which will leave out most of your debts.
