Chapter 7 Bankruptcy
You may have experienced financial hardship recently and wonder whether you should file Chapter 7 bankruptcy.
You are not alone.
Many people are looking at Chapter 7 bankruptcy due to financial hardship from COVID.
You probably have many questions like, “Can I qualify for a Chapter 7 bankruptcy?”, “Can I afford a Chapter 7 bankruptcy?” or “What happens to my car or house in a Chapter 7 bankruptcy?
We will cover all of those questions and much more in 3 parts
1) Understanding Chapter 7 Bankruptcy
This will be the shortest section because you may already know some about Chapter 7 bankruptcy from your search, but it is important to understand the differences between Chapter 7 and Chapter 13 Bankruptcy.
Chapter 7 Bankruptcy:
Chapter 7 Bankruptcy: A Chapter 7 is also referred to as “liquidation bankruptcy” although you can often keep your home and keep your car. Here are 5 quick facts.
You must qualify. More about this later.
- Liquidation may occur or may not
- It’s less expensive than a Chapter 13 bankruptcy
- You can receive a discharge within 90 days
- It stays on your credit report for 10 years. That often doesn’t mean you have to wait 10 years to get access to credit. See how bankruptcy affects your credit for more information.
Chapter 13 Bankruptcy:
Chapter 13 Bankruptcy: A Chapter 13 is also known as a wage earner bankruptcy. It’s a voluntary reorganization of debt in a payment plan. Here are 5 quick facts.
- Most people qualify. There is a debt limit, but it is high.
- Liquidation often does not occur.
- It’s more expensive than Chapter 7
- You receive discharge often within 3 or 5 years.
- It stays on your credit report for 7 years.
2) Estimating Chapter 7 Bankruptcy Qualification
Now that we covered the basics between Chapter 7 and Chapter 13 bankruptcy, let’s dig into Chapter 7 qualification as it’s a very important element about a Chapter 7 bankruptcy.
Do You Qualify for Chapter 7 Bankruptcy?
An important measure of whether you qualify for a Chapter 7 bankruptcy is based on what’s called the means test. There are two main parts of the means test.
The first part to measure qualification uses the bankruptcy form that compares your average monthly income and compares it to a set median income based on household size and income amount for California.
You can take the calculator below to estimate whether you qualify based on the most recent means testing data for California for cases filed on or after May 1, 2020. Before you take the calculator, you may want to get a sense of your average income for the last 6 months. You can use this average income calculator to help you estimate your average monthly gross income for the past 6 months.
Once you take the calculator, you will get the results that show a Chapter 7 bankruptcy qualification estimate like the one below. If you are below the median, you may have a good chance to qualify for a Chapter 7 bankruptcy in California. If you don't, let's cover that next.
My Chapter 7 estimate was over California's median income. Does that mean I don't qualify?
Not necessarily. There are chances that you could still qualify for a Chapter 7 bankruptcy even if your income is greater than then California's median income for means testing.
What's next? There's part 2 of the means test that uses this bankruptcy form. We just built an above-median Chapter 7 bankruptcy calculator to help you estimate whether you qualify even if you are above the median. Send us a message if you're interested to try the calculator.
What does Chapter 7 bankruptcy in California cost? Can I afford it?
Let's say the calculator estimates that you may qualify for a Chapter 7 bankruptcy. Well, you may be thinking how you can afford a Chapter 7 bankruptcy if you can't afford your current monthly obligations.
The Chapter 7 filing fee is consistent across the state. The Chapter 7 bankruptcy attorney fee however in California often is based where you live. This is why we built a California Bankruptcy Lawyer Fee Calculator to help you estimate the cost based on your zip code.
We will cover California legal aid options below, but all of the bankruptcy attorneys we partner with throughout California will offer payment plan options that will help you be able to afford a Chapter 7 bankruptcy.
3. Should file Chapter 7 bankruptcy?
You may qualify for a Chapter 7 bankruptcy, and you may be able to afford the fees, but should you file for a Chapter 7 bankruptcy in California? In this section, we will cover the California bankruptcy exemptions, how bankruptcy affects credit, pros and cons, and alternatives.
Chapter 7 Bankruptcy Exemptions
If you are like most people, you care most about your home, your vehicle, and potentially cash on hand. Let's cover those exemptions.
Check this article for the homestead bankruptcy exemptions: https://tryascend.com/blog/bankruptcy-homestead-exemption/
How Chapter 7 Bankruptcy Affects Your Credit
One of the many questions we receive is how Chapter 7 bankruptcy affects your credit. It's an important question, so we will address the common questions and provide another resource if you'd like to dig deeper.
When you file a Chapter 7 bankruptcy case in California, you cannot incur new debts without the bankruptcy court's approval. Your creditors will be notified of the bankruptcy filing, and companies will close your credit accounts based on the Chapter 7 bankruptcy filing. Therefore, you can expect not to have access to credit during the bankruptcy case. Once complete, you may get access to credit at a very high price. You may look into a secured credit card to start rebuilding credit.
For further questions about how soon can you purchase a home or how soon your credit will improve, you may want to read our article titled: How Does Bankruptcy Affect Credit?
Pros and Cons of Chapter 7 Bankruptcy
There are definite pros and cons of a Chapter 7 bankruptcy. We covered a little of this information above, but I'd like to make sure you are aware of the pros and cons of bankruptcy.
Chapter 7 Bankruptcy Alternatives
There are alternatives to Chapter 7 bankruptcy. Often a debt consolidation loan or a mortgage refinance are out of the question when you experience financial hardship. Alternatives include:
The Chapter 7 Calculator above estimates the costs, and pros and cons of Chapter 7 bankruptcy, Chapter 13 bankruptcy, debt settlement and debt management.
4) What Chapter 7 Bankruptcy Questions Do You Have?
Hope this article helped you understand a Chapter 7 bankruptcy in California and can even be a resource for you in the future when you decide whether to pursue a debt relief option.
If you have made it this far, you probably have some questions about a Chapter 7 bankruptcy in California. Please reach out to us directly with any and all questions, and we will make sure they get an answer quickly. If you haven't done so already, check out whether you qualify for a Chapter 7 bankruptcy below and compare your debt relief options.
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