Many people in California file bankruptcy when their debts become so unmanageable that there is little other option available. For many who can qualify, a Chapter 7 bankruptcy discharge of unsecured debt puts them in a situation where they can begin to rebuild their credit and have a new start on their financial future.
However, not all potential bankruptcy petitioners are approved for a Chapter 7 filing because they have too much income and have significant equity in property such as a home or other real estate. These individuals will still be required to repay their outstanding delinquent debts. This is typically done through a repayment plan when creditors agree to the petition.
Asset evaluation and exemptions
Individuals who earn above the median income in California are required to file a Chapter 13 bankruptcy petition along with a repayment plan. Standard qualification for filing a Chapter 13 bankruptcy in California is living in the state for 180 days, but state exemptions are only allowed for those who have lived in the state for over 730 days. Federal exemptions are not allowed in California bankruptcies.
The repayment plan
One distinct area where Chapter 13 bankruptcy differs from Chapter 7 is that petitioners keep all of their property unless they can renegotiate arrangements with creditors beforehand or sell some property prior to filing. Petitioners must itemize all of their outstanding debt along with submitting income documentation in association with a feasible repayment plan of three or five years in most cases.
One problem with Chapter 13 bankruptcy is that outstanding creditors are not required to accept any initial repayment plan. They can file counter-claims against the petition and request a modification or reject the plan completely unless the petitioner can prove that the terms can be satisfied within the repayment plan timeline.