When Should You File for Bankruptcy in California?

Do You Have Alternatives to Bankruptcy? Before deciding to file bankruptcy you should first determine whether other non-bankruptcy options could potentially provide debt relief. For instance, it can be difficult for a person facing large debts to proceed objectively in their own matter. Furthermore, the power dynamics of such a negotiation does not favor the debtor. Contrast this with a negotiation where the debtor hires a lawyer who not only understands the laws governing the applicable debt, but also understand the leverage that a possible bankruptcy can provide. A creditor may not be aware that he, she or the entity faces the possibility of collecting nothing on the debt should the debtor enter into Chapter 7 bankruptcy. Even in a Chapter 13 plan, an unsecured creditor may end up receiving compensation significantly less than agreed to originally.

Will You Qualify for Chapter 7? Chapter 13? Both? While many debtors would prefer to enter into Chapter 7 bankruptcy because of the expediency and discharge power of this form of bankruptcy. However, Chapter 7 is subject to means testing which is designed to only allow “deserving” debtors into this form of bankruptcy. The means test is applicable when the potential filer’s income is greater than the state median. If the debtor’s income is less than the median, he or she passes the means test and qualifies for Chapter 7. However, when the means test applies, a calculation regarding the individual’s disposable in come must be made. If the individual’s disposable income is calculated to greater than a certain amount, he or she will be ineligible for Chapter 7 and must use Chapter 13. Likewise, if the debtor has received a previous Chapter 7 discharge, he or she is not eligible to receive a second for eight years.

Will Bankruptcy Solve Your Debt or Collection Issues? The potential bankruptcy filer must also consider whether the form or forms of bankruptcy available will provide a solution not only for debt concerns, but also protects any property the individual would like to keep. Under California’s state bankruptcy exemptions there are two sets of exemptions that a filer can select from. However, any assets that are not fully protected by the Chapter 7 exemptions are subject to sale by the bankruptcy trustee. Therefore, if the debtor has a home, car, or other property he or she would like to protect and keep, Chapter 13 may provide a better fit. However, Chapter 13 plans do result in a significantly longer bankruptcy period where post-bankruptcy income is allocated to satisfy the debt per terms of the repayment plan. Nevertheless, Chapter 13 can be extremely useful in situations where there is significant discretionary income, significant property to protect, or certain debts that are not dischargeable under Chapter 7. However, a final decision regarding whether a particular form of bankruptcy is right for you should only be made after careful consultation with an experienced lawyer.

Rely on The Bankruptcy Law Group’s Experience At the Bankruptcy Law Group, our team of experienced bankruptcy attorneys can help you understand the options you have to handle your debt and financial situation. We provide individualized service to increase the likelihood that your bankruptcy is successful and provides the fresh start you need. To schedule a free and confidential consultation call us at or contact us online today.