Going through financial crisis in your life can be crippling. If you live in California, have massive debt due to medical, business, educational or even personal spending habits, it may be necessary to hit the reset button and consider filing for bankruptcy in California. For many, this is a last option due to the consequences on personal credit, and future ability to borrow money.
Filing for Bankruptcy in California
Although filing for bankruptcy in California as well as other states is generally governed by federal law, there are some rules that are specific to the state in which you live. You must follow both the federal and state rules when filing.
Types of Bankruptcy
You can choose to file bankruptcy under one of four chapters in the federal Bankruptcy Code. Your choice depends on your individual situation.
- Chapter 7 – Mainly used by people to liquidate. In this filing, the court sells all of your assets and repays your creditors.
- Chapter 11 – Used by corporations and partnerships to reorganize and keep assets while paying back creditors. Individuals can also file Chapter 11 bankruptcy.
- Chapter 12 – Similar to Chapter 11, except it is used by family farmers.
- Chapter 13 – Also similar to Chapter 11, it can be used by people with a regular income who can then pay off their debts in a period of 3 to 5 years. You must have a specific type of debt to qualify under this chapter.
Initial Steps Before You File Bankruptcy
Before you file, federal bankruptcy law requires you to undergo credit counseling with an approved credit counselor 6 months or 180 days before you file. The counseling is supposed to help you explore an alternative to filing for bankruptcy. The agency looks at your money and assets and helps you come up with a plan to manage your debt without filing. You are not required to follow or accept the plan in order to continue with the bankruptcy filing. The United State Department of justice provides a list of approved credit counselors by state.
When you file your bankruptcy, you verify you have completed this mandatory class by filing the Individual Debtor’s Statement of Compliance with Credit Counseling Requirement. In some instances, however, you may be exempt from taking the pre-filing counseling if:
- The district you live in has no courses available;
- You are an active duty member of the military in a military zone;
- No courses in a language you understand are available; or
- You have a disability or incapacity that keeps you from taking a course.
Forms You Need When Filing for Bankruptcy in California
There are different forms you have to fill out when filing for bankruptcy in California. Some forms depend on which section of the bankruptcy code you choose. The bankruptcy paperwork required is a complete overview of your financial situation and details your income and expenditures, as well as your assets and liabilities. You also need to check the county in which you file for any local forms that are required in addition to the federal and California-specific forms.
If you are contemplating filing for bankruptcy in California without an attorney, you can seek help completing the forms through a bankruptcy petition preparer. Unfortunately our office no longer offers bankruptcy document preparation services, However, if you are in the California Central District, the court offers a free online bankruptcy document preparation service which you may want to check out.
Exemptions in Bankruptcy
Lastly, note that bankruptcy law allows you to protect certain assets after filing for bankruptcy; you get to keep these assets when all of your other assets go to paying your debts. These are called exemptions, and while there are federal exemptions, California has state exemptions that are required to be used if you are filing for bankruptcy in California. If you are filing for bankruptcy in another state, you will need to research your options for protecting your property based upon that state’s laws.