Filing for Chapter 7 bankruptcy is an efficient way to for many people to eliminate many of their debts and begin a fresh financial state. Chapter 7 allows the bankruptcy trustee to liquidate or sell a debtor’s assets in order to pay back the debtor’s creditors.
Since a Chapter 7 filing involves a liquidation process, many people are concerned about losing all their property when they file for Chapter 7. How will filing affect their ownership of things like their home and their car? What about other important assets? Will they be able to keep anything?
It is a common misconception that when a debtor files for Chapter 7 he or she will have to sell everything they own in order to satisfy their creditors. Filing for bankruptcy actually offers ways to protect much of your property.
Debtors filing for bankruptcy in California may utilize two procedures that will protect much of what they own from being liquidated in order to pay back their various creditors- the automatic stay and exemptions.
By filing for bankruptcy under Chapter 7 a debtor automatically stays or stops all collection activities against him or her as well as against the debtor’s property. The stay is automatic and requires no judicial order before taking effect.
The bankruptcy court gives notice to all of the creditors the debtor has listed that a bankruptcy case is pending and the credits may not initiate or continue lawsuits, wage garnishments or telephone calls demanding payment. This includes foreclosure actions and car repossessions.
When a debtor files for Chapter 7 the debtor is allowed to protect some property from the claims of creditors because the property is considered exempt under California law. The federal bankruptcy code offers exemption as well, however, these federal exemptions are not available to a California debtor.
Exemptions enable a debtor to keep a certain amount of his or her property in order to make a fresh start after the bankruptcy is complete. An exemption prevents the bankruptcy trustee from selling a piece of your property in order to satisfy the debt owed to a creditor. If a piece of property is not exempt under the law, the trustee will be able to liquidate the property in the bankruptcy proceeding.
California’s bankruptcy exemption laws allow most debtors to keep much of their property. A debtor has a choice of two exemption systems to choose from. Generally, debtors with substantial equity in their home prefer System 1 and System 2 is best suited by those who have a lot of cash on hand or in the bank and other valuable personal items.
In order to protect your property and assets, you will need a qualified attorney to help you navigate California’s exemption system. Attorney Melanie Tavare can help you compare each system and choose the one that works best in your unique situation.
If you are considering filing for Chapter 7 bankruptcy and want ensure that your assets are protected, contact our offices today for a free consultation.