If "bankruptcy" is considered a really bad word in your universe, you might want to rethink the question. Bankruptcy is never one of those aspirational goals that you think about on New Year's Eve as something to aim for during the year. But in certain situations, the possibility of beginning again financially, turning the page on debt, and walking away to make a fresh start, is a lifesaver. Are you wondering, "can I file for bankruptcy without an attorney?" Only those who know about your current financial situation can advise you, but some people do file for bankruptcy on their own without legal assistance.
In states like California, the court system provides information to assist you to tackle a bankruptcy yourself. Even if you have significant assets and considerable debts, you may be able to wend your way through a Chapter 7 bankruptcy in California or a Chapter 13 reorganization if you follow the instructions step by step. The most important way to prepare for a bankruptcy filing is to obtain an overview of the entire bankruptcy system in California, including the types of bankruptcy possible for individuals, the benefits and limitations of each, and the critical elements that define bankruptcy benefits like dischargeable debt and bankruptcy exemptions.
California Bankruptcy Filings
Bankruptcy petitions are filed in federal bankruptcy court, not state court. Yet while bankruptcy is governed by federal law, if you are filing in California, some state laws and procedures apply. The state has four different bankruptcy districts, each of which has one or more bankruptcy courts. Your first step in filing a bankruptcy is to figure out which court serves your area.
The Eastern District has courts in Sacramento, Fresno, Modesto and Bakersfield. The Northern District courts are located in Oakland, San Jose, Santa Rosa and San Francisco. The Central District has courts in Los Angeles, Riverside, Santa Ana, Santa Barbara and the San Fernando Valley. The Southern District has a court in San Diego.
You should contact the court in the district that serves your region. If you live in or near one of the California cities with bankruptcy courts, the choice is obvious. If not, contact the nearest bankruptcy court and ask whether it is the correct court for you to make your California bankruptcy filings. Each court has its own website with lots of good information for anyone considering filing a petition.
Read More: How to Look Up California Bankruptcy Cases
How to File for Bankruptcy in California Yourself
If you are wondering how to file for bankruptcy in California yourself, without the help of an attorney, your best resource is the California court system. You can go to the court website and read about bankruptcy filings, learn the different types of bankruptcy and even see a series of videos that take you for a tour of the bankruptcy process. The court system information can direct you to the different forms you need and instructions for filling them out and filing them. But don't just leap into filing forms. Take the process step by step.
Once you determine the correct bankruptcy court in California for your petition, your next set of choices should involve the type of bankruptcy you want to file. An overview of the different types of bankruptcy may help you make that decision. You may be surprised to hear that there are lots of different types of bankruptcy, each authorized under a different chapter of the bankruptcy code and then named after that chapter. That means that Chapter 7 bankruptcy is authorized by and outlined in Chapter 7 of the federal Bankruptcy Code, and Chapter 9 bankruptcy, Chapter 11 bankruptcy, Chapter 12 bankruptcy, and Chapter 13 bankruptcy relate and refer to code chapters as well.
It is useful to understand the differences between the various types of bankruptcy, even if many don't apply to you. All bankruptcies are legal proceedings for debtors who are not able currently to pay their creditors. But the types of bankruptcies fall into two categories: those with the goal of reorganizing the finances and debt of an individual or business, and those with the goal of liquidating the assets and debts of an individual or business. In reorganization proceedings, the court process is to allow the debtor to revamp holdings and reorganize debt, perhaps setting up easier repayment schedules or extending those currently in place.
Chapter 7 bankruptcy is the most common type filed by individuals in California, and it is a liquidation proceeding. That means that your assets may be sold off to pay creditors. All the other types of bankruptcies are reorganization proceedings. Chapter 11 bankruptcy is mostly used by companies, corporations and other businesses to reorganize debt, while Chapter 13 is used by individuals to reorganize debt. Chapter 12 bankruptcy only applies to family farmers who want to reorganize debt, and Chapter 9 to municipalities.
Individual Bankruptcy Filings in California
For individuals, the choices when it comes to bankruptcy are essentially Chapter 7 and Chapter 13. They are very different proceedings, so it's important to understand both of them in general terms before you make a choice about which petition to file.
As mentioned above, Chapter 7 liquidates your assets and debts with the goal of allowing you to walk away with less assets but free of crushing debt. Essentially, an individual filing Chapter 7 bankruptcy intends to make a fresh start, beginning a new financial life without fear that old creditors will pounce on and take income earned. In a Chapter 7 proceeding, some property is deemed "exempt," and this the debtor is allowed to keep. A bankruptcy trustee takes all of a debtor's assets that aren't exempt, sells them, and then doles out the money to creditors in the order specified in federal law. At the end of a Chapter 7 bankruptcy, the court releases the debtor from personal liability for dischargeable debts. Chapter 7 is also known as liquidation bankruptcy, complete bankruptcy or straight bankruptcy.
Dischargeable Debts in Chapter 7
"Dischargeable" is a critical word to understand in bankruptcy proceedings. The idea of bankruptcy is for the debtor to get a new start, whether by liquidation of debt or by reorganizing her finances. In Chapter 7, unpaid debts are wiped out at the end of the process, but only if they are dischargeable. Debts that are not considered dischargeable are not eliminated, and you walk away from a Chapter 7 proceeding with the debts still in place. Obviously, you need to take this into account when you are deciding what type of bankruptcy to file in California, and whether to file for bankruptcy at all.
Which debts are non-dischargeable in Chapter 7? Some debts generally cannot be discharged, including:
- Any debts that you don't list on your bankruptcy forms cannot be discharged, even if the omission was accidental.
- Tax debts that you owe to the IRS, the state or a municipality cannot be discharged, nor can any credit card debt you incurred to pay those taxes.
- Student loan debts generally cannot be dismissed unless you prove it would be an "undue hardship" to have to repay.
- Child support debts are among the debts that cannot and will not be discharged in bankruptcy court, together with alimony and other family support.
- You also can't discharge debts owed for injury caused to another while you were drinking and driving or driving under the influence of drugs.
- Any money you owe as restitution after a criminal conviction, meaning money a court requires you to pay to make someone whole for damage you did to them.
- Any fines or penalties you owe for breaking the law, like traffic tickets.
A bankruptcy court can rule that certain other debts are not dischargeable if a creditor objects when you attempt to have them discharged by the court. These debts include:
- Any debts that a person incurs from doing an illegal or fraudulent act.
- Very recent credit card purchases, like big purchases (over $1,150) made within two months of the filing.
- Other cash advances or loans over $1,150 made within two months of filing.
- Money you owe because of intentionally hurting someone or their property.
- Money you embezzled or stole.
- Some debts you owe an ex-spouse after a divorce.
Chapter 7 Versus Chapter 13 Bankruptcy
Each of the types of bankruptcy filings are appropriate for different circumstances, so carefully consider which petition works best for you. Chapter 7 is the most popular filing for individuals. It can work best in cases in which a debtor can see no path to repay her debts. But Chapter 7 is helpful only if those debts are dischargeable in bankruptcy. If the debts are for taxes or student loans, the debtor walks away from bankruptcy carrying the same heavy debt load she carried in.
People who have a lot of debts that are not dischargeable in bankruptcy can consider filing a petition under Chapter 13 Bankruptcy. You have to have a steady form of income to qualify for this type of filing. Chapter 13 can also be effective for those who have creditor liens on property that are larger than the equity in the property or bigger than the asset value of any collateral securing the debt. Although Chapter 13 may be more appropriate in some cases, most individuals petitioning for bankruptcy in California file under Chapter 7.
Chapter 7 Bankruptcy in California Exemptions
Although Chapter 7 bankruptcy is considered a liquidation, you get to keep some assets in a Chapter 7 filing. These are termed "exemptions." Other assets, if you have any, are sold to pay off debtors.
The number of exemptions available in California bankruptcy is one area that debtors have a lot of questions about. "Can I keep my house if I file Chapter 7 in California?" and "Can I keep my credit cards in a Chapter 7?" are common questions. You'll want to figure out what property will be exempt before you consider filing a Chapter 7 petition. The exemptions are set out in the California codes. If you have any doubts, talk to the bankruptcy court or to an attorney.
Assets that are exempt and protected from sale in bankruptcy can include:
- retirement accounts, including IRAs, 401(k) accounts and pensions
- equity in your "homestead," which means a house you own and use as your primary residence
- equity in your primary vehicle, and
- any household item valued at less than $675.
Note that there are set limits to the value of assets you can claim as exemptions. The value limit for a household item is $675. The value for a homestead is limited to the equity in the home, but maximum caps apply. They vary according to a person's age and whether she is single or married. The maximum homestead exemption amount is currently is $75,000 for a single person under 65, $100,000 for a married couple, and $175,000 for people over 65, people who are disabled of any age, and those who are low-income and over 55. If your home is worth more than the maximum amount, you must sell it and take back cash in the maximum amount, with the rest of the sales equity going to creditors. Vehicle exemptions can be capped at $2,900 or $5,100. Retirement account value is capped at $1,171,150.
California offers two systems of exemptions. These are set out as two lists in the statutes, and a debtor must choose between them. You cannot pick and choose from items on the two lists. One list of exemptions is for those who have significant home equity and wish to claim a homestead exemption; the other is for those debtors without significant equity in a home. Instead of the big home equity exemption, the second list of exemptions, known as the "wildcard exemption list," allows a wildcard exemption in the maximum amount of $26,425 that can include a homestead plus any other property. The vehicle exemption on the wildcard exemption list is higher, up to $5,100 in equity. Both exempt pensions, public benefits, tools of trade and insurance.
Teo Spengler earned a J.D. from U.C. Berkeley's Boalt Hall. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an M.A. and an M.F.A in creative writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.