Chapter 7 is the most common kind of bankruptcy for families. It is often called "liquidation" bankruptcy, but that word scares people more than it should. For many of our clients in Whittier and nearby cities, Chapter 7 erases most of their debt while they keep their home, their car and their everyday belongings.
Whittier cases are filed in the U.S. Bankruptcy Court for the Central District of California, Los Angeles Division. We handle the filing and go with you through every step.
What is Chapter 7 bankruptcy?
Chapter 7 is a federal process that wipes out (or "discharges") many kinds of debt. Once a debt is discharged, you no longer owe it, and the creditor can never try to collect it from you again.
When you file, a court officer called the trustee is assigned to your case. The trustee reviews your paperwork and checks whether you own anything that is not protected. In most consumer cases, everything the person owns is protected by California law, so nothing is sold. You also get the automatic stay, a court order that stops most collection the moment your case is filed. That includes calls, lawsuits, wage garnishment and most foreclosures and repossessions.
Do I qualify? The means test
Not everyone can file Chapter 7. The means test is a set of forms that looks at your household income over the six months before you file.
- If your income is below the median income for a California household of your size, you usually qualify.
- If your income is above the median, the test subtracts certain allowed living expenses. If little is left over to pay creditors, you may still qualify.
- If you have enough left over each month to repay part of your debt, Chapter 13 may be the better fit. Read about Chapter 13 repayment plans.
The median figures change often, so we run the numbers with you at your free consultation using the current tables.
How long does Chapter 7 take?
- Credit counseling. Before filing, you take a short course from an approved agency, usually online.
- Filing. We file your petition and schedules. The automatic stay starts right away.
- The 341 meeting. About a month or so after filing, you attend a short "meeting of creditors" with the trustee. You answer questions under oath about your paperwork. Creditors rarely show up.
- Debtor education. After filing, you take a second course on managing money.
- Discharge. In most cases, the court enters your discharge about three to four months after filing.
For more detail on each step, see the process of filing for bankruptcy.
Which debts does Chapter 7 erase?
Chapter 7 usually discharges:
- Credit card balances
- Medical bills
- Personal loans and payday loans
- Past-due utility bills
- Many court judgments
- Money still owed after a car is repossessed or a home is foreclosed
Some debts usually are not discharged:
- Child support and spousal support
- Most student loans, unless you prove "undue hardship" in a separate court case
- Most recent taxes
- Court-ordered fines and penalties
- Debts the court finds came from fraud
Can I keep my home and car?
Usually, yes. California law lets you protect certain property through exemptions. An exemption is a rule that shields a type of property, up to a set value, from the trustee. California has two exemption systems, and you pick the one that protects more of what you own.
- Your home. The homestead exemption can protect equity in the home you live in. California raised it in 2021, and it now adjusts over time.
- Your car. A vehicle exemption protects some equity in your car. If you have a car loan and keep paying it, you can often keep the car.
- Retirement savings. Most retirement accounts are protected.
- Household goods and clothing. Ordinary furniture, clothes and appliances are generally protected.
Whether your property is fully protected depends on its value and what you owe on it. Learn more on our page about bankruptcy exemptions in Whittier.
The two required courses
Federal law requires two short courses:
- Credit counseling must be taken within 180 days before you file. Without the certificate, your case can be dismissed.
- Debtor education (a personal finance course) must be finished after you file. If you skip it, the court can close your case without a discharge.
Both courses are usually online, take a few hours, and must come from an agency approved by the U.S. Trustee. We tell you exactly when to take each one.
Talk with us about Chapter 7
Want the big picture first? Visit our Whittier bankruptcy lawyer page or read our bankruptcy FAQs.
Bankruptcy consultations are free. Our team can meet with you in person or by video, often the same day, and Steven Ibarra personally handles every case. Our bankruptcy processor, Annissa Henry, helps you gather your papers so nothing is missed. To get started, contact us or call (562) 612-7806. We are available 24/7. Hablamos español.