If you’re facing bankruptcy for the first time in California, you may be afraid that you’ll have to start your life from scratch with no assets to your name. While you will have fewer assets to your name, federal bankruptcy exemptions protect certain ones from creditors so you can get a fresh start without having to give up everything. Here is what to know if you are considering filing for bankruptcy.
How exemptions protect you
When filing for Chapter 7 bankruptcy, all of your dischargeable debts will be erased, but in exchange for your new start, you’ll have to give up some assets as a form of payment. Bankruptcy exemptions protect various categories of property. You get to keep any property you own that is worth less than the available exemption in a stated category. The bankruptcy trustee will sell your non-exempt property to pay your creditors. Some exemptions, like Social Security and qualified retirement accounts, don’t have a limit, so you can keep the entire asset amount.
However, California is an opt-out state, meaning that it requires residents to use the state’s bankruptcy exemptions when filing. California’s civil codes are similar, covering motor vehicles, jewelry, health aids, retirement accounts, etc.
Investigating bankruptcy and its alternatives
Despite recent changes in bankruptcy laws, most people will still qualify for a Chapter 7 bankruptcy filing. In some instances, another bankruptcy type, like Chapter 11 or Chapter 13, may be more appropriate. Each type of filing has pros and cons.
Some people may not need to file for bankruptcy. Before taking that final step, you should carefully consider all alternatives. Many debt relief programs will allow you to reduce your debt if you go through debt counseling programs and learn how to manage your money. The goal is to get a fresh start.