California residents with massive debt might find that they have no option other than bankruptcy. If alternatives like debt relief are not the answer, Chapter 7 bankruptcy might be appropriate. A notable benefit of going this route is that some property is protected.
How Chapter 7 bankruptcy works
Before you can file for Chapter 7 bankruptcy, you must pass a means test to determine whether you qualify. The test measures your assets and income, which must be under a certain amount; if you have too much money, you will not qualify and must file for Chapter 13 instead.
After you file, the court issues an automatic stay that halts any actions from creditors trying to collect money. They are barred from contacting you, garnishing your wages and trying any other tactic or retaliating against you. The court assigns a trustee to your case to review your financial situation and sell some of your assets so the proceeds can go to your creditors as repayment. However, some property is considered exempt.
Understanding bankruptcy exemptions
Bankruptcy exemptions mean that certain property is untouchable. It means you can keep that property; it doesn’t get sold so the funds can be given to creditors to whom you owe a debt. State and federal laws both dictate which property is protected, but when exemptions apply, only the state or federal, not both, come into play.
Property you can keep
After you file for Chapter 7 bankruptcy, you can keep your home, wages, benefits and retirement accounts and personal and household items. In some cases, your vehicle is also protected; if you owe money toward your car loan, your lender may reaffirm it and you’ll be responsible for paying.
Bankruptcy could help you make a fresh financial start but it can have its drawbacks. Review all of your debt management options before making a decision.