Bankruptcy basics

The two common chapters

• Chapter 7 (liquidation): a trustee may sell non-exempt property to pay creditors, and many debts are discharged, usually within a few months. Eligibility depends in part on a “means test” that compares income to state figures.
• Chapter 13 (repayment plan): the filer keeps property and pays creditors through a court-approved plan lasting three to five years.

How it generally proceeds

1. Credit counseling. An individual must complete an approved credit counseling course within 180 days before filing.
2. Filing. The petition and schedules list income, expenses, property, and debts. Filing fees apply, and Chapter 7 filers can ask to pay in installments or for a waiver.
3. Automatic stay. Most collection, including lawsuits and garnishments, pauses when the case is filed.
4. Meeting of creditors. The filer answers questions under oath from the trustee, and creditors may attend.
5. Debtor education. A second course is required before discharge.
6. Discharge. The court releases the filer from personal liability for dischargeable debts.

Exemptions in California

California filers choose between two state exemption systems that protect different amounts of home equity and other property. The choice affects what property is protected.

Debts that usually survive bankruptcy

• Child and spousal support
• Most student loans, unless a court finds undue hardship
• Many recent taxes
• Debts from fraud or certain injuries