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If you’re worried about losing your house, car or personal belongings because you’re behind on your bills, filing for bankruptcy in California might be an option to eliminate debt or get better repayment terms. To file for bankruptcy, you need to see if you qualify and then follow the steps outlined in this guide.  

What is bankruptcy? 

Bankruptcy is a legal action you can take if you’re unable to pay your outstanding debts. Depending on the type of bankruptcy you file, you may either give back the assets that you owe money on in return for forgiveness of your debts or restructure how these debts are paid back. Filing for bankruptcy has an immediate impact on your credit score, which may make borrowing more difficult while the bankruptcy appears on your credit report.  

There are two types of bankruptcy individuals may file. 

Chapter 7 bankruptcy 

A Chapter 7 bankruptcy completely dissolves your debt so you don’t owe money on that debt. Before you can have your debts discharged, however, you must liquidate your assets to pay as much of your debt as possible. The court decides which of your creditors are entitled to the proceeds from the sale of your assets. 

This is an option if you have protected assets due to exemptions or if most of your debts are unsecured. It’s also the quickest way to file for bankruptcy and can be completed in four to six months.  

Chapter 13 bankruptcy 

If you have secured debts, such as a mortgage or a car payment, and wish to keep your assets, a Chapter 13 bankruptcy may be the better option. This type of bankruptcy allows you to restructure your debt and make payments to your lenders through a court-appointed trustee. In many cases, you’re able to save money on the interest you owe on your outstanding debts. 

Chapter 13 bankruptcies can take three to five years to discharge because you’re required to make payments in installments over this time. However, it’s an option if you’re looking to prevent foreclosure on your home or car repossession.  

How to file for bankruptcy in California 

Filing bankruptcy in California isn’t that different from other states because bankruptcy is regulated under federal law rather than state laws. The primary difference is that California has different laws regarding the types of assets you may retain possession of during a bankruptcy.

For example, federal bankruptcy laws allow you to keep only $25,150 in equity in real property, while California bankruptcy laws allow either $29,275 or $75,000 depending on how you file. Married couples with a joint bankruptcy petition may be eligible to keep real property up to $150,000.

If you’re considering filing for bankruptcy, here’s the process you’ll need to follow: 

• Do your due diligence and research bankruptcy to determine if it’s right for you. The most important questions you need to answer are if you qualify for bankruptcy and if there are alternatives that might be better. 
• While it’s possible to file for bankruptcy without an attorney, most people would benefit from a lawyer’s expertise and experience. You should look for an attorney who specializes in bankruptcy law. 
• There are a lot of financial documents you need to gather before you can file for bankruptcy, such as pay stubs and income statements, bills, bank statements, tax returns and other financial paperwork. If you retain a bankruptcy attorney, they can help you gather this information. 
• Stop making payments on the types of debt that qualify for bankruptcy. Please note that some debts can’t be discharged through bankruptcy, including student loans, domestic support agreements such as child support or alimony and most tax debts. After you file a motion for bankruptcy, the court will notify your creditors, and they’ll stop demanding payment on your debts. 
• To qualify for bankruptcy, you need to sign up for a credit counseling class. This is meant to teach you skills that may help you budget more effectively in the future so you don’t fall behind on your bills. 
• After you file for bankruptcy, a trustee or representative of the U.S. Trustee program will conduct a 341 meeting that you are required to attend. During this meeting, your creditors can ask questions about your assets and debts.  
• If you’re filing Chapter 13, there will also be a confirmation hearing. In this meeting, a bankruptcy judge will evaluate whether you qualify for bankruptcy and approve a payment plan so you can repay your debts. A judge may approve or reject a repayment plan or send you back to revise it.  
• After completing your credit counseling class, you’ll need to provide the court with your course certificate before your debt can be discharged. 

What are California’s bankruptcy exemptions? 

Exempt property includes assets you own that can’t be liquidated to repay your lenders. Exemptions might include the following: 

California homestead exemption

The California homestead exemption allows you to protect the equity in your home. If you own more than one property, you can only use this exemption for the property you reside in, and your additional properties aren’t protected. There are two systems you can choose when declaring exemptions, and the one you select affects how much equity you may declare exempt. There are also requirements about how long you’ve owned your home. 

It also doesn’t mean you’ll automatically get to keep your home. In some situations, trustees may opt to sell your property, pay you back any exempted amount of equity from the proceeds of the sale and use the remainder to pay creditors.

California motor vehicle exemption 

If you own a vehicle that’s essential to your ability to get to and from work and to perform daily activities, you can use this exemption to protect some of the equity in your vehicle. If you owe more on your vehicle than the exemption allows, you’ll need to repay the rest in a Chapter 13 bankruptcy or give up the vehicle if you’re filing Chapter 7. 

California household goods exemption

This exemption allows you to declare any item in your home that’s worth less than $800. The items you declare must be considered necessary, so be careful when choosing what you declare as exempt.  

California wildcard exemption

If you qualify for this exemption, you can use any part of the homestead equity you didn’t use plus an additional $1,700 to declare any property you choose as exempt.  

These are only some of the exemptions that are available under California law. To learn what else might be exempt, you should speak with an attorney so you can decide the best course of action.  

Will filing for bankruptcy in California erase your debt? 

Filing bankruptcy in California can erase many types of debt. However, there are some types of debt you may still be responsible for, even if you choose to file Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, some of your debt might be discharged immediately due to exemptions, but you’ll need to pay the rest in installments. 

The types of debt you might not be able to discharge include tax debts and student loans. While discharging student debt is difficult, it’s not impossible, so discuss with your attorney whether it’s worth it to try. Tax debts can’t be erased, but you may be able to repay them over time as part of a Chapter 13 bankruptcy.  

What property will you get to keep after filing? 

If you’ve filed a Chapter 7 bankruptcy, you’ll lose any property that’s not exempt that you owe money on. In a Chapter 13 bankruptcy, you’re often allowed to keep your car, house and other property while you repay the debt. If you default on your bankruptcy payments, the court-appointed trustee may file a motion to have your case dismissed, which would allow your lenders to foreclose on your home or repossess your vehicle.  

Is bankruptcy the right choice for you? 

If you owe medical debt, are behind on your house or car payments or have a lot of credit card debt, it’s easy to feel despair over your financial situation. While bankruptcy is an option, it’s only right in certain situations.

The credit advisors at CreditRepair.com can help you review all your options before you take this step. We’re also able to help you dispute inaccuracies on your credit report

Note: The information provided on CreditRepair.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.

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If your finances are stressing you out, you have the option of filing for bankruptcy. Keep reading to learn what bankruptcy is, find out about the differences between Chapter 7 and Chapter 13 bankruptcy and learn what steps you need to take to file bankruptcy in Texas.

What is bankruptcy?

Bankruptcy is a legal process that helps people who are struggling to pay their debts. When you decide to file for bankruptcy in Texas, you file a petition with a federal bankruptcy court. The petition provides information about your income, assets, expenses and debts. It also indicates whether you want to file a Chapter 7 bankruptcy or Chapter 13 bankruptcy.

Chapter 7 bankruptcy

In a Chapter 7 bankruptcy, the trustee collects any property that isn’t exempt, sells it and uses the proceeds to pay your creditors. To qualify for this type of bankruptcy, you must pass a means test, which determines whether you have enough disposable income to repay your debts.

Chapter 13 bankruptcy

Some people have too much disposable income to file for Chapter 7 bankruptcy. If you’re one of them, you may be able to file for Chapter 13 bankruptcy instead. Chapter 13 allows you to set up a plan for repaying some or all of your debts. Depending on how much you earn, your repayment plan may last for three to five years, during which time you’ll make payments to your creditors.

One of the benefits of filing for Chapter 13 bankruptcy is that it gives you an opportunity to catch up on missed mortgage payments, which may help you prevent foreclosure. You may also be able to lower your monthly payments on other debts.

How to file for bankruptcy in Texas

The bankruptcy rules are outlined in Title 11 of the U.S. Code, so bankruptcy is a federal matter. That said, Texas is one of the states that allows filers to choose whether to use the state exemptions or the federal exemptions. As a result, filing for bankruptcy in Texas is a little different from filing in many other jurisdictions. Here are the basic steps you need to take to file for bankruptcy in the Lone Star State.

1. Visit the United States Courts website to learn more about bankruptcy.
2. Determine if you qualify for bankruptcy. For both Chapter 7 and Chapter 13, you can’t file if you had a bankruptcy dismissed within the previous 180 days due to your failure to comply with the court’s instructions or appear before the court when required. The 180-day rule also applies if your bankruptcy was voluntarily dismissed because your creditors asked the court to grant them relief related to certain assets.
3. Think about hiring an attorney. Bankruptcy is a complex process, and your case could be dismissed if you make a mistake on your petition or any other forms you file. An attorney can advise you on whether bankruptcy is the best option for your situation, help you determine if you qualify for Chapter 7 or Chapter 13 and guide you through the process from beginning to end.
4. Gather supporting documentation and fill out the required bankruptcy forms. You’ll need documents related to your income, expenses, assets and debts, so look for tax returns, pay stubs, 1099 forms, copies of your monthly bills, bank statements, credit card statements, loan agreements and other related paperwork.
5. Stop making payments on qualifying (dischargeable) debts. Since those debts are going to be discharged anyway, it doesn’t make sense to keep paying them when you could use the money to pay debts that don’t qualify for discharge. An attorney can advise you on which debts qualify for discharge so you don’t stop making payments on the wrong accounts.
6. Take a credit counseling course. All filers are required to participate in credit counseling, regardless of whether they file for individual bankruptcy or business bankruptcy.
7. Complete and file your bankruptcy petition, along with all the supporting documents required to verify that you qualify.
8. Attend the 341 meeting of the creditors. During this meeting, the bankruptcy trustee asks you questions about your petition and supporting documents. Your creditors also have an opportunity to attend the meeting and ask questions related to your case.
9. Complete your pre-discharge debtor education course, file your course certificate and receive your debt discharge.

What are the Texas bankruptcy exemptions?

Bankruptcy exemptions allow you to protect certain property from your creditors. In Texas, some of the state exemptions are more favorable to filers than the federal exemptions, making it wise to discuss your situation with an attorney and determine which set of exemptions to use.

• Texas homestead exemption: Texas allows most filers to exempt the full value of their homes in a bankruptcy. This applies to residences on 10 acres or less in a city or 100 acres or less in the country.
• Texas motor vehicle exemption: Under Texas law, you can exempt the full value of one vehicle per licensed household member.

Texas also allows filers to exempt some of their personal property. For a single individual, personal property is exempted if it has a total market value of no more than $50,000. If personal property is provided for a family, then it’s exempt as long as it has a total market value of no more than $100,000.

Wages, health aids prescribed by a doctor, religious books/texts and alimony/support payments are exempt, but they’re not included in the market value limits above.

You should also be aware of the following personal property exemptions:

• Tools and vehicles used for farming or ranching
• Home furnishings
• Clothing
• Jewelry up to a certain limit
• Tools, books and equipment used for a job or trade
• Athletic equipment/sporting goods
• Two firearms
• Certain animals for consumption (e.g., 120 fowl, 12 head of cattle); exemption includes food for the animals
• Household pets
• Ingredients and equipment used to prepare meals/items for consumption

Will filing for bankruptcy in Texas erase your debt?

Chapter 7 bankruptcy wipes away most of your unsecured debt, giving you a fresh start. Unsecured debts are debts that aren’t secured by any collateral, such as credit cards, past-due utility bills, medical bills, personal loans and collection agency accounts.

Chapter 7 bankruptcy doesn’t eliminate spousal support or child support payments, court fines, criminal restitution, debts to government agencies and certain other types of debts. Chapter 13 bankruptcy doesn’t erase your debt; it just allows you to set up a repayment plan with your creditors.

What property will you get to keep after filing?

You should be able to keep anything that’s considered exempt, such as your home, clothing, home furnishings and tools you use for your job.

If you have personal property with a market value above the exemption limit ($50,000 for individuals and $100,000 for families), the trustee may sell some of the excess property and use the funds to repay your creditors. It all depends on which type of bankruptcy you file, what kind of property you own and other factors.

Is bankruptcy the right choice for you?

Again, it depends on your situation. If you have a lot of unsecured debt and don’t own your own home, bankruptcy may be a good option, as your unsecured debt will be wiped away and you won’t have to worry about finding a new place to live.

Even if you do own a home, bankruptcy may be right for you if most of your debts are dischargeable and you want to stop the calls from collection agencies or prevent your creditors from taking legal action against you. If most of your debt isn’t the kind that can be discharged in a bankruptcy, however, you may want to explore other options.

Bankruptcy has a big impact on your credit score, so think carefully before you decide to file. A credit repair company can help you determine the right course of action.

Note: The information provided on CreditRepair.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.

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Personal bankruptcies rates have remained historically low in the past few years. Read on to find out bankruptcy rates by state, what you should do if you’re facing bankruptcy and how to maintain good credit.

How to understand bankruptcy rates

When discussing bankruptcy, it’s important to know that there are several main types of personal bankruptcies.

Chapter 7: Requires asset liquidation and is mostly used by individuals who don’t have sufficient funds to pay off their debt. It offers the complete elimination of certain types of existing debt.

Chapter 13: Reserved for individuals with a regular income. It stipulates a debt repayment plan not to exceed five years.

The simplest way to understand bankruptcy rates is that they represent the number of people who—for whatever reason—were unable to pay their debt and sought relief. Most filers choose either Chapter 7 or Chapter 13, depending on their personal circumstances.

Chapter 7 allows for the discharge of certain types of debt without repayment but may result in asset forfeiture. Conversely, Chapter 13 requires a payment plan and in exchange, filers can typically retain ownership of certain assets, such as their home.

What does the bankruptcy landscape look like in 2022?

After rising steadily from the 1980s to the early 2000s, bankruptcy rates hit a new record in 2005 at over 2 million cases. Since then, the numbers have largely declined, and in 2021, fewer than half a million bankruptcies were filed. This downward trend has continued through early 2022, with bankruptcy rates remaining lower than in previous years.

However, bankruptcy rates are starting to inch back up after historic declines. With pandemic-related aid receding and inflation rising, households are feeling the squeeze, and bankruptcy rates are expected to continue to rise throughout 2022.

Bankruptcy rates by state

These are the bankruptcy rates by state for 2021, according to the American Bankruptcy Institute. In 2021, there were a total of 397,069 bankruptcies filed. *Cases included in totals reference commercial business as part of bankruptcy petition filing.

The first thing to consider when you’re facing bankruptcy is to consider alternative steps you can take to avoid filing for bankruptcy if you’re struggling to pay your debt.

Things to consider if you are facing bankruptcy

1. Debt settlement

A debt settlement is an agreement you make with your creditors to reduce the balance owed and pay a lump sum as opposed to monthly installments. This is an alternative to bankruptcy that is generally reserved for unsecured debts, such as credit cards and medical bills. Generally, secured debts are ineligible for settlement.

Debt settlement often facilitated by a for-profit company that charges a fee on the original debt amount and then serves as an intermediary between you and the original creditor by collecting payment and holding the money in escrow. The debt settlement company negotiates on your behalf to secure more favorable repayment terms and conditions.

2. Debt consolidation

Debt consolidation is the process of combining multiple debts into one and refinancing at a lower interest rate. This type of refinancing works for high-interest unsecured debts, such as credit cards. You can effectively achieve debt consolidation by either taking out another loan to cover your debt or by borrowing against other assets, such as your home or your 401(k).

3. Hire a lawyer

A lawyer is one expense you don’t want to spare when facing bankruptcy. A bankruptcy lawyer can guide you through the process of filing for bankruptcy and help you understand what to expect. They’ll gather information about your financial situation and represent you at any hearings related to your case.

4. Prepare for credit counseling

Before you can file for most bankruptcies, you’ll need to attend credit counseling, which is required by the U.S. Department of Justice. In this session, a certified credit counselor will “review your income and expenses, discuss alternatives and help you develop a personal budget.” (Debt.com)

Credit counselors also evaluate your ability to repay your debt and confirm your need to file for bankruptcy. The Department of Justice maintains a database of approved credit counseling agencies for individuals pursuing bankruptcy.

5. Understand the long-term consequences of filing for bankruptcy

While bankruptcy is almost never desirable, it’s not all bad news. Bankruptcy can provide a viable path out of overwhelming debt and offer relief from debt collectors’ persistent communication.

However, be aware that filing for bankruptcy doesn’t necessarily mean an automatic blank slate, and you may see negative impacts on your life and finances long after you file. These may include:

• Difficulty renting an apartment or getting hired for a job
• Your bankruptcy proceedings are public records and discoverable by anyone
• Your credit will be adversely impacted for up to 10 years

How to work on your credit

No matter if you are considering bankruptcy or not, never forget that your credit can benefit from good money habits and staying in control of your finances. Here are a few helpful tips for working on your credit.

1. Set up automatic payments

Paying your bills on time is one of the oldest and most helpful tricks in the book for keeping your credit healthy. By turning on automatic payments, you can be sure you won’t miss a payment and get hit with a late fee, which can hurt both your bank account and your credit score. Some companies even offer you a discount for using automatic payments.

2. Become an authorized user on another account

You can benefit from a friend or family member’s healthy financial practices by becoming an authorized user on their account. The basis of this method is that your credit gets a boost by them simply keeping on top of their bills while you’re connected to their account. Make sure the person you choose has a strong credit history and that they report you to the credit bureaus as an authorized user. Who can be added varies by creditor, so this isn’t an option for everyone.

3. Leave old accounts open

Even if you’re no longer using a credit card, it may still make sense to keep the account open. Doing so could help bolster your credit score by increasing the amount of credit you have available and decreasing your credit utilization ratio. Generally speaking, the longer an account is open in good standing, the more it helps your overall credit history.

As bankruptcy rates rise, you can avoid becoming another statistic by developing effective ways to manage debt or stay out of it entirely. Cultivate positive financial habits and consider working with CreditRepair.com to use their experience to help get your credit back on track.

The first thing to consider when you’re facing bankruptcy is to consider alternative steps you can take to avoid filing for bankruptcy if you’re struggling to pay your debt.

Note: The information provided on CreditRepair.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.

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There are certainly many things that can negatively impact your credit score, some more than others. If you are worried about your credit or are trying to maintain a good score, it is helpful to know items on your credit report could cause the biggest impact on your score.

Below we’ve outlined four issues that could cause the biggest drop in your credit score. We have also listed the average point loss for each item.

How Much Does a Bankruptcy Lower Your Credit Score?

The higher your starting score, the more points you’ll lose for filing for bankruptcy. For a person with a credit score of 680, filing for bankruptcy will lower your score by 130-150 points. For a person with a score of 780, filing for bankruptcy will cost you 220-240 points.

How Much Does a Foreclosure Lower Your Credit Score?

According to FICO, if your credit score is 680, a foreclosure will drop your credit score on average by 85 to 105 points. If your credit score is excellent, at 780, a foreclosure will drop your score by 140 to 160 points. In other words, the higher your credit score, the more your score will be affected.

How Much Does a Late Payment Lower Your Credit Score?

One late payment could have a more significant impact on higher credit scores. According to FICO data, a 30-day delinquency could cause as much as a 90- to 110-point drop on a FICO Score of 780 for a consumer who has never missed a payment on any credit account.

How Much Does a Car Repossession Lower Your Credit Score?

Having your vehicle repossessed could cause a 100-point drop in your credit score. And late payments, collections, and public records generally all stay on your credit for about seven years, according to myFICO.com.

For most people, the above issues are unavoidable but in certain circumstances, it is a choice to make depending on your financial situation. If you are swimming in debt and are debating filing for bankruptcy, for instance, you may want to consider a few things first. In that scenario, if your credit score is already low due to late payments, high debt-to-income ratio, and delinquent accounts, you could potentially improve your credit quicker by filing for bankruptcy as it would not have as big an impact on your score but would give you the fresh start needed to start rebuilding your credit.

For assistance with credit repair or counseling, contact Credit Absolute.

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