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Chapter 7

Chapter 7 bankruptcy is the most common form of bankruptcy, the one that is referred to as a "liquidation" because it liquidates all debt, practically overnight.  There is no repayment plan.  The process is effectively telling your creditors that you cannot afford to pay them back, period, not because of bad faith but because your income is too low to allow you to pay back your debts.  In our experience, 99% of Chapter 7 bankruptcies are good faith bankruptcies.

The success of a consumer-debt Chapter 7 bankruptcy depends on a means test calculation.  The means test tells the bankruptcy court whether you are entitled to a discharge of your debts or not.  It is based on the size of your household, the income of the family, the monthly expenses and the deductions you can take for expenses such as food, health care, insurance, rent or mortgage, car loans, taxes, etc.

Chapter 7 bankruptcy also looks at the value of your assets, principally - and especially in the Bay Area - your real estate assets.  Homeowners should usually file Chapter 13 bankruptcy rather than Chapter 7, unless there is little or no equity in their home.


Bankruptcy law does not expect filers to have nothing left but the shirt on their back after filing bankruptcy. Bankruptcy exemption means property "exempt" from the reach of creditors, in other words property that bankruptcy filers can safely keep as their own. The property that bankruptcy filers can keep is rather generous in California. Filers can choose between two sets of exemption: 

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