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Chapter 7 – Liquidation

A chapter 7 bankruptcy allows a debtor to have nearly all of their current debt discharged by the US Bankruptcy Court, meaning the debtor is no longer liable for the debts.  There are a few exceptions to this discharge of debt, including taxes, student loans, and domestic support obligations, but you should have an attorney review your situation as some exceptions do apply which would qualify you to receive a discharge for these types of debts.  

Traditionally, the trustee for the US Bankruptcy court would have most of the debtor's assets liquidated to cover some of the debts that were discharged.  However, California has some of the most generous exemptions that allow most of a debtor's assets to be protected from liquidation. California has developed two plans under which debtors filing for bankruptcy can apply exemptions to certain assets to protect them from liquidation by the bankruptcy trustee.  Consulting with an attorney will allow you to properly determine which of the two California plans apply best to your particular situation. 

Not everyone is eligible for a Chapter 7 bankruptcy.  The US Bankruptcy Code has placed income limitations on those who are eligible for protection under Chapter 7.  If your income does not qualify, you could still be eligible if you pass the means test.  The means test simply calculates your income and expenses to determine eligibility under Chapter 7.  Making a proper determination of your eligibility is imperative as an improper determination could result in a delay, or worse, a dismissal of your petition.  It could also affect your decision on whether you should file a Chapter 13 bankruptcy instead.  Having the correct information is valuable in this decision making process and that can best come from a bankruptcy attorney.  

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