Bankruptcy in California
Are you drowning in debt and unsure of your next step? Financial setbacks can happen to anyone, and when they do, it’s easy to feel stuck without a clear way out.
Bankruptcy may be the relief you need. Whether caused by medical expenses, job loss, or credit card debt, bankruptcy can stop collection actions, pause foreclosures, and eliminate or restructure what you owe.
California’s bankruptcy process comes with its own set of rules and exemptions. If you’re thinking about filing, don’t face it alone. A local bankruptcy attorney can help you understand your options.
Types of Bankruptcy in California
Bankruptcy is a legal process designed to help individuals and businesses in regain control of their finances. It allows you to eliminate or restructure debt when repayment is no longer possible.
To qualify, you’ll need to demonstrate a genuine financial hardship that prevents you from staying current on your obligations. However, not all debts can be discharged. Child support, alimony, certain tax liabilities, and most student loans generally remain your responsibility.
If you’re falling behind and can’t see a way forward, bankruptcy may offer a solution. The three most common options—Chapter 7, Chapter 11, and Chapter 13—each serve different needs based on your income, assets, and long-term goals.
Choosing the right chapter is a critical decision that can affect your financial recovery and future stability. An experienced bankruptcy attorney can help you evaluate your situation and guide you through the filing process.
In California, bankruptcy cases are handled by the United States Bankruptcy Courts for the Northern, Eastern, Central, and Southern Districts of California. Each district serves specific counties and oversees filings for Chapters 7, 11, and 13, with court locations in cities such as San Francisco, Sacramento, Los Angeles, and San Diego.
Chapter 7 Bankruptcy
For many people in , Chapter 7 bankruptcy offers a clean financial break when debt becomes unmanageable. It’s often the best option for individuals who have little to no disposable income and need a fresh start.
But before you file, it’s important to take a clear look at your finances—including what you owe, what you earn, and what assets you want to protect. A bankruptcy attorney can help you understand whether a liquidation plan fits your needs.
Chapter 7 is generally intended for people who’ve lost income or experienced a major financial shift that makes it impossible to stay current on bills. While it can eliminate many types of debt, the tradeoff is that you may have to surrender non-exempt assets, including your home, vehicle, or other property.
Once your petition is filed, an automatic stay goes into effect and temporarily stops most collection efforts, like wage garnishments, foreclosures, and lawsuits.
In California, Chapter 7 may not be the right fit if you have a steady income or valuable property you want to keep. In these situations, Chapter 13 might be a better option, as it allows you to restructure what you owe and catch up on payments. Business owners or individuals with complex finances may benefit more from Chapter 11, which offers broader flexibility for debt reorganization.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is more involved than other types and is typically used by businesses or individuals with complex financial situations. It allows you to reorganize your debts through a court-approved repayment plan, usually lasting between four and 18 months.
Unlike Chapter 7, Chapter 11 doesn’t require you to sell off your assets to pay creditors. Instead, it gives you the chance to negotiate new terms with creditors and restructure what you owe. You keep control of your property as long as you stay current on payments.
Filing for Chapter 11 bankruptcy in California requires detailed financial documentation and strict compliance with court procedures. You’ll start by submitting a petition to the U.S. Bankruptcy Court serving your district, along with a complete set of schedules and disclosures that outline your financial condition. Here are the core documents you’ll need to include:
- Voluntary Petition (Official Form 101)
- Schedules A/B through J (assets, liabilities, income, expenses, and more)
- Statement of Financial Affairs (Official Form 107)
- List of all creditors with names and addresses (creditor matrix)
- Disclosure of attorney compensation
- Balance sheet, cash flow statement, and statement of operations (for businesses)
- A proposed reorganization plan (filed later in the process)
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, often called a wage earner’s plan, allows individuals in to reorganize their debt through a structured repayment plan. After you file, the court assigns a trustee to review your financial situation, looking closely at your income, assets, and overall ability to repay.
Instead of liquidating property, you’ll follow a three- to five-year repayment plan based on what you can afford and what you want to keep. If you complete the plan successfully, remaining eligible debts may be discharged, giving you a chance to regain control without losing everything you’ve worked for.
The process also involves more long-term court oversight. You’ll need to submit a detailed repayment proposal early on, which the court and a trustee must approve. From there, you’ll make monthly payments to a trustee, who distributes the funds to your creditors.
Throughout the plan, you’re expected to stay current on both plan payments and any new financial obligations. While Chapter 13 takes longer and requires more structure, it offers greater protection for your property and a clearer path to rebuilding your financial foundation.
The Bankruptcy Process in California
There’s rarely a perfect time to file for bankruptcy, but if your debt is more than you can realistically pay off in five years, it may be time to take action. Bankruptcy can give you the structure and protection you need to stop the financial spiral and start building a more stable future.
In California, the bankruptcy process follows federal law but applies one of two state-specific exemption systems—System 1 (703) or System 2 (704)—depending on what property you need to protect. These exemptions determine what assets you can keep during a Chapter 7 liquidation or how much you’ll need to repay in a Chapter 13 plan.
Choosing the right system is critical to preserving your financial foundation. Here are some of the key protections available under California law:
- System 1 (703):
- Homestead exemption: up to $31,950
- Wildcard exemption: up to $1,550 plus any unused portion of the homestead exemption (up to $30,825 total)
- Personal property, including household goods, appliances, and clothing
- Retirement accounts and pensions
- Tools of the trade: up to $8,000
- System 2 (704):
- Homestead exemption: up to $678,391 (depending on county and recent home sale values)
- Vehicle: up to $3,625
- Household items: reasonable and necessary value
- Public benefits: fully exempt
- Retirement accounts and pensions
In the six months leading up to a bankruptcy filing, it’s important to manage your finances carefully. Avoid unnecessary spending and don’t increase your credit card balances—doing so could raise concerns with the court. You’ll also need to complete a credit counseling course from a court-approved provider, which is typically offered online or by phone.
Work With an Experienced California Lawyer
If you’re facing overwhelming debt in California, bankruptcy may offer a clear path to relief and recovery. Whether you’re considering Chapter 7, 11, or 13, understanding how California’s exemption systems work—and how they apply to your situation—is essential to protecting your assets and making informed decisions.
The process can be complex, but you don’t have to navigate it alone. A qualified California bankruptcy attorney can help you choose the right chapter, prepare your paperwork, and guide you every step of the way.
If you’re ready to take control of your financial future, submit a request online or call us at (866) 345-6784!
About the Author
Aaron is a professional legal writer with a B.S. in English Education from Southern Illinois University – Carbondale. He has written, published, and edited thousands of legal articles for RequestLegalHelp, which has connected over 5 million people to legal help in the United States.
With over five years of experience writing thousands of legal articles for law firms across the U.S. and Canada, Aaron specializes in covering federal, state, and city-level legal issues ranging from auto accidents to wrongful terminations.
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