Chapter 7

Chapter 7 bankruptcy, also known as "liquidation bankruptcy," is a type of bankruptcy that involves the sale of a debtor's non-exempt assets to pay off their creditors. After the assets are sold, any remaining debt is discharged.

The homestead exemption in California is based on the median home value in the county where the debtor resides. As of 2021, the homestead exemption in California is the lesser of (1) $300,000 or (2) the median home value in the county where the debtor resides, up to $678,378 as of 2023. This means that homeowners in California can protect up to the lesser of $300,000 or the median home value in their county when filing for bankruptcy.  

What's more, as of 2023, debtors may also exempt up to $7,500 of combined vehicle equity (the amount of value of a vehicle that is greater that the loan amount). 

For those who do not own a home, the "wildcard" exemption allows debtors to protect a bit more than $30,000 of any type of asset, such as $30,000 of cash. 

Generally, under both the homestead and wildcard scheme, typical retirement accounts such as 401(k)s have no exempting limit and are wholly protected from bankruptcy liquidation. 

To qualify for Chapter 7 bankruptcy, a debtor must pass a means test, which is used to determine whether the debtor has the ability to repay their debts. If the debtor's income is below the median income for their state, they will automatically qualify for Chapter 7 bankruptcy. If their income is above the median, they may still be eligible if they can demonstrate that they do not have enough disposable income to pay off their debts.

Once a debtor has filed for Chapter 7 bankruptcy, an automatic stay goes into effect, which means that creditors must stop all collection efforts, including phone calls, letters, and lawsuits. The bankruptcy trustee will then sell the debtor's non-exempt assets and use the proceeds to pay off the creditors. After the assets have been sold and the creditors have been paid, any remaining debt is discharged.