California Chapter 7 Bankruptcy: How Liquidation Works

Chapter 7 is liquidation bankruptcy: a trustee can sell nonexempt property to pay creditors, and the individual debtor receives a discharge of most unsecured debts (11 U.S.C. § 727). It requires passing the means test and completing credit counseling. Most California filers keep their property using California's exemptions.

This is general information, not legal advice. Whether Chapter 7 is right for you is fact-specific — talk to a California bankruptcy attorney.

Chapter 7 is the most common consumer bankruptcy. It’s often called liquidation because a trustee can sell your nonexempt property to pay creditors — though in practice, most California filers keep everything.

How liquidation works

When you file Chapter 7, a trustee reviews your assets. The trustee can sell nonexempt property and distribute the proceeds to creditors. In exchange, the individual debtor receives a discharge of most unsecured debts (11 U.S.C. § 727), like credit cards and medical bills. In most consumer cases there’s nothing nonexempt to sell — these are “no-asset” cases — so you keep your property.

What you have to do first

Chapter 7 has two gatekeeping steps:

Credit counseling — you must complete a briefing from an approved agency before filing (and a debtor-education course before your discharge).
The means test — you must qualify based on your income. See the means test for how that works in California.

Keeping your property

What you keep depends on California’s exemptions. California is unusual: you choose between two state systems and cannot use the federal exemptions. Read California exemptions to understand the homestead, wildcard, and other protections.

What filing does immediately

The moment you file, the automatic stay stops most collection. After your case, the discharge permanently bars collecting wiped-out debts — though some debts survive. See automatic stay & discharge.

If you have regular income and want to catch up on a mortgage or car instead, compare Chapter 13.

To get matched with a local California bankruptcy attorney, connect with a lawyer.

Frequently asked questions

Will I lose my property in Chapter 7?

Usually not. A trustee can only sell nonexempt property, and most California filers keep their property using California's exemptions. The property you can protect depends on which California exemption system you choose.

Do I have to take a class before filing Chapter 7?

Yes. Chapter 7 requires completing credit counseling from an approved agency before filing (and a debtor-education course before discharge), in addition to passing the means test.

What debts does a Chapter 7 discharge wipe out?

A discharge under 11 U.S.C. § 727 eliminates most unsecured debts like credit cards and medical bills. Some debts are non-dischargeable — see automatic stay & discharge.

Related guides

Automatic Stay & Discharge in California Bankruptcy Filing bankruptcy triggers the automatic stay (11 U.S.C. § 362), an immediate halt to most collection — lawsuits, wage garnishment, repossession, and foreclosure. A discharge (11 U.S.C. § 524, § 727) permanently bars collecting discharged debts, but some debts are non-dischargeable (11 U.S.C. § 523), including most recent taxes, student loans, child support, alimony, and fraud debts.

California Bankruptcy Exemptions California opted out of the federal bankruptcy exemptions, so filers cannot use the federal § 522(d) set. Instead California offers a choice between two state systems — you must pick one, not mix: the CCP § 704 series (with a large homestead under § 704.730) or the CCP § 703.140(b) bankruptcy-only set (with a wildcard at § 703.140(b)(5)).

Chapter 13 Bankruptcy in California Chapter 13 is a repayment plan over 3 years (if you're below California's median income) or up to 5 years (at or above median); no plan exceeds 5 years (11 U.S.C. § 1322(d), § 1325). It lets people with regular income cure a mortgage or car default and keep their property.

The Chapter 7 Means Test in California The Chapter 7 means test (11 U.S.C. § 707(b)) compares your income to the median income for your household size in California. Below median, you generally qualify; above median, a disposable-income calculation may create a presumption of abuse. California's median figures update periodically via the U.S. Trustee.

Chapter 7 Bankruptcy in California