Bankruptcy in California

Bankruptcy in California

It is obvious that California residents and businesses have suffered, and are continuing to experience the hardship, of the current economic crisis.

According to the Administrative Office of the U.S. Courts, bankruptcy filings for California are as follows:

  • In the Northern District of California, total bankruptcy filings have increased by 68.2% from 2007 to 2008.  In 2007, there were 12,599 filings.  In 2008, there were 21,196 filings.
  • In the Eastern District of California, total bankruptcy filings have increased by 78.1% from 2007 to 2008.  In 2007, there were 18,052 filings.  In 2008, there were 32,154 filings.
  • In the Central District of California, total bankruptcy filings have increased by 93.5% from 2007 to 2008.  In 2007, there were 34,028 filings.  In 2008, there were 64,856 filings.
  • In the Southern District of California, total bankruptcy filings have increased by 76.6% from 2007 to 2008.  In 2007, there were 7,936 filings.  In 2008, there were 14,017 filings.

California Bankruptcy Law and Exemptions. An exemption is a legal concept in bankruptcy law that allows debtors to claim or list certain property to avoid liquidation or sale of all such property for payment of any debt owed.  Debtors are allowed to retain exempt property after bankruptcy free from creditors’ claims.  California bankruptcy law gives debtors a choice between federal and state law exemptions.  State law exemptions are listed on the Code of Civil Procedure Section 704 and the federal law exemptions are listed on the Code of Civil Procedure Section 7013.140.  Obviously, debtors want to choose the set of exemptions that allows them to claim as much of their property as possible.

California is a community property state. It is also important to remember that California is a community property state.  Why does this matter for bankruptcy?  Since California is a community property state, the general rule is that any property or assets acquired by husband and wife during the marriage belongs equally to both spouses.  Therefore, if they buy a car, in California they each on 50% of the car.  However, more importantly for California bankruptcy filers is that debts are also shared between husband and wife.  This should factor into the decision whether one spouse should file or both.