The first thing a bankruptcy attorney in Walnut Creek will try to work out with you is whether Chapter 7 or Chapter 13 fits. Four factors usually settle it: your household income, whether you own a home and how much equity it holds, the kinds of debt you carry, and what you need the case to accomplish. This framework walks through each one.
If you would rather talk it through with a lawyer now, call (415) 754-0115 to schedule a free consultation, or use our contact page.
The quick version
Chapter 7 is a liquidation case that usually ends in a discharge within a few months. Most people keep their property because California exemptions protect it, but anything unprotected can be sold by the trustee.
Chapter 13 is a reorganization. You keep your property and pay a portion of your debts through a court-supervised plan lasting three to five years. It is slower but more flexible, especially for homeowners.
Neither is automatically better. The right choice depends on the answers below.
Question 1: What does your household earn?
Income is the gatekeeper for Chapter 7. The means test starts by comparing your average household income over the six calendar months before filing with the California median for a household of your size.
If you are below the median
You generally qualify for Chapter 7 on income grounds, though the trustee still reviews your budget.
If you are above the median
Many Walnut Creek households are, especially with two earners. That does not end the analysis. The second part of the test subtracts allowed living expenses, secured debt payments and priority debts to calculate disposable income. Some above-median filers still qualify for Chapter 7; others are directed toward Chapter 13, typically with a five-year plan.
Income that swings
Commission, bonuses, stock vesting or a recent job loss can make the six-month lookback misleading. Timing the filing can change the result, which is one reason to get advice before choosing a date. Our article on the bankruptcy means test in California explains the calculation.
Household size and who counts
The median figure depends on how many people are in your household, and determining that number is not always obvious when adult children, a partner or a relative share expenses. A non-filing spouse's income is also included, with adjustments for money that does not go toward household costs.
Question 2: Do you own a home, and how much equity does it hold?
Renters and owners with little equity
Chapter 7 is often straightforward. California's System 2 exemptions, with their wildcard, may protect savings and a vehicle.
Owners with equity covered by the homestead exemption
Chapter 7 may still work. California's System 1 homestead exemption is tied to the county median home price, which in Contra Costa County can protect a meaningful amount of equity.
Owners with equity beyond the exemption, or behind on payments
This is where Chapter 13 usually earns its place. It lets you keep the home, cure missed mortgage payments over the plan, and stop a scheduled trustee's sale if you file before it happens.
Question 3: What kind of debt are you carrying?
- Credit cards, medical bills, personal loans: generally dischargeable in either chapter.
- Recent income taxes and support arrears: not discharged in Chapter 7. Chapter 13 lets you pay them over time with protection from collection.
- Car loans: in Chapter 13, a loan on a vehicle bought more than 910 days before filing can sometimes be reduced to the car's value.
- Student loans: usually survive either chapter unless you prove undue hardship in a separate proceeding.
- Co-signed consumer debts: Chapter 13 includes a co-debtor stay that can protect a relative who co-signed, while Chapter 7 does not.
Business debts matter too. If most of what you owe comes from a business you operated rather than personal spending, the means test may not apply at all, which can open the door to Chapter 7 for a higher-income household.
Question 4: What does the case need to accomplish?
A fast, clean fresh start
If you have no house to save and qualify on income, Chapter 7 is usually quicker and simpler.
Protecting something specific
If the goal is keeping a house, catching up a car loan, shielding a co-signer or paying taxes without levies, Chapter 13's structure is often the reason to choose it.
When neither chapter fits
Sometimes the numbers point away from bankruptcy entirely: toward negotiating directly with creditors, a loan modification, or an IRS installment agreement. A useful comparison of those routes appears in our article debt settlement vs bankruptcy.
How a bankruptcy attorney in Walnut Creek puts it together
In practice, a lawyer runs your figures through the means test, values your property against the exemption systems, sorts your debts into dischargeable and non-dischargeable categories, and weighs all of that against your goals. The result is usually a clear recommendation, sometimes with a timing strategy such as waiting a month for income to fall out of the lookback period.
The Somal Law Firm is attorney Bob Somal's boutique practice in Pleasanton, a short drive south of Walnut Creek on I-680. The firm focuses on representing the little guy, and its practice areas span both bankruptcy chapters as well as foreclosure defense, debt settlement and IRS disputes.
Frequently asked questions
Can I switch from Chapter 13 to Chapter 7 later?
Generally, yes. A Chapter 13 debtor can usually convert to Chapter 7 if circumstances change, provided they qualify at that point.
Which chapter is easier on my credit?
Chapter 7 usually stays on a credit report for up to ten years and Chapter 13 for up to seven, but many people rebuild credit well before those periods end.
Is there a waiting period between filings?
Yes. A prior discharge limits when you can receive another one, and the waiting period depends on which chapters were involved in each case.
Do I have to repay everything in Chapter 13?
Not usually. Many plans pay only part of unsecured debt, with the remaining balance discharged when the plan is completed.
When you get in touch, Bob Somal will run through these four questions with your actual numbers and explain which path, if any, makes sense. Call (415) 754-0115 to book a free consultation, or use our contact page.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.