Frequently Asked Questions About Bankruptcy

What is bankruptcy, and how can it help me?

Bankruptcy is a legal process created by federal law that gives honest people and businesses who cannot keep up with their debts a fresh financial start. Depending on the chapter you file, bankruptcy can eliminate qualifying debts entirely, reorganize what you owe into an affordable monthly payment, stop collection lawsuits, halt wage garnishments, and prevent foreclosure or repossession. For most of our clients (and friends), the greatest immediate benefit is peace of mind: the moment your case is filed, most creditors are legally required to stop contacting you. Guenther Law Group helps you understand which type of relief fits your circumstances and guides you through every step.

What types of bankruptcy can individuals and businesses file in California?

The three most common chapters are Chapter 7 (liquidation — a full discharge of qualifying debts, typically in a few months), Chapter 13 (a three-to-five-year repayment plan for individuals with regular income), and Chapter 11, including its streamlined small business track known as Subchapter V. Individuals most often file Chapter 7 or Chapter 13, while businesses that need to keep operating usually turn to Chapter 11 or Subchapter V.  (When the decision is made to close a business, Chapter 7 is the likely choice.)  Choosing the right chapter is one of the most important decisions in the process, and it depends on your income, your assets, the type of debt you carry, and your goals.

Will I lose everything if I file for bankruptcy?

No — this is one of the most common misconceptions we correct. California law provides generous exemptions that protect property such as your home equity, vehicle, household goods, tools of your trade, and retirement accounts. Although Bankruptcy is a federal matter, California’s state exemption laws determine what property you protect, which is why working with a local attorney who knows both the federal court procedures and California exemptions is so valuable. Most of our clients keep all or nearly all of what they own. At Guenther Law Group we review your assets carefully before filing so there are no surprises about what stays protected.

How does bankruptcy stop creditor harassment, wage garnishment, and foreclosure?

The instant your case is filed, a federal court order called the automatic stay takes effect. It legally prohibits creditors from calling you, sending collection letters, filing or continuing lawsuits, garnishing your wages, repossessing your car, or moving forward with a foreclosure sale. The automatic stay applies to virtually all creditors and gives you immediate breathing room. If a creditor violates the stay, it can be held responsible for damages. This powerful protection is often the reason people in financial crisis call our Salinas office.

Where do I file for bankruptcy if I live in Monterey County, San Benito County, Santa Cruz County or Santa Clara County?

Residents of these counties file in the U.S. Bankruptcy Court for the Northern District of California, San Jose Division.   The vast majority of meetings and hearings utilize video conference technology.  That means you can appear from home or the office (or any other quiet location) or you can travel to Mr. Guenther’s office in Salinas to appear with him.   Guenther Law Group appears in this court regularly on behalf of Central Coast clients.

Do I need an attorney to file for bankruptcy?

You are legally allowed to file on your own, but bankruptcy is a technical area of law where a single mistake — choosing the wrong chapter, miscalculating the means test, or failing to properly claim an exemption — can cost you property or result in a dismissed case. An experienced bankruptcy attorney protects your assets, ensures your paperwork is complete and accurate, handles communication with the trustee and creditors, and represents you at all required hearings. With more than 39 years of experience, the attorneys at Guenther Law Group help you avoid costly errors and get the full relief the law allows.

What is Chapter 7 bankruptcy?

Chapter 7 is often the fastest and least expensive way for individuals to eliminate debt. It is sometimes called “liquidation” bankruptcy, but in practice most filers lose no property at all because California exemptions protect it. In exchange for surrendering any non-exempt assets (there usually are none), you receive a discharge that permanently wipes out qualifying debts such as credit cards, medical bills, personal loans, and most other unsecured debt. A typical Chapter 7 case is completed in roughly three to four months.

Do I qualify for Chapter 7 in California?

Eligibility is determined by the means test, which compares your household income to the California median for your family size. As of the figures effective May 15, 2025, the California median annual income is approximately $76,190 for one person, $99,936 for two, $112,536 for three, and $130,845 for four (add about $11,100 for each additional household member). If your income is below the median for your household size, you generally qualify. If it is higher, a second calculation of your disposable income may still allow you to file. These figures are updated periodically, so Guenther Law Group runs the current means test for you before recommending Chapter 7.

What debts are wiped out in Chapter 7 — and what is not?

Chapter 7 discharges most unsecured debts, including credit card balances, medical bills, personal loans, past-due utility bills, and many judgments. Certain debts are not dischargeable, including most student loans, recent income taxes, child and spousal support, and debts arising from fraud. Secured debts like a mortgage or car loan can be discharged, but if you want to keep the collateral you must stay current on those payments. During your consultation we identify exactly which of your debts would be eliminated so you know what to expect.

Can I keep my house and car in a Chapter 7?

In most cases, yes. California’s homestead exemption protects a substantial amount of home equity — currently in excess of $745,000 in the four counties in the San Jose Division.  (This amount is adjusted annually for inflation)  The motor vehicle exemption protects up to $8,625 in vehicle equity under the System 704 rules. As long as your equity fits within the exemptions and you remain current on your mortgage and car loan, you keep your home and vehicle. Guenther Law Group evaluates your equity against the exemptions before filing so your property is fully protected.

How long does a Chapter 7 bankruptcy take?

From filing to discharge, a straightforward Chapter 7 case usually takes about three to four months. After we file your petition, the court schedules a brief meeting of creditors (the “341 meeting”), which your attorney attends with you. If no issues arise, the court issues your discharge roughly 60 days after that meeting. The current federal filing fee for Chapter 7 is $338, though fees are subject to change and installment payments or fee waivers may be available.

What is Chapter 13 bankruptcy?

Chapter 13 is a court-supervised reorganization designed for people with regular income who want to catch up on missed payments or protect property they might lose in a Chapter 7. Instead of liquidation, you propose a repayment plan lasting three to five years in which you pay some or all of what you owe from your future income. When you complete the plan, any remaining qualifying balances are discharged. Chapter 13 is especially powerful for homeowners who have fallen behind on their mortgage.

How is Chapter 13 different from Chapter 7?

Chapter 7 eliminates qualifying debts quickly with no repayment plan, and it is available to filers whose income is below or near the California median. Chapter 13 involves a three-to-five-year repayment plan and is often the right choice when your income is too high to qualify for Chapter 7, when you are behind on a mortgage or car loan and want to keep the property, or when you owe debts that Chapter 7 cannot address. In short, Chapter 7 is about a clean discharge, while Chapter 13 is about reorganizing and catching up while keeping your assets.

How much do I have to pay back in Chapter 13?

Your plan payment is based on your income, your reasonable living expenses, the value of any non-exempt assets, and the types of debt you owe — not necessarily on the full balance of what you owe. Many filers repay only a fraction of their unsecured debt, and the remainder is discharged at the end of the plan. Priority debts (such as recent taxes and support obligations) and secured arrears (such as missed mortgage payments) generally must be paid in full through the plan. Guenther Law Group structures your plan to be both confirmable by the court and realistically affordable for your household.

Can Chapter 13 stop a foreclosure and save my home?

Yes — this is one of the most valuable uses of Chapter 13. Filing triggers the automatic stay, which immediately halts a pending foreclosure sale. The plan then lets you cure your past-due mortgage payments over three to five years while you keep making your regular monthly payments going forward. As long as you stay current under the plan, you can keep your home and bring the loan back into good standing. Many Central Coast homeowners come to Guenther Law Group specifically to stop a foreclosure and save their house.

What are the debt limits for Chapter 13 in 2026?

Chapter 13 is available only to filers whose debts fall below federal limits. For cases filed between April 1, 2025, and March 31, 2028, the limits are $1,580,125 in secured debt and $526,700 in unsecured debt. These amounts are adjusted every three years for inflation. If your debts exceed these thresholds, you may need to consider Chapter 11 instead. We confirm your eligibility as part of preparing your case.

How long does a Chapter 13 plan last?

Your repayment plan lasts between three years and five years, depending largely on how your income compares to the California median. Filers below the median generally have a three-year plan, while those above the median commit to five years. You receive your discharge after you successfully complete all the plan payments. Because the commitment spans several years, it is important to build a realistic plan from the start — something the attorneys at Guenther Law Group focus on carefully.

What are the bankruptcy options for a small business?

A small business generally has three paths. A Chapter 7 liquidation winds the business down and sells its assets to pay creditors, which suits owners who are ready to close. A traditional Chapter 11 reorganization lets the business keep operating while restructuring its debts, but it can be complex and costly. Subchapter V — a streamlined version of Chapter 11 created for small businesses — offers the benefits of reorganization with fewer costs and hurdles. The best choice depends on whether you want to keep the business running and on how your business is legally structured. Guenther Law Group helps Salinas-area owners weigh these options.

What is Subchapter V, and how does it help small businesses?

Subchapter V is a special track within Chapter 11, added in 2020, that makes reorganization faster, cheaper, and more owner-friendly for qualifying small businesses. Among its advantages: the business owner typically retains control, there is no committee of unsecured creditors adding expense, a trustee helps facilitate a workable plan, and the owner can generally keep their equity in the business even if creditors are not paid in full — something not allowed in ordinary Chapter 11. For many Central Coast small businesses, Subchapter V is the difference between saving the company and closing its doors.

What is the Subchapter V debt limit in 2026?

As of January 1, 2026, a business generally qualifies for Subchapter V if its total secured and unsecured debts are no more than $3,424,000 (with at least half arising from business or commercial activity). Congress has repeatedly considered raising this threshold — a temporary $7.5 million limit was in place during the pandemic, and legislation to restore it has been under discussion — so the qualifying amount can change. Guenther Law Group verifies the current limit and whether your business qualifies before filing.

Can I file bankruptcy for my business and keep it running?

Often, yes. Chapter 11 and especially Subchapter V are specifically designed to let a viable business continue operating while it restructures debt, renegotiates leases and contracts, and proposes a repayment plan to creditors. The goal is rehabilitation, not shutdown. Whether your business can successfully reorganize depends on its cash flow and the cause of its financial trouble. We assess whether your business is a good candidate for reorganization and, if so, guide it through the process.

Should a sole proprietor file personal or business bankruptcy?

If you operate as a sole proprietor, you and your business are the same legal entity, so your business debts are your personal debts. That means a personal Chapter 7 or Chapter 13 can address both your business and personal obligations at once, and business debt can even help you qualify for Chapter 7. Owners of corporations, LLCs, and partnerships face different rules because the business is a separate entity. Because the right approach turns on how your business is organized, this is an area where personalized advice from Guenther Law Group is especially important.

What happens if I have personal guaranteed by business debts?

A bankruptcy filed on behalf of your corporation or limited liability company will not stop creditors from enforcing a personal guaranty against you as an individual.  Guenther Law Group deals with these types of situations on a regular basis and can provide you with expert advice on how to address debts that owed by both you and your business.

What is the California homestead exemption, and how much home equity is protected?

California’s homestead exemption protects the equity in your primary residence from creditors and, in bankruptcy, helps you keep your home. The protected amount equals your county’s median home sale price from the prior year, subject to a floor and a ceiling that are adjusted annually for inflation — currently roughly $361,000 at the low end and about $722,000 at the high end. In higher-cost areas of the Central Coast this exemption is substantial and allows most homeowners to keep their homes. We calculate the exemption that applies to your county and situation before filing.

What is the difference between California’s 703 and 704 exemption systems?

California offers two sets of exemptions, and you must choose one. The System 704 exemptions provide the strong homestead protection described above and are usually best for homeowners with significant equity. The System 703 exemptions include a flexible “wildcard” (currently about $1,950 plus any unused homestead amount, for roughly $36,750 in total flexible protection) that can be applied to any property, making it well suited to renters or those with little home equity but other assets to protect, such as cash or a tax refund. Choosing the right system is a strategic decision that can significantly affect what you keep, and it is one we handle carefully for every client.

Can I protect my car, wages, and retirement accounts?

Generally, yes. Under System 704, vehicle equity is protected up to $8,625, and additional exemptions cover household furnishings, tools of your trade, and other essentials. Tax-qualified retirement accounts such as 401(k)s, IRAs, and pensions are broadly protected in bankruptcy. Wages you earn after filing are yours to keep, and the automatic stay stops any ongoing wage garnishment. Because exemption amounts change and the details matter, Guenther Law Group reviews all of your assets to maximize what you protect.

How long does bankruptcy stay on my credit report?

A Chapter 7 bankruptcy generally remains on your credit report for up to 10 years from the filing date, and a Chapter 13 for up to 7 years. However, the practical impact usually fades much sooner. Because bankruptcy eliminates or reorganizes your debt, many people see their credit scores begin to recover within a year or two as their debt-to-income ratio improves and they make new payments on time. The fresh start bankruptcy provides is often a faster route to rebuilding credit than struggling under unpayable debt indefinitely.

Can I rebuild my credit after bankruptcy?

Absolutely. Most people are surprised at how quickly they can rebuild. Practical steps include keeping any remaining accounts in good standing, opening a secured credit card, making every payment on time, and keeping balances low. Many of our clients receive new credit offers within months of their discharge and qualify to finance a car or even a home within a couple of years. Bankruptcy is a beginning, not an end — it clears the way for a healthier financial future, and we are glad to point clients toward reputable rebuilding resources.

How often can I file for bankruptcy?

The law limits how frequently you can receive a discharge. To get another Chapter 7 discharge, you generally must wait 8 years from the filing date of a prior Chapter 7. Other combinations have different waiting periods. These timing rules can be complex, so if you have filed before, let us know and we will confirm your eligibility.

Why choose Guenther Law Group for my bankruptcy?

Guenther Law Group is a Salinas-based firm with more than 35 years of combined bankruptcy experience, led by attorney Ralph Guenther. We focus on the Central Coast community — Monterey, San Benito, and Santa Cruz counties — and we know the local bankruptcy court, its trustees, and California’s exemption laws. Every client works directly with an experienced attorney, not just staff, and we take the time to explain your options in plain language so you can make a confident, informed decision. Our goal is to relieve your stress and protect as much of what you own as the law allows.

How much does bankruptcy cost, and what happens at the first consultation?

Costs vary by the chapter you file and the complexity of your case, and they include court filing fees (currently $338 for Chapter 7 and $313 for Chapter 13, subject to change) plus attorney’s fees, which we discuss transparently up front — Chapter 13 fees are typically paid largely through your plan payments to a trustee. Your first step is a consultation, where we review your income, debts, and assets, explain which chapter fits your situation, and answer your questions with no pressure. To take that first step, contact Guenther Law Group at 1000 Pajaro Street, Suite C, Salinas, CA 93901, or call to schedule your consultation.