California debt law
California gives bankruptcy filers a choice between two sets of exemptions, one built around a homestead and one for people with little home equity. Below, Chapter 7, Chapter 13 and debt settlement side by side for Californians, and when bankruptcy is the better option.
Who each option fits
Fits if
Watch out for
Fits if
Watch out for
Fits if
Watch out for
Side by side
The rows of our national comparison, with the California facts that tend to decide it: which exemption system protects your home and car, and the court fees.
| What we compare | What we do Debt settlement | Chapter 7 in California | Chapter 13 in California |
|---|---|---|---|
| What it is | We negotiate each debt down; you pay the settled amounts from an account in your name. | A federal court case. A trustee can sell what your chosen California exemption system does not cover, and most unsecured debt is discharged. | A federal court case. You follow a court-approved repayment plan for 3 to 5 years, then the remaining eligible debt is discharged. |
| What it costs | The settled amounts plus our fee, charged only after a settlement is reached and shown as its own line. Forgiven debt may be taxable. | $338 in court fees, plus a lawyer if you hire one. | $313 in court fees, plus a lawyer and the plan payments. |
| How long | Most programs run 24 to 48 months. | Usually a few months from filing to discharge. | Three to five years, depending on your income. |
| Lawsuits and garnishment | No court protection. Creditors can keep collecting and can sue. | Filing starts an automatic stay that halts most collection, lawsuits and wage garnishment. | The same automatic stay applies from the day you file. |
| Your home and car | No trustee, but a creditor with a judgment can try to reach property California does not protect. | Protected up to the limits of the system you choose: a homestead of $300,000 or more in system 1, $36,750 in system 2, and $8,625 in a vehicle either way. | You normally keep your property, including a home or car you keep paying for through the plan. |
| Credit report | Your score will drop during the program. | The filing may stay on your reports for as long as a decade. | The same: a Chapter 13 case may be listed for as long as a decade. |
| Tax on forgiven debt | Forgiven debt may be taxable income (Form 1099-C). | No income tax on the debts the discharge covers. | No income tax on what the discharge covers. |
If a debt management plan or bankruptcy fits you better, we will tell you so. Free nonprofit credit counseling is a good first call for many people, and we will point you there when it is.
California does not let filers use the federal list. Instead you choose one of two state systems, and the right one depends mostly on how much equity you have in a home. The amounts below are the ones in effect since April 1, 2025; confirm them with a bankruptcy attorney.
| Property | What is protected | Where the law says it |
|---|---|---|
| Choosing a system | System 1 (the regular list, including the homestead) or system 2 (the list used only in bankruptcy), never both. Married people filing together choose together. | Cal. Code Civ. Proc. § 703.140(a) (California Legislature, opens in a new tab) |
| Home equity, system 1 | The greater of $300,000 or the county median sale price, capped at $600,000, adjusted for inflation every year | Cal. Code Civ. Proc. § 704.730 (California Legislature, opens in a new tab) |
| Home equity, system 2 | $36,750 in a residence you or a dependent live in | Cal. Code Civ. Proc. § 703.140(b)(1) (Judicial Council of California, opens in a new tab) |
| Any property, system 2 | $1,950, plus whatever part of the $36,750 residence amount you do not use | Cal. Code Civ. Proc. § 703.140(b)(5) (Judicial Council of California, opens in a new tab) |
| Vehicles | $8,625 in system 1 and $8,625 in system 2 | Cal. Code Civ. Proc. §§ 704.010, 703.140(b)(2) (Judicial Council of California, opens in a new tab) |
| Household goods, system 2 | Up to $925 for any single item of furniture, clothing, appliances and similar goods | Cal. Code Civ. Proc. § 703.140(b)(3) (Judicial Council of California, opens in a new tab) |
| Tools of your trade | $10,950 in either system | Cal. Code Civ. Proc. §§ 704.060, 703.140(b)(6) (Judicial Council of California, opens in a new tab) |
| Retirement | Private retirement plans; IRAs as far as needed for support | Cal. Code Civ. Proc. § 704.115 (California Legislature, opens in a new tab) |
The Chapter 7 means test starts by comparing your household income with the state median. Income above that median (U.S. Courts, opens in a new tab) brings in a second test of what you could repay; below it, the means test usually does not stand in the way. The table uses the medians the U.S. Trustee Program publishes for California.
| Household size | California median income |
|---|---|
| 1 person | $79,253 |
| 2 people | $102,797 |
| 3 people | $116,541 |
| 4 people | $139,071 |
| Each person over 4 | Add $11,100 |
These are the U.S. Trustee Program figures for cases filed on or after July 15, 2026 (the current table (U.S. Trustee Program (DOJ), opens in a new tab)). They change during the year; check the table on the day you file.
You file in the federal district that covers your county. California has four, each with free information for people filing without a lawyer, though the federal courts recommend legal advice first.
| Court | Where it sits | Help without a lawyer |
|---|---|---|
| Northern District of California | San Francisco, Oakland, San Jose and Santa Rosa, for the Bay Area and North Coast counties | The court's self-help page (U.S. Bankruptcy Court, N.D. California, opens in a new tab) |
| Eastern District of California | Sacramento, Fresno and Modesto, for the Central Valley and the Sierra counties | The court's self-help page (U.S. Bankruptcy Court, E.D. California, opens in a new tab) |
| Central District of California | Los Angeles, Orange, Riverside, San Bernardino, Ventura, Santa Barbara and San Luis Obispo counties | The court's self-help page (U.S. Bankruptcy Court, C.D. California, opens in a new tab) |
| Southern District of California | San Diego and Imperial counties, with a free Bankruptcy Self-Help Center run by legal aid | The court's self-help page (U.S. Bankruptcy Court, S.D. California, opens in a new tab) |
In plenty of cases, and California law makes settlement companies say so: the disclosures we must give include that bankruptcy may provide an alternative (California Legislature, opens in a new tab) to debt settlement. Talk to a bankruptcy attorney before anything else if one of these describes you.
We are not attorneys and cannot give legal advice. Only a bankruptcy attorney can say whether you qualify, which system suits you and what you would keep.
System 1 is built around the homestead exemption (California Legislature, opens in a new tab), which protects at least $300,000 of equity in the home you live in. System 2 protects far less home equity, but its wildcard lets you shield cash, a tax refund or other property with the unused part of the $36,750 residence amount.
Which one protects more depends on your own mix of property. An attorney will usually compare both before you file.
Settlement can make sense if your income is steady, you can put money aside every month and nobody is suing you yet. It avoids a public court case, and you decide which debts to include.
The trade-offs are real: a falling credit score during the program, creditors who may keep collecting or sue, fees, and possible tax on forgiven debt1. The CFPB (CFPB, opens in a new tab) warns about the same risks.
Complete a course with an approved nonprofit agency in the 180 days before you file (Cornell LII, opens in a new tab).
File in the district for your county. Court fees are $338 for Chapter 7 and $313 for Chapter 13; lawyer fees are extra.
Most filers must also finish a debtor education course (U.S. Trustee Program (DOJ), opens in a new tab) before a discharge.
The court order ending your duty to pay the covered debts. Most student loans, some taxes and support are not included (U.S. Courts, opens in a new tab).
A fresh startThe federal courts strongly recommend (U.S. Courts, opens in a new tab) advice from a qualified attorney, and every California district offers help for people who file alone, such as the free Bankruptcy Self-Help Center in San Diego.
Neither is invisible. A bankruptcy can appear for up to 10 years (Cornell LII, opens in a new tab), and accounts that were charged off or sent to collections, settled or not, can appear for seven years from the first missed payment behind them.
The CFPB (CFPB, opens in a new tab) lists how long each kind of negative item can stay, and your reports are free to check.
Where to get legal help
We are not a law firm and cannot give legal advice. These are the people who can, many of them free. None of them pays us, and we do not pay them.
A bankruptcy attorney
Ask for a bankruptcy lawyer. The State Bar lists certified referral services for each region of California.
Open the State Bar list (opens in a new tab)Legal aid
Maintained by the Legal Aid Association of California, with a finder for free legal services near you.
Open LawHelpCA (opens in a new tab)Before you file
The federal courts explain what filing on your own involves, and strongly recommend advice from a qualified attorney first.
Read the U.S. Courts page (opens in a new tab)Legal aid
Legal aid offices give free civil legal help to people who qualify. The Legal Services Corporation finder lists the office for your area.
Find legal aid (LSC) (opens in a new tab)Things you should know
Read these before you enroll anywhere, including with us. They apply to every debt settlement program.
Notes on the figures and claims above
Straight answers
Rather hear it from a person? 866-659-7966
Usually not, if your equity fits the exemption. System 1 protects the greater of $300,000 or the county median home price, up to $600,000, adjusted each year. You still have to keep up the mortgage, and a home bought within about 40 months of filing can face a federal cap.
System 1 is the regular list, including the homestead. System 2 is a bankruptcy-only list with a smaller residence amount of $36,750 but a wildcard for any property. You must choose one.
There is no hard cap, but if your household income is above the California median, a second test looks at what you could repay. For cases filed from July 15, 2026, the median is $79,253 for one person and $139,071 for four.
It depends. Bankruptcy stops most lawsuits and garnishments and the discharged debt is not taxed, but it stays on your report longer. Settlement avoids court but gives no protection. A bankruptcy attorney can compare them for your situation.
Where the facts on this page come from. Each link opens the original in a new tab.
Next step
If settlement may fit, check an illustrative estimate with the fee shown on its own line. If bankruptcy looks like the better tool, we will say so.
Four short steps
Your estimate first. Contact details last.
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