How Bankruptcy Works: A Complete Guide for Residents of Los Angeles, Riverside, San Bernardino, Orange, and Ventura Counties

Bankruptcy is often misunderstood, but it can be a powerful legal and financial tool for those facing overwhelming debt. Whether you're struggling with unpaid credit card bills, behind on loan payments, or burdened by medical expenses, understanding how bankruptcy works could offer the relief you need.

This comprehensive guide is tailored for individuals and small business owners in Los Angeles County, Riverside County, San Bernardino County, Orange County, and Ventura County. You'll learn how bankruptcy can help you reset your financial future and what steps you need to take to get started—legally, confidently, and with the help of trusted local professionals.

If you're searching for how bankruptcy works or looking for the best bankruptcy lawyer near you, this guide is designed to answer your questions and guide you toward lasting financial recovery.

What Is Bankruptcy?

Bankruptcy is a federally governed legal process that allows individuals and businesses to either eliminate or restructure their debts under the protection of the court. The primary purpose of bankruptcy is to provide a fresh financial start for debtors who are no longer able to meet their obligations.

Many people believe that filing for bankruptcy means losing everything—but that’s a misconception. In fact, most people who file for bankruptcy with a trusted attorney are able to keep essential assets such as their home, car, and retirement savings, especially when using legal exemptions under California law.

Bankruptcy is handled through the United States Bankruptcy Court for the Central District of California, which covers all five counties this guide is written for.

 

Who Typically Files for Bankruptcy?

• People with overwhelming credit card or personal loan debt
• Individuals behind on mortgage or car payments
• Retirees living on fixed incomes
• Small business owners struggling with cash flow
• Married couples supporting families on limited income
• Single parents burdened by medical bills or job loss

Why People File for Bankruptcy in Southern California

The high cost of living in Southern California—from housing and childcare to fuel and groceries—means that even modest financial setbacks can spiral into serious debt. Many residents in Los Angeles, Riverside, San Bernardino, Orange, and Ventura Counties file for bankruptcy after life events such as:

• Job loss or reduction in income
• Medical emergencies
• Divorce or separation
• Inflation and rising interest rates
• Unmanageable student loan or credit card debt

Recent data from Experian shows that consumer debt levels have reached historic highs in California. Many people simply can't keep up—making bankruptcy not a failure, but a strategic financial decision.

Filing for bankruptcy initiates an automatic stay, which immediately stops most collection actions, wage garnishments, and even foreclosure processes. This offers invaluable breathing room as you work with your bankruptcy lawyer to resolve your debts.

Types of Bankruptcy: Which One Is Right for You?

 

Chapter 7 Bankruptcy (Liquidation)

Often called a “straight bankruptcy,” Chapter 7 allows you to wipe out most unsecured debts, including credit cards, personal loans, and medical bills. It's typically best for those with limited income and few assets.

• Eligibility: Must pass a means test comparing your income to the state median.
• Pros: Quick discharge, no repayment plan, immediate debt relief.
• Cons: May involve liquidation of non-exempt property, but only if they are of high value and enough to benefit your creditors. California has some of the strongest exemptions and protections of your assets so you can keep your home, cars, bank accounts, financial accounts, and retirement plans during and after bankruptcy. 

Chapter 13 Bankruptcy (Reorganization)

If you have a steady income and want to keep assets like your home or car, Chapter 13 allows you to restructure your debt into a manageable 3–5 year payment plan.

• Eligibility: Must have regular income and debts under certain limits. As of May, 2025, your secured debts must not exceed $1,580,125.00, and your unsecured debts must not exceed $526,700.00 to qualify for a Chapter 13 bankruptcy case. See Bankruptcy Code 11 U.S.C.S. § 109(e) .
• Pros: Stop foreclosures, lawsuits, collections, IRS or Tax Levys, Remove Liens, catch up on delinquent mortgage, car, and tax payments, and keep all your assets. Assets do not get sold or liquidated in a Chapter 13 bankruptcy. 
• Cons: Requires a 3 or 5 year monthly repayment plan. But the good news is that you are paying only a percentage of your total debt, and no creditor can add fees, penalties, or interest once you file a Chapter 13 bankruptcy. The amount you owe when a Chapter 13 case is filed remains the same. If the debtor's Chapter 13 Plan provides for only a fraction or percentage of their debts to be paid, any remaining debt will be discharged at the end of the Chapter 13 bankruptcy period and term. 

Chapter 11 Bankruptcy (For Small Businesses)

Chapter 11 is typically used by businesses that want to continue operating while repaying creditors. It’s more complex and expensive, but it offers flexibility and control.

• Ideal for: Small businesses in Southern California commercial zones.
• Purpose: Reorganize business debt while continuing operations.

How Bankruptcy Works: Step-by-Step Breakdown

Step 1: Consult with a Local Bankruptcy Lawyer

Your first move should be to consult a qualified bankruptcy lawyer for a free consultation. They'll help you determine which bankruptcy chapter is right for your situation.

Step 2: File the Bankruptcy Petition

Your attorney will collect detailed financial information and file the necessary documents with the local bankruptcy court.

Step 3: Automatic Stay Begins

Once the petition is filed, an automatic stay halts collection actions, foreclosures, bank levys, wage garnishments, evictions, and lawsuits. This legal shield is immediate and powerful.

Step 4: Meeting of Creditors (341 Meeting)

Within 20–40 days of filing, you must attend a meeting where creditors and a bankruptcy trustee can ask questions about your finances. Your attorney will be present to assist you.

Step 5: Financial Education Course

Before discharge, you must complete a certified financial management course. This helps you rebuild better financial habits moving forward. Visit StudentAid.gov or ED.gov for related resources.

Step 6: Discharge or Repayment Completion

If you're filing Chapter 7, eligible debts are discharged within a few months. If Chapter 13, you must complete your repayment plan before discharge. After this step, you are no longer legally obligated to repay discharged debts.

Bankruptcy and Your Credit Score

Bankruptcy will impact your credit score. However, chances are that if a person in debt is researching and inquiring about bankruptcy, they already have bad credit and high past due debts. Most bankruptcy debtors already have poor credit due to missed payments, collections, or high utilization rates. 

The good news? So many people are filing bankruptcies since the Covid-19 pandemic that bankrupcy does not have such a negative or bad impact on credit that it it did before. Many people start rebuilding credit within 6–12 months of discharge using secured credit cards, low-limit retail cards, or becoming an authorized user. Learn more from Credit Karma or Forbes Advisor.

 

A qualified bankruptcy attorney can help you evaluate these alternatives before you commit.

When Bankruptcy Is the Best Option

If you are drowning in debt and facing aggressive collections, wage garnishments, or foreclosure, bankruptcy may offer the quickest and most effective way to protect yourself and your family.

It’s often the best solution when:

• Your debts far exceed your assets
• You’re behind on secured debts (like mortgage or car loans)
• You have no realistic way to repay debts in 3–5 years

Don't wait until creditors take action—speak with an experienced bankruptcy lawyer today.

Call us for a Free Bankruptcy Consultation

Call us for an absolutely free consultation. Our experienced bankruptcy lawyers are always available to answer your questions and help you understand your options. Whether you're in Los Angeles, Riverside, San Bernardino, Orange, or Ventura County, we're here to support your fresh start.

Visit www.shield.law/contact or call us today to schedule your appointment.

Frequently Asked Questions (FAQ)

Can I keep my home if I file for bankruptcy?

Yes. Chapter 13 is designed to help you save your home by catching up on past-due payments over time. Chapter 7 also allows you to keep your home if you have up to approximately $720,000.00 in equity under California’s homestead exemption limits.

Does bankruptcy stop foreclosure in California?

Yes. The moment you file, the automatic stay halts foreclosure and gives you time to negotiate or reorganize your debts.

How much does a bankruptcy lawyer cost?

Fees vary. Chapter 7 usually costs $1,000–$2,500 plus a $338.00 court filing fee depending on the how complex the case is, while a Chapter 13 may cost $3,000–$8,000 depending on the specific circumstances of each case. In a Chapter 13 bankruptcy, most of the fees will be paid as a small portion of your bankruptcy payment rather than out of your own pocket. Shield Law Group offers free consultations and flexible payment plans tailored to your financial situation.

Will I ever get credit again?

Absolutely. Many clients qualify for car loans, credit cards, and even home loans and mortgages within 1–3 years after bankruptcy.

Can bankruptcy eliminate student loans?

It’s difficult but not impossible. The laws on wiping out student loans are becoming less strict, and recent legal victories (see NACBA’s update) show that student loans may be dischargeable in specific hardship cases.