BANKRUPTCY

Often times your financial circumstances become difficult, impossible even, and there is no way to service growing consumer, medical or other debt.  Bankruptcy may be the answer, as Chapter 7 and Chapter 13 allow individuals or families to declare bankruptcy.  Chapter 7 also allows businesses to declare bankruptcy if they are they are shutting their doors.  Chapter 11, on the other hand, allows business to restructure their debt obligations and continue operating.  This fresh start can be life-changing for people or families who have suffered financial reversals such as divorce, unexpected medical expenses, or the result of spiraling debt and interest rates that people simply cannot get out from under.  

Chapter 7 Bankruptcy

Chapter 7 is often known as the simplest type of bankruptcy.  It is important to make sure your household income qualifies under the "Mean's Test" before you file.  It is also important to make sure you can protect all of the important assets you want to keep under California's exemption laws.  Most people think declaring bankruptcy means you lose everything.  This is not true.  In fact, you can often keep your house, your car, all your personal belongings, your retirement accounts, and even modest savings.  

After you file for bankruptcy you have one meeting you need attend with a Trustee who administers your case.  We attend that meeting with you.  This meeting occurs 30-45 days after filing.  Once this meeting is complete the Court will issue your discharge order within approximately 60 days.  Common debts that are discharged (or eliminated) through Chapter 7 are credit card debt, personal loans, pay day loans, medical bills, collection accounts, tax debt three years or older, deficiency balances from a repossession of a vehicle, lawsuit judgments, and past due rent.  Unfortunately, by law, child support and spousal support obligations, student loans, recent tax debt, and fraud judgments are not dischargeable. 

Business can also declare Chapter 7 bankruptcy if they are completely going out of business and closing their doors.  The trustee will take any property the business still owns and sell it with the proceeds being distributed to any creditors. 

Chapter 13 Bankruptcy

Chapter 13 is a reorganization for individuals and families whose household income is greater than the "Mean's Test" allows for or who may own assets with fair market values that surpass the California exemption laws.  In a Chapter 13 the filer makes a monthly plan payment to the Trustee administering their case for a period of 3-5 years.  The length of the payment plan depends on one's income and assets.  The benefit in a Chapter 13 is all interest on debts stops immediately upon filing.  The creditor then files a proof of claim with the Court and is paid based on that proof of claim, with no additional interest.  Depending on the filer's income and assets owned, a filer may only have to pay ten cents on the dollar to his/her creditors.

Another benefit of a Chapter 13 is if you have a vehicle that is under water and encumbered by an auto loan that you have had for at least 910 days.  If this fits your situation then you might be able to "cram down" your vehicle in your Chapter 13 plan only have to pay up to the fair market value at a low interest rate over the life of your plan.  For example, if your car is worth $6,000, but you current owe $10,000 on the loan at 15% interest, you can cram down the vehicle by proposing to pay only the fair market value of $6,000 over your 5 year Chapter 13 plan at 6% interest.  This can result in a huge savings. 

The same meeting that occurs in a Chapter 7 also occurs in a Chapter 13.  After that meeting your Chapter 13 payment plan will go before the Judge to approve.  Your creditors do have the opportunity to object to your payment plan so it is important it conforms with applicable bankruptcy law and guidelines.  When done correct, Chapter 13 can be a great solution to get individuals and families back on their feet. 

Bankruptcy is often the solution.  If you are already in debt and have missed minimum payments, filing bankruptcy will often increase your credit score overnight.  After filing you will be able to steadily rebuild your credit so you will be able to qualify for a large purchase, such as a home.  As you are rebuilding your credit you will be able to live a different life without being buried each month under crushing financial obligations you have no way to overcome.

You do not need to suffer extreme financial hardship, most of the time bankruptcy relief just makes sense given your current financial situation.  Contact us at (805) 962-9224 to see if you qualify for such relief.