Bankruptcy helps people who can no longer pay their debts – giving them a fresh start by eliminating their debt or by making a repayment plan.
As soon as you file bankruptcy your creditors are restrained from calling or writing you. If they want to talk to someone about your bill they have to call me!
There are two basic types of bankruptcies for individual filers, Chapter 7 and Chapter 13.
Chapter 7 is the most popular form of bankruptcy filed in California … probably because it’s so fast and painless when done right. From start to finish a Chapter 7 usually lasts about 5 months. Then you’re debt free and enjoying life again. Fast and simple!
However filers whose income exceeds the median income in their state and have at least a minimum amount of disposable income each month after paying their reasonable expenses might not be allowed to use Chapter 7. Congress felt that higher-income filers should be required to repay some of their debts in Chapter 13 rather than having them discharged immediately in Chapter 7. This requirement — called the means test — is intended to force filers who could afford Chapter 13 to use it if they want to file for bankruptcy.
In Chapter 7, you must allow the trustee to take any property you own that isn’t exempt under the state or federal exemption list available to you. (Typical exemptions include some or all of the equity in your home, a car, your clothing, household furnishings, and the tools of your trade.) Don’t worry – the average person keeps ALL of their property in a Chapter 7 bankruptcy and I’ll carefully check over your property before you file and make sure that everything that can be protected is protected.
When you complete the Chapter 7 process the court issues you a “Discharge”, which means your debts are wiped out and you’re no longer legally obligated to pay these debts.
Most unsecured debts will be forgiven in a Chapter 7. Examples include:
- Credit cards
- Personal loans
- Checking account overdrafts
- Medical and dental bills
- Older tax obligations
- Deficiencies on repossessed cars and foreclosed homes
- Over-payment of unemployment and social security benefits
There are some debts that are not eligible to be forgiven. Those include:
- Recent cash advances on credit cards
- Recent taxes
- Court ordered child support and spousal support payments
- Court ordered fines and criminal restitution
- Student loans
- Debts for personal injuries caused while driving intoxicated
- Anything where fraud or deception is involved
In Chapter 13, you don’t have to give up any of your property. However, you must enter into a three- to five-year repayment plan to pay back some or all of your debts. Whether your Chapter 13 lasts for 3 years or 5 year depends whether your current monthly income is above or below the median income for the state of California. All your monthly disposable income (as determined by the bankruptcy laws) must be paid to your creditors.
You could think of a Chapter 13 as a court enforced debt management plan. You deal with your creditors on your terms!
Some of the most common reasons why you would file a Chapter 13 are:
- Stop foreclosure on your home
- Get rid of a second mortgage on your residence
- Stop auto repossession
- The possibility of reducing the balance owed on your debts
- Protect a co-signer
- Need some breathing room to pay off past debts
- You have debts such as student loans or past due taxes that would not be wiped out in Chapter 7
- You don’t qualify for Chapter 7 protection
- You want to keep all your property