Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcy laws are designed to protect and help people who can no longer pay their creditors in order to get a fresh start. This is accomplished by liquidating assets to pay their debts (Chapter 7) or by creating a repayment plan (Chapter 13). Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation (Chapter 11).
Automatic Stay of Proceedings
When a debtor files a petition for bankruptcy, (Chapter 7 or 13) everything stops. In other words, an automatic stay takes place where creditors, secured or unsecured, are prohibited from taking any action against the debtor. The automatic stay which is in section 362(a) of the Bankruptcy Code is essentially an injunction against creditors from any activity against debtors.
The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing room from creditors, stopping all collection efforts, lawsuits, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove the debtor into bankruptcy.
Discharge of Debts
Once debts are “discharged” a creditor is permanently prohibited from enforcing certain unsecured debts against the debtors. The debtor is relieved of any personal liability for the debts and creditors cannot take an action to collect. Most of the time, the debts discharged are credit card debts, personal liability due to negligence, medical bills or breach of contract liability.
The Basics of Chapter 7 Bankruptcy in California
If you’re feeling overwhelmed with loan payments, by unemployment, or with stretching a small paycheck, it might be best to file for bankruptcy. Bankruptcy offers a financial fresh start by letting you become free of previous debt obligations.
While there are several types of bankruptcy, the simplest and most common is Chapter 7. Chapter 7 California bankruptcy is available to individuals, married couples, small business partnerships, and corporations. This type of bankruptcy is also referred to as “straight bankruptcy” or “liquidation.” Those who file for Chapter 7 in California can have a new financial beginning within just a few months.
Chapter 7 Eligibility
Bankruptcy filing eligibility criteria have become more stringent over time. Most notably, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has implemented a more stringent “means test” for determining whether a person is eligible for Chapter 7 liquidation. The means test is an examination of a debtor’s budget, or income versus expenses.
If the means test finds that your income is lower than the California median, you may be eligible for Chapter 7 bankruptcy. If your income is higher than the median, then you might need to pursue Chapter 13 bankruptcy instead. Chapter 13 involves using your disposable income to pay off a portion of debts over time.
Filing a Chapter 7 Los Angeles Case
Filing for Chapter 7 bankruptcy in California starts in bankruptcy court. You or your attorney must file an official petition and a Statement of Financial Affairs. The statement includes information about your debts, your income, your property, and your monthly living expenses.
After the filing, most bankruptcy-related discussions will be held in the office of the trustee assigned to your case. About three to six weeks after your first court date, the trustee will hold a meeting with you and your creditors. This meeting is called a “341.” At this meeting, you might be required to again, under oath, furnish information about your property and debts. The creditors will then have 60 days to convince the trustee that you must make payments. If they do not make a case, then your debts may be discharged.
A 341 meeting is also your chance to affirm that you’ll make payments. For example, you could take this opportunity to affirm your intent to make monthly car payments.
Bankruptcy Filing Stops Collection Efforts
A major benefit of bankruptcy law is the “automatic stay.” The stay requires that creditors cease their collection efforts as soon as you file. It puts financial matters on hold and prevents new lawsuits from being filed against you.
It’s possible for a creditor to convince a judge to lift an automatic stay. For example, a creditor might argue that your property will lose value before the bankruptcy case is closed. However, in most cases the automatic stay is kept in place and provides a debtor with much-needed breathing room.
Property Protected Under Chapter 7 California
Creditors do not have a right to all types of a debtor’s property. In a Chapter 7 Los Angeles case, for example, a creditor would not be able to take a residence, a life insurance contract, trade tools, unemployment benefits, funds awarded in a lawsuit, or a variety of other assets. Most Chapter 7 bankruptcy cases do not involve selling the debtor’s assets.
Understanding Chapter 13 Bankruptcy
If you have a regular income and owe less than $360,475 in unsecured debts and $1,081,400 in secured debts, you may be eligible for Chapter 13 bankruptcy. This type of bankruptcy allows you to repay some or all of your debts at a reduced interest rate while still retaining your personal property. Filing bankruptcy under Chapter 13 stops all foreclosures, repossessions and creditor harassment, and it completely erases most of your debt within a period of three to five years. In many cases, you will only be required to repay a small percentage of your debt under this chapter of the bankruptcy code. In addition, many people who are ineligible for bankruptcy under Chapter 7 may still file under Chapter 13. Our Chapter 13 Los Angeles bankruptcy lawyers specialize in Chapter 13 California bankruptcies, and we can help make your California bankruptcy filing as effortless as possible.
Chapter 13 California bankruptcy has many advantages over Chapter 7 bankruptcy. It allows you to keep your home and pay off any past-due mortgage bills over a period of several years, even if your mortgage company has already begun the foreclosure process. It also makes it possible for you to recover vehicles that have been repossessed and pay for them more slowly as well, often at fair market value rather than the actual amount owed on them. Properties that would be liquidated under Chapter 7 bankruptcy can be kept under Chapter 13 bankruptcy, and many debts that can not be forgiven under Chapter 7 can be forgiven under Chapter 13. Additionally, this type of bankruptcy filing protects co-signers from being pursued by creditors, and it only stays on your credit report for seven years as opposed to 10 years with Chapter 7.
Chapter 13 bankruptcy makes it easy to repay debts that might otherwise haunt you forever. It consolidates all of your debts into one monthly payment, which is then paid to a Chapter 13 California trustee. The trustee makes all the payments to your creditors. As long as you continue to make your bankruptcy payments, you won’t have to deal with your creditors for the duration of your bankruptcy terms. They are prohibited from taking legal action against you, garnishing your wages or harassing you in any way. Your creditors can not refuse your payment plan but must either object to it prior to confirmation by the courts or accept it. This arrangement does require some commitment and planning on your part, but our Chapter 13 Los Angeles lawyers will help you make a realistic budget so that you can make your Chapter 13 bankruptcy a success.
One disadvantage of filing bankruptcy under Chapter 13 is that is does cost more in filing and administrative fees than Chapter 7 bankruptcy filing. However, these fees can be spread out over as long as six months, so the upfront costs are actually less for Chapter 13 bankruptcy than for Chapter 7. Chapter 13 also requires quite a bit of paperwork, including a detailed list of your assets and liabilities, documentation of your income and expenses, a record of all debts and leases, and an inventory of your properties. This paperwork can be complex and confusing. Fortunately, our Chapter 13 Los Angeles lawyers are experienced in all Chapter 13 California procedures, so we can help you fill out all the paperwork and comply with all the requirements of your bankruptcy.
If you are in serious financial trouble, contact our bankruptcy lawyers now. You will be surprised at how easy and painless bankruptcy filing can be with our help. Book your consultation now or call us at 1-855-MABUHAY / 1-855-622-8429