There are a lot of benefits to living in California. However, this comes with a high cost of living, which can make residents slip into debt. After almost every income is spent on housing, transportation, and repaying some of the debts, you can end up with little or no income to cater for other expenses.
Filing for bankruptcy in California can help you wipe some or all of your debt and get a fresh start. Under bankruptcy law, you can take advantage of the automatic stay of your debt collection actions, meaning that you do not have to worry about wage garnishment, repossession, and forfeiture.
Even though bankruptcy sounds easy, there are a lot of hard decisions to make. That's why you should seek the help of a San Clemente bankruptcy attorney to increase the chances of achieving your expectation. For those living in Orange County, schedule an appointment with the Los Angeles Bankruptcy Attorney for a thorough evaluation of your situation. We will offer you help to regain your financial well-being.
The Basics of California Bankruptcy
Bankruptcy is a complex process that an average person cannot go through alone. There are some requirements that you have to meet while filing for bankruptcy. You'll probably have to demonstrate that you can repay some debt or have enough property to repay some of your debts, depending on the type of bankruptcy you intend to file.
Once you decide to move forward with bankruptcy, you will decide on filing Chapter 7, 11, 13, or 15. However, chapter 7 and 13 are the most common types of bankruptcies. Both types of bankruptcy can help you do away with unsecured debts, stop wage garnishment, halt a repossession or foreclosure, and avoid a utility shut-off. Both types of bankruptcy also relieve debts in different ways. Below is an overview of Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also referred to as "straight bankruptcy" or "liquidation bankruptcy." Under this bankruptcy, you will allow bankruptcy court trustees to supervise the sale of your assets that are not exempted under California bankruptcy laws. For instance, properties like work-related tools, houses, and basic household furnishing are exempted under California bankruptcy laws.
The proceedings of the sales go towards paying your creditor. The balance of what you owe is then eliminated through a bankruptcy discharge. Although most debts are relieved through Chapter 7, you will still have to pay taxes, child support, student loans, and alimony.
When it comes to Chapter 7 bankruptcy consequences, you will likely lose property and have negative bankruptcy information on your credit report for ten years after the filing. It also restricts you from filing bankruptcy again under this Chapter in eight years.
Chapter 13 Bankruptcy
Chapter 13 is slightly different from Chapter 7 since it allows you to keep your property in exchange for partial or complete repayment of your debt. Our San Clemente bankruptcy attorney will negotiate a three-to-five-year repayment plan, which you should honor to have your balance discharged. You can agree to repay part or all your debt during this period.
Chapter 13 stands at an advantage over Chapter 7 regarding avoiding a negative effect on your credit. Since you will be repaying some or all your debt, your credit score will probably improve as long as you honor the repayment plan. Another advantage of Chapter 13 is that you can cycle off your credit report after seven years and file again under this Chapter in as little as two years.
Common Terms in Bankruptcy You Should Know
Throughout your bankruptcy proceedings, you will come across particular legal terms that you need to know. Our San Clemente bankruptcy attorney will explain these terms to you, but it is necessary to learn about them. Here are some of the most common and crucial ones:
Bankruptcy Trustee
A bankruptcy trustee is a corporation or person appointed by the bankruptcy court to act on behalf of the creditors. The trustee reviews your petition, liquidate your property, and distribute the proceedings if you prefer to file Chapter 7. Under Chapter 13, the trustee oversees the repayment plan by receiving payments from you and disbursing your creditors’ money.
Credit Counseling
In most cases, debtors should meet with a nonprofit budget and credit counseling agencies before filing for bankruptcy. After filing, debtors also have to complete a course on financial management to discharge their debts.
Discharged Bankruptcy
A "discharged bankruptcy" is achieved if you file bankruptcy and complete it. Under Chapter 7, a discharge occurs once you have sold your assets and creditors have been paid. Under Chapter 13, a discharge occurs when you complete the repayment plan.
Exempt Property
Under Chapter 7, you might have to sell some property to repay your creditors. However, particular assets are exempted from sale. You will probably have to keep items like your personal vehicle, work tools, and equity in a primary residence.
Property Liquidation
When a property is being liquidated, it means that it will be sold to acquire cash, which is then distributed to creditors. This usually happens under Chapter 7 bankruptcy.
Lien on A Property
A lien is a legal action that allows creditors to take, hold, or sell debtors' real estate to repay a debt or for security.
Mean Test
Under Bankruptcy Code, debtors filing Chapter 7 should demonstrate their incapability to repay their debts through a mean test. The test intends to curb abuse of the bankruptcy code. It takes into account information like your income, assets, expenses, and unsecured debt. If you fail to pass a man test, your Chapter 7 will either be dismissed or converted to a Chapter 13.
Reaffirmed Account
Chapter 7 allows debtors to continue paying their debts that would probably be discharged. Reaffirming your debt means that you commit to repay a debt, which in turn enables you to keep collateral like a car, which would have been seized as part of the property that needs liquidation.
Secured Debt
A secured debt is a type of debt that has reclaimable property. For instance, if you have a mortgage, its reclaimable property is your home. If you have an auto loan, its reclaimable property is the vehicle. Debtors with secured debts are at risk of losing their property to their creditors since it defaults their debts.
Unsecured Debts
Unsecured debts are debts that creditors have no tangible collateral. This includes debts like credit cards and student loans.
Signs that You Should File Bankruptcy
Most people have probably overlooked bankruptcy, wishing that there are other means to solve their challenges, while it is the most obvious solution. This is true when particular signs show the need to file bankruptcy. Let's take a closer look at them.
You, Rob Peter, to Pay Paul
Robbing Peter to Pay Paul means that you are skipping one bill to pay another or are taking one loan to repay another one. Missing payments on essential services like water and electricity due to your overburdening debts is another strong sign that bankruptcy is the right solution for your financial challenges.
You are Defaulting Most of Your Debt Repayment Plans
Defaulting one or two loans means that you're insolvent. This becomes a reality when you cannot make the smallest payments like credit card debts that probably amount to $20 to $30 per month.
You are Facing Litigation
If your creditors have filed lawsuits against you and have won, you probably need to file bankruptcy. Creditor lawsuits are just at the beginning of an aggressive campaign to seize your property or put you under harsh financial situations like wage garnishment.
You've Spent Your Savings and Retirement
If your disposable income has been spent on debt repayment and you cannot save or invest in your retirement, it's probably the right time to file bankruptcy. Chapter 7 bankruptcy will help you discharge unsecured debts, free your income and regain your future savings.
You're Suffering from Stress Due to Your Debts
If you have been depressed or having anxiety attacks due to your financial challenges, filing bankruptcy can be a sign of relief. The constant pressure of creditor lawsuits, creditors' call, and wage garnishment threats can be stressful. Additionally, failure to have enough money for the things at hand creates unrelenting stress that can negatively impact your health.
You Are at Risk of Foreclosure
If your creditor is threatening foreclosure on your home, you should file bankruptcy. Filing bankruptcy, especially Chapter 7, will help you keep your home and comfortably catch up with your mortgage repayment.
You Don't Have a Job or will Remain Underemployed for Long
If you are not earning enough to pay your bills and most of your income ends up repaying your debts, it's high time to file bankruptcy. Regardless of the signs that prompt you to file bankruptcy, they need to discuss your option with our San Clemente bankruptcy attorney is crucial. Speaking to an attorney will help you go through these signs and decide whether filing bankruptcy is the best decision to make.
The Advantages of Filing Bankruptcy
It is recommendable to learn about the pros and cons of filing bankruptcy to decide what you are about to do. Otherwise, you might end up failing to achieve your expectations or take full advantage of what bankruptcy has to offer. Below are the advantages of filing bankruptcy.
Bankruptcy Triggers an Automatic Stay on Debt Collection
For debtors suffering from stress due to constant creditor calls, an automatic stay would be the best relief to this situation. Once you file bankruptcy, the court automatically issues a stay against all debt activity. This does not cancel your debts but only suspends any debt collection proceedings until completing your bankruptcy case. Some of the activities that are halted include:
- Filing on lawsuits on the debts
- Home mortgage foreclosure
- Calls and letters from the debt collectors
If a creditor tries to collect a debt after the court grants an automatic stay. In that case, our San Clemente bankruptcy attorney will bring a contempt of court action against them to stop any further collection unless the court grants a lift on the automatic stay.
Please note, an automatic stay does not have the power to stop a criminal proceeding, the establishment of paternity, paying or child support or alimony, and government tax audit.
Bankruptcy Reduces Your Worries on Repaying Some of Your Loans
There are particular debts that debtors can cancel or discharge through bankruptcy. These include medical debts, utility bills, personal loans, and credit card debts.
Bankruptcy Allows You to Maintain Ownership of Your Property
If you can exempt some of your assets, you don't have to worry about their seizure by your creditors. However, you should note that some of these exemptions work only to a specific dollar amount of your asset and items. Therefore, you have to evaluate the exemptions applicable under Chapter 7 or 13 to know about the assets you will be retaining.
Despite bankruptcy being a reasonable option to solve your financial issues, there are lasting effects that come along with this decision. These includes:
- The immediate impact on your credit score, especially when there is a negative effect on your credit score under Chapter 7 filing.
- Loss of credit cards
- Difficulty obtaining a loan or mortgage
- Denial of tax refund
- Stigma while finding housing
- Loss of property and real estate
- Inability to do away with non-dischargeable debts like criminal restitution, student loans, and child support
There is an overlap between the pros and cons of filing bankruptcy since it depends on every client's unique financial circumstances. That's why it is crucial to contact our skilled San Clemente bankruptcy attorney to ensure that you make the right decision.
Find a Bankruptcy Attorney Near Me
The process of filing bankruptcy is demanding and requires many hard decisions that no person without a legal background can easily make. A bankruptcy attorney has a significant impact on your decision and your bankruptcy filing's success. Contact our San Clemente bankruptcy attorneys at 424-285-5525 and let us put you on the right path to financial recovery.
