Managing debt can be a challenging aspect. It is a difficulty remedied by filing for bankruptcy. Bankruptcy offers a lifeline for many debtors and a chance to reorganize their finances and start anew. Bankruptcy is a daunting process and one that may rob your peace of mind — as such, considering bankruptcy process should be a measure of last resort.
It is crucial to get the right help when dealing with bankruptcy. Our team of lawyers in the Los Angeles Bankruptcy Attorney specializes in bankruptcy matters. We help clients handle bankruptcy proceedings. You too can access these services. This article offers information about bankruptcy to start you off.
An Overview of Bankruptcy
The question, “Why you should file for bankruptcy?” is best addressed after understanding an overview of what bankruptcy is, the basics of bankruptcy, its forms, and the reasons why you should consider bankruptcy proceedings.
Bankruptcy is defined as a legal process available to individuals who are not able to meet their maturing obligations. This process helps them pay off debts. You can use these proceedings to also stop the repossession of your assets or foreclosure of your home(s). The bankruptcy process further helps you avoid the harassment experienced with debt recollection. You thus get a period where you can strategize on how to meet the obligations without the negative implications above.
Forms of Bankruptcy
Bankruptcy proceedings come in various forms depending on the circumstances brought forward in your case. You have the option to determine what chapter of bankruptcy you will be filling. Each chapter is based on the U.S. bankruptcy code. While you may have the discretion of choice, this freedom of choice is limited by the level of disposable income, testing processes, among other variables as explained below.
Chapter 7 is arguably the most straightforward bankruptcy proceedings you can file. It is referred to as an ordinary or straight bankruptcy. Chapter 7 proceedings involve the liquidation of debtor assets. These assets are sold to generate revenue that is used to pay off creditors. A trustee handles the sale of the property and is also charged with the responsibility of distributing the sale revenue to all debtors according to a priority list.
Discharge of Chapter 7 is done under two systems; system 1 and 2. System 1 handles property owned by an individual. Such possessions include a homestead, personal belongings, insurance covers, investments, and their benefits as well as pension payments. Further, the trustee will seek the value of any public benefits, tools of the trade, and wages to the tune of at least 75 percent of your total earnings.
System 2, on the other hand, considers a non-exempt matrimonial property that includes all assets, homes, personal property, insurance, pension sums as well as any public benefits you and your spouse may have received. Any tools you own, such as books, working equipment, or any other tools to the tune of $1,750 will be used to offset your dues.
Proceeds from the sale of your property are used to offset medical and credit card debts, personal loans, as well as specific tax-related debt. Creditors do not pursue any outstanding debt after a debtor’s assets have been liquidated, as a matter of principle.
Chapter 13 is referred to as the wage earner’s plan or the reorganization bankruptcy proceedings. Filling a chapter 13 will require you to demonstrate two things to the court.
- You need to prove that you can meet the payment obligations to your creditors as directed by the courts, and
- You will have to show the court of your reorganization plan.
Chapter 13 helps you retain your assets as you reorganize your financials. This bankruptcy option is ideal in situations where;
- You are behind on your maturing obligations but can honor the payments given the time,
- You are a homeowner, and are in danger of losing it because of money troubles,
- You own non-exempt property, but you can use your income to pay off your creditors.
The reorganization plan is a three- to five-year process. It involves the debtor making monthly payments to offset the sums owed to various creditors. A debtor’s disposable income and the residual income after necessary living expenses have been deducted is used to settle the creditors’ accounts. The nature of each debt dictates the priority list adopted in paying them off.
Chapter 13 is only in effect if you honor the repayment period. It also follows that you will retain custody of your property. Should you fail to pay your debts, your bankruptcy terms cease to operate under chapter 13, and you will be required to convert the matter to chapter 7. Once changed, your assets are free to be repossessed and sold to recover the sums due.
Chapter 11 is similar to chapter 13. This bankruptcy option is available to institutions as well as high net worth individuals. Individuals with high debt sums that cannot be accommodated in chapter 13 can file bankruptcy proceedings under chapter 11.
Such individuals will be required to develop a repayment plan in which they are required to adhere to it within the years the bankruptcy pronouncement is in effect. Once you complete your debt payments, the courts will discharge your bankruptcy.
Chapter 12 is one of the little known bankruptcy types. It is a bankruptcy option packaged for fishermen and the members of their family. This option is extended to their businesses too.
Reasons Why Bankruptcy is Ideal for You
The thought of filing for bankruptcy may be challenging. The process in itself does take a toll, especially emotionally. However, with the help of an attorney, the process becomes more manageable. The pursuit of solutions for financial challenges informs the choice by many to consider bankruptcy. Here is a look at some of the reasons that force you to declare bankruptcy.
- When Foreclosure on your Home is Imminent
Losing your home has a negative implication on your attachment to your home as well as financially. Bankruptcy proceedings stall the sale. The idea behind the move is to seek time to repay your outstanding dues and avoid your home being sold to recover the sums owed. However, the bankruptcy position only helps you if you pay off the amounts owed, and chapter 13 is ideal for this approach. If you file bankruptcy under chapter 7, all the proceeds of the sale of your home will be channeled to pay off your debts. If the amounts are inadequate, you will still owe the deficit.
- Stops the Repossession of Your Vehicle
You will not lose your car once you file for bankruptcy. This move helps you stall the repossession process to give you time to reorganize your finances and make the payments due on your car.
- Buy Time to Pay off a Medical Debt
The increase in terminal illnesses such as cancer comes with a significant financial burden in the form of medical debt. In most cases, you and your loved ones incur huge medical debt to treat their ailment. Such costs prove challenging to pay off all at once and may need time. Bankruptcy buys you time to pay off the medical expenses.
- Bankruptcy Helps Stop a Lawsuit
Some lawsuits are stopped through bankruptcy proceedings. Filing for bankruptcy means that you have financial difficulties that compromise your ability to honor your debt. As such, it is unreasonable to expect you to foot lawsuit expenses, yet you already are struggling to meet your obligations. Credit card debt, medical debt, breach of contract, personal injury debts, and patent infringement are some of the lawsuits bankruptcy stops. However, not all suits are halted. Spousal support, domestic violence, child support, evictions in some situations, and tax collections that are not dischargeable will still proceed.
- In Situations Where You Lose your Job
Job losses are unexpected and do have a financial implication on the victim. Utility bills, mortgages, and car loan payments take a significant portion of the finances. This situation will force you to use your emergency funds to settle what is due. By filing for bankruptcy, you stop the sale of your property with the promise of repaying what is owed progressively. This helps manage your creditors until you secure another job.
- You Recently Secured a Higher Paying Job
Chapter 7 requires you to pass a means test. The test involves an assessment of your income over six months before you filing for bankruptcy. Higher incomes during the last six months increase the likelihood of you failing the test. Therefore, filing for bankruptcy earlier on before securing a well-paying job is to your advantage. The means test will show a gradual increase in your income and thus improves your odds of passing the means test.
If you lost your job and secured a low-paying employment opportunity, it is advisable to hold off filing for bankruptcy. The lower-income reflects negatively, which ultimately means you will fail the means test.
- When You are Facing Divorce Proceedings
The immediate effects of divorce are felt financially. You will be coming from a situation where you handled maturing obligations as a team to meet the debts and expenses individually. Running two households adds to the financial burden being placed in an already stressful situation. Bankruptcy addresses this challenge. It provides couples with time and an opportunity to reorganize their finances.
Upon understanding the various bankruptcy options you have and the reasons that can push you to consider bankruptcy proceedings, it is worthwhile to analyze the process of filing for bankruptcy.
- Erasing Your Credit Card Debt
It can be especially problematic for people whose credit card payments are due and have reached their credit limits. Bankruptcy proceedings under chapter 7 are especially ideal if you are in a similar situation. Your assets will clear all outstanding sums and erase your credit card debt. You thus get an opportunity to rebuild your finance with zero debt.
- Avoiding Your Retirement Kitty as a Source of Funds to Settle your Bills
At times life after retirement can be tough, financially. The lack of a regular source of income may hamper your ability to meet your short-term maturing obligations like utility bills. You may decide to use your retirement kitty to repay your debts. This decision is unwise in the long-run. Filing for bankruptcy, however, is a better option. Most individuals in this situation opt for chapter 7-bankruptcy option. With it, dues are settled in full, and you will not need to use your retirement funds.
- Situations where the Value of Debt Surpasses Your Annual Income
When taking stock of your financial position, you may realize that the value of the debt you have accumulated exceeds your annual income. In such a situation, you are a prime candidate for a financial reorganization, and bankruptcy will help you achieve this. If your debt exceeds your income, your income will be used to clear the sums you owe. The challenge with this situation is that your debt becomes a revolving debt, one that is unclear when it can be fully settled.
Bankruptcy proceedings help you stay the repayment dates. As such, you can plan for how to pay off the sums. You can also use the opportunity to liquidate your assets and pay off amounts due.
- When all Debt Repayment Options Fail
You may have tried to negotiate with your creditors, refinanced your debt, exploited all your disposable income but still fell short of clearing your sums. The only option left is to declare bankruptcy. That is why it is advisable to use this method as a last resort.
Find A Los Angeles Bankruptcy Lawyer
While the bankruptcy process necessitates the need for an attorney, you should be deliberate in your efforts to identify the right fit. An experienced attorney offers services that are pertinent in helping you in your bankruptcy proceedings. You are sure to find this quality in our team at the Los Angeles Bankruptcy Attorney. Give us a call at 424-285-5525 for a free case assessment.