You have worked hard over the years and have earned something to show for your blood, sweat, and tears. Nevertheless, there still is the risk of losing the assets that you have worked so hard to acquire. Over recent years, lawmakers have understood this and have put in laws that help shield your assets. Here at Los Angeles Bankruptcy Attorney, we offer solutions to these problems, giving advice and procedures that help protect your assets during bankruptcy. Although there are notable steps like traditional and Roth IRAs as well as Qualified Retirement plans, there are other secure ways to protect your assets. We will consider them in this article and discuss how to put them into action.
What is Bankruptcy?
Bankruptcy can be referred to as a legal proceeding where an individual who cannot pay their bills can get a clean financial start. The main intent for filing for bankruptcy is to stop the immediate collecting of debts by the creditors until you sort out your debts according to the law. So apart from that, what can bankruptcy do for you?
- Discharge of debts: this is to exclude the legal responsibility for you to pay all or most of the debts you own. Its main purpose is to offer you a new financial start.
- Opportunity for you to catch up with the missed payments; it stops the foreclosure of your house or mobile home.
- It prevents repossession of property and forces the creditors to return the assets they had possessed. That means that even if the creditors had repossessed the assets, they still have to return them to you.
- It helps in halting wage garnishment and debt collection intimidations from debt collectors.
- Helps in averting or reinstating the closure of the utility services.
- It helps you to challenge some of the claims from the creditors who might have committed fraud, and sometimes who want to collect more than the needed debt you owe.
As you can see it is a powerful way to secure your assets. It, however, does have its limits, since it cannot cure every financial issue. It has three (3) limitations which are the reason as to why you should consider it when compared to other methods. The following are the impossible tasks that bankruptcy will not handle:
- Eliminate explicit rights of the protected mortgage holders or secured creditors:
Instances of this include home mortgages or car loans. The only way to handle this is by forcing the mortgage holders to receive expenses over time during the bankruptcy procedures. The law can eliminate the responsibilities to recompense any surplus if the creditors took your assets. However, the debtor cannot continue to keep the security or collateral, if they do not continue to pay the debts,
- California non - dischargeable debts:
Dismissals of certain debts that are singled out by the bankruptcy law of California, these are debts that deal with special treatment; alimony, some student loans, criminal fines, certain taxes.
- The individual who cosigned on your debts:
These are the people who were co-signed in the loan. This means that the co-signers of the debt have no choice but to pay their part of the loan
Two different sets of exemptions that protect the debtor.
If you are not married or are single, you can protect up to seventy-five thousand dollars ($75,000) in the form of equity, meaning real property. On the other hand, if you have a family you are given up to one hundred thousand dollars ($100,000). If you are either disabled or fall into a low-income debtor, there will be more protection available for you. It has other abilities to protect a vehicle of up two thousand nine hundred dollars ($2900) and receive seventy-five percent (75%) of the wages in the thirty (30) days you have earned before you file for bankruptcy. There is a long list of exemptions that you should discuss with your bankruptcy attorney.
For equity, you can exempt up to twenty-six thousand nine hundred and twenty-five dollars ($26,925) for the House. For a vehicle, it is up to five thousand one hundred dollars ($5100).
The four types of bankruptcy provided by the law, each has its own provisions, advantages, and disadvantages.
- Chapter 7
- Chapter 11
- Chapter 12
- Chapter 13
Chapter 7 Liquidation
It is the easiest and most common type of bankruptcy. A given individual wipes all their debts and gets a fresh start with their finances. It works with a debtor submitting their nonexempt assets to an appointed trustee of the court. The trustee will sell the possessions or assets and pay the individual debtor any amount exempted. The net earnings are then distributed to the creditors and the trustee receives a commission for overseeing the distribution process. For liquidating your assets, you get a discharged from personal liability for more debts.
In chapter 7, there are some debts that cannot be discharged. They are found in the California non-dischargeable Debts (11 U.S.C 701,704). Though for most of these cases, chapter 7 has the ability to completely eliminate all their debts. The individual can keep certain secured debts, but they have to reaffirm them first. The process is done by signing a voluntary reaffirmation agreement. It states that if you want to keep a certain property like a car, house or furniture, you can reaffirm the debt, but you cannot wipe out that debt again within the next eight years.
Technically, you will continue to pay the debt as the same responsibility you had before filing for bankruptcy. For an individual to reaffirm that debt, you have to bring it to current. That is to say, if you were a few months behind, you have to pay those months for you to reaffirm. The reaffirmation agreements will be set aside in the earlier sixty (60) days after it has been filed to the courts, or if you have been issued an order of Discharge.
For chapter 7, the debtors are known to use exemptions to protect most of their property, if not all. This is because most of the cases are usually non-asset cases.
Who Qualifies for Chapter 7?
Not everybody can qualify for chapter 7 bankruptcy. There is the first test to help determine if you can file under this chapter, called Means test. It is an automatic pass if you earn less than the state median income, even if you get more compared to the state median income, there is a possibility of you still passing. But the process will get a little complicated from there. The test starts by accounting your income and expenses, which it does a direct comparison to the standards of the California state. The tests’ main purpose is to determine if you have the capability of maintaining chapter 13. The passing of the tests means that all your income is used to pay up necessary expenses. In theory, by proving that by paying all the living expenses there is no more money left to pay the debt to the creditors. Otherwise, you will qualify for chapter 13.
This bankruptcy is filed by corporations, businesses or a few individual debtors that have large debts. The main reason for chapter 11 is if the business owner wants to remain in control of the business and wants to continue to do their daily business while the cases proceed to bring a confirmation plan. In this case, no trustee is appointed, but it can happen if there is sufficient cause, fraud, dishonesty or the mismanagement of the business affairs.
Note that in chapter 11, the court will have to govern most of the major decisions, while the debtor continues with their business. The court has to approve the following:
- Selling of any assets which include real or personal property. The only exceptions are the items that the business sold during its course business.
- The entering or breaking of a lease of either real or personal property
- Any mortgages or any monetary planning that led the debtor to borrow money, which is after the case was filed.
- If the business enters into other agreements, unions, licensing and contracts.
- The holding and payments of the fees and expenses to their attorneys and other included professionals.
There are other parties such as shareholders or creditors, whose interest may back or reject actions that involve the Bankruptcy Court for approval. The court decision will consider all the involved parties inputs and decide on how they will proceed. The equity and creditors formal votes are reserved in association with the suggested chapter 11 plans. For the unsecured creditors, they usually raise their interest through an appointed committee.
The debtors who have filed under chapter 11 have four months for exclusive rights, the reason is so as to propose the reorganization plan. If they come up with a good plan, the bankruptcy court can extend the period up to eighteen (18) months. The court also has the power to shorten the period under certain circumstances. If the exclusivity period expires, the committee from other parties as creditors can suggest the reorganization plans. Though it is rare for competing plans, the will usually choose to dismiss or convert it to chapter 7. A chapter 11 plan is a contract for two parties; debtor business and creditors, showing how they will operate and pay the debts in the future. An example of these plans includes downsizing the cooperation operations so as to decrease their expenses and lead to freeing of some assets. In some cases, proposing of liquidating plans is considered so as to provide a shutdown of the business and provide an orderly sale of the remaining assets.
Confirmation of this plan will rely on the courts since the plan has to meet a couple of requirements:
- Feasibility: The business has to prove that it has the ability to raise sufficient revenues so as to pay all its expense including the creditors.
- The proposed plan must confirm that they rely on the best interest of the creditor
- The proposed strategy has to be reasonable and unbiased to both creditors and the debtors through various circumstances
- The plan must be proved to be of good faith by the court
The law focuses on two groups: family farmers and family fishermen. It allows them to restructure their current finances so as to steer clear of liquidation or foreclosure. It is regarded as being comparable to reorganization in chapter 13, but with added security to the farmers. The main reason Congress enacted this chapter was due to the emerging response that was tightening agricultural credits and the pressure that was placed on both the farmers and fishermen.
For one to be eligible for chapter 12, you have to be a regular annual income. Regular income can be seasonal, as long it proves to be stable and regular to make them easy to pay the debts. The debtors in this chapter can be individuals, companies or partnerships involved with the following:
- Have a farming or commercial fishing tasks that they operate in.
- The total debt should surpass four million, one hundred and fifty-three thousand, one hundred and fifty dollars ($4,153,150) for the farmers and one million, nine hundred and twenty-four thousand, five hundred and fifty dollars ($1,924,550) for the fishermen.
- The debts they owe are supposed to be 50% from the farmer operations and 80% for the commercial fishing operations account debt.
- The gross income should be above 50% for both farming and commercial fishing operations.
- The individuals should have more than 50% share of the business in either stocks or equity interests
Chapter 12 works by the debtor filing for a voluntary petition which will be on relief. The farmers and fishing operations will continue after filing for bankruptcy. The bankruptcy courts will appoint a bankruptcy trustee with most of his or her duties limited to various tasks, such as reviewing documents, advising the court, observing the debtors tasks, and the collection and distributing of the planned payments. For the debtor, they have ninety (90) days to give a proposal for their repayment plan, the court also can extend the proposal deadline when some circumstances are met.
Both the cases of the farmer and the fisherman will have the proposal to pay their mortgage holders within three (3) to five (5) years. The two parties can ask the court for a longer plan period but not more than five years. This is if they have other domestic support obligations that they have not paid. Confirmation of the plan is approved by the courts. The case is usually held after forty-five (45) days after the parties filed for bankruptcy. Before the hearing, the trustee will make reviews to the court for the proposed plan and the debtor's documents and will give recommendations to the court. After all has been done, it is left to the courts to either to or not to confirm the proposed plan. For most of the judges, they will rely heavily on the recommendations of the trustee.
Basic Parts of the Chapter 12 Repayment Plan.
The mortgagor party will hand over their disposable incomes to the appointed trustee. Disposable income is referred to as the transformation variance from the income created by the operations and the reasonable amount that needs to cover the daily business expenses and their own families.
The one advantage of the repayment plan is, it tolerates farmers or fishermen to cramming down on their tenable debt.
The plan has to look at the best interest of the creditors’ tests. They will have to be paid at least as much as the case would be received under liquidation in chapter 7.
Under this chapter, the debtor gives a proposed repayment plan to repay all or part of the debt, over a time frame of three (3) to five (5) years. The chapter can also be used to prevent house foreclosure, paying back taxes, stopping accruing interest on the tax debt, keeping of the non-exempt assets except those mentioned by California exemptions, just to mention a few. The terms of this chapter are very simple, as long as you can stick to terms of the repayment agreement, you can be discharged of your remaining debts after the end of the plan. The repayment plan is measured using the California means tests. Which includes their disposable incomes. For the amount to be paid to the creditors, it must be at least what they would have received if the debtor had filed for chapter 7. To be approved under chapter 13, you require a regular source of income and also have surplus income for the payment plan.
The plan is used if you want to keep secured properties and assets. which is why the debtor having more equity in the form of secure assets they wish to protect with the California bankruptcy exemptions. For chapter 7 it is regarded as liquidation. For chapter 13 bankruptcy, it is referred to as reorganization. If you have more non-exempt assets and you wish to keep them, this chapter is the preferred choice, however, if you have heavy debts that you wish to eliminate, chapter 7 is suited as the attractive choice.
Find a Los Angeles Bankruptcy Attorney Near Me
If you are looking at bankruptcy as a choice when protecting your assets, the best recommendation is to have an experienced attorney familiar with the federal and California state bankruptcy law. Here at the Los Angeles Bankruptcy attorney, we offer experienced attorneys who have studied the bankruptcy law to the letter. With many years of experience, we have the know-how of handling these cases. We serve Los Angeles, CA. Call us today at 424-285-5525 and talk to one of the attorneys regarding your bankruptcy case.