If your debts have become unmanageable and probably facing foreclosure on your property, you might think of declaring bankruptcy is your way out. Although bankruptcy might be your best way to find a fresh start, you must learn more about this decision to avoid any consequences that might come along. Additionally, knowing more about bankruptcy helps you take advantage of its benefits.
A bankruptcy attorney increases the possibility of achieving the best results out of your bankruptcy filing. A Los Alamitos bankruptcy attorney will help you go through the entire filing process, advise you on the best options, and help you fill all relevant paperwork. If you are in Orange County, schedule an appointment with Los Angeles Bankruptcy Attorney and learn how we can help you make the best out of your decision.
When You Should Consider Bankruptcy
Our Los Alamitos bankruptcy attorney should help you evaluate different factors before deciding on filing bankruptcy. This will help you confirm whether your choice is suitable enough to relieve you of your financial burden. Below are a few circumstances that can force you to decide on filing bankruptcy.
When Creditors Are Suing for Unpaid Debts
If your creditors have decided to pass your debts to a collection agency, most probably, they will file a lawsuit to force you to pay your debt. A debt collection lawsuit is something that isn’t worth fighting for since you can end up losing your properties to repay your debt. You can also end up spending a lot on your court costs.
However, filing bankruptcy gives you an automatic stay on your account once the court orders a cease to collection activity, including your lawsuit. Simultaneously, filing bankruptcy will help you cease any debt collection attempts on your credit card debt since it erases credit card and unsecured debts. If your utilities are at risk of disconnection, bankruptcy can also keep them off from being cut off.
You Are at Risk of Home Foreclosure and Car Repossession
In most cases, bankruptcy issues a stay on any foreclosure, repossession activities on your property, and credit card collections. The money you owe on homes and cars are secured debts or a debt where creditors can repossess the property. In that case, a creditor has a lien on the home or car. Liens claim property that indicates that the creditor can take it if you don’t make payment.
Bankruptcy can help you erase your debts but doesn’t keep creditors with liens from repossessing your property. This should not worry you since you can keep your home even after you file Chapter 13. Chapter 13 provides time to catch up with your mortgage payments and enjoy the exemption rule as well. For instance, California bankruptcy 13 exempts properties like household items, personal effects, and residential building materials meant to repair or improve your home.
You are Using your Wages to Repay your Debts
Sometimes creditors can use wage garnishment or repay your debts through your wages due to lawsuits and court orders. However, a bankruptcy automatic stay stops the wage garnishment, which saves your wages from the garnishment.
You Pay Everything Using Your Credit Card
Most people pay off their debts by digging deeper into debts through their credit cards. Bankruptcy can help you break this cycle, especially with the Chapter 7 bankruptcy that usually erases credit card debts.
You are Using your Retirement Accounts to Pay Bills
It can be tempting to rely on your retirement funds to pay off some of your debts, although the state usually protects this fund. However, once you file for bankruptcy, you can use other accounts to repay your debts and protect your retirement funds.
You can Pay your Debts in Five Years or More
To know about your financial capacity, calculate how much you owe and to whom, and learn how you can repay the amount or retain a modest repayment plan without going underwater. Focusing on bankruptcy can be beneficial since it eliminates credit card debts, which reduces the amount you are expected to pay.
You Have a Revolving Debt that Exceeds Your Annual Income
“Revolving debts” involves debts like credit cards, home equity lines, and personal lines of credits. These debts are referred to as revolving since they do not have an end date or open-ended term. Filing bankruptcy can be a suitable option to reduce these debts since it relieves debtors from debts like credit card debts.
All Other Options Have Not Worked Out
Maybe you have tried to negotiate with your creditors and failed to reach an agreement. Additionally, you probably have tried to budget, search for more income sources, or refinance your loans, and everything has not turned out as expected. If that is the case, filing bankruptcy can be a reasonable decision since it helps you reschedule your repayment plans and attend financial counseling classes.
When You Should Not File Bankruptcy
As much as there are several reasons why you need to file bankruptcy, there are situations where our Los Alamitos bankruptcy attorney would advise you against this decision. Let’s have a closer look at them.
You Can Pay Off Your Debts
It’s rare to find someone who can pay off his or her debts and decides to file bankruptcy at the same time. However, no matter how rare this kind of situation can be, those who can pay off their debt should decide on this option rather than filing bankruptcy.
An excellent way to confirm whether you can pay off your debt is by taking your monthly income, minus all your monthly expenses, including your credit card payment, and check whether there is any significant amount leftover. If there is any, you are likely better off without filing bankruptcy but have to adhere to a strict repayment plan.
Your Debts Are Mostly Tax Debts
Not all debts are equal. Certain types of debts are dischargeable by the bank, while others are not. In most cases, tax debts fall under the non-dischargeable category. Taxes like payroll taxes cannot go away easily. In most cases, these types of taxes are eliminated once you meet specific criteria. Specifically, your tax must be at least three years old and assessed to you for the last 240 days. If you have a debt that does not meet these criteria, you do not have to file bankruptcy since they will not be discharged.
Your Only Have a Student Loan Debt
Student loans have become one of the most difficult debts to eliminate. Although student loans fall under the non-dischargeable category, there are chances of failing to discharge them if you do not meet the standards needed for this option. Therefore, if your student loan is your main debt problem, the best option would not be filing bankruptcy but seeking out an organization that helps repay student loans while going through hardships.
You Want to Maintain a Perfect Credit Score
Bankruptcy harms your credit score. The fact that you are filing bankruptcy means that you are either behind your debt repayment or unable to repay them. Therefore, your creditors will probably let the credit bureaus that you are late on your payment and have your credit score lowered.
You might be thinking that bankruptcy can stop the lowering of credit score. Well, your credit score can go up for a while, especially during the repayment period provided by the bankruptcy filing, but this will not last. Once you are behind in your payment, expect your credit score to lower unless you maintain your agreed repayment schedule.
You Don’t Want to Lose some of your Assets in Bankruptcy
Filing bankruptcy, mainly Chapter 7, you are at risk of losing an asset. Chapter 7 liquidates your assets, meaning that the bankruptcy trustees might end up seizing and selling some of your assets if the exemption law does not protect them. If you own an asset like unprotected land that has been in your family for a generation, filing bankruptcy cannot be the best solution, especially when you intend to keep it.
If you think that filing bankruptcy might put some of your assets, it is a good idea to meet with our Los Alamitos bankruptcy attorney to determine what you will be at risk of losing. Often this fear is unfounded.
You Have a Recent Entitlement to an Inheritance
This might seem random, but it is worth mentioning. If you have a recent claim to inheritance but have not yet received it, it is best to avoid the idea of filing bankruptcy. Your bankruptcy trustees might take the asset and use it to benefit your creditors, even before you know how much it’s worth. That’s why it is recommendable to be clear with your bankruptcy attorney about every development in your life before you decide to jump on filing bankruptcy.
Common Types of Bankruptcy in California
There are four types of bankruptcy: Chapter 7, 11, 12, and 13. However, most people who seek bankruptcy filing use Chapters 7 and 13. Our Los Alamitos bankruptcy attorney will help you decide on the right type of bankruptcy that suits your needs. Here is a closer look at these two types of bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also referred to as liquidation bankruptcy. It allows trustees to collect all your assets and sell those that are not exempted, then distributes the proceedings to your creditors. Under this type of bankruptcy, debtors cannot discharge their credit card debts, fraudulent debts, student loans, alimony, and certain items.
However, debtors can keep secured debts like a car, furniture, and a house by reaffirming these debts. This means that the debtor must sign a voluntary “reaffirmation agreement.” Signing this agreement restricts the creditor from filing bankruptcy for the next eight years.
Reaffirming the agreement means that you can still keep the property but should continue repaying the debts, just like the way you had agreed before filing bankruptcy. However, you must pay back all that is due before the reaffirmation. Reaffirming your debts allows you to select particular debts and pay off the rest. For instance, you can state that you want to keep assets like furniture and your house but want to return your car and jewelry to their respective creditors.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also referred to as the reorganization bankruptcy. This type of bankruptcy proposes a 3-5-year repayment plan from the debtor’s future income. Chapter 13 is suitable for protecting your house from foreclosure, mortgage payment, pay back taxes, and stopping interest from accruing on your next debt.
The amount that you have to pay depends on factors like your California mean test. If you stick by the repayment plans, the court will release all the remaining dischargeable debt at the end of the stipulated time.
Please note, the total amount that should be repaid under Chapter 13 must be at least the amount the creditor would have received through Chapter 7 bankruptcy. Apart from that, filing Chapter 13 requires the creditor to have a regular income or disposable income to apply towards the repayment process.
Apart from having a disposable income to repay your debts, there are particular debts that you should prioritize before others. In most cases, priority debts include state income taxes and general domestic support obligations like child support and spousal support.
Comparison Between Chapter 7 and Chapter 13 Bankruptcy in California
It would be best to compare both Chapter 7 and 13 bankruptcies to be at ease when choosing the one that suits you best. Starting with who can file either of the chapters, individuals and business entities can file Chapter 7, whereas Chapter 13 is restricted to individuals and sole proprietors.
When it comes to the possibility of restrictions, your disposable income must be low enough to pass the mean test in Chapter 7. With Chapter 13, you cannot have more than $419,275 of unsecured debt or $1,257,850 of secured debt.
On matters concerning how long you can receive a discharge, it takes three to four months to discharge your debts under Chapter 7, while Chapter 13 debts are dischargeable upon completing all your payment plans.
There are other factors to compare when choosing between Chapter 7 and Chapter 13 bankruptcy. Our Los Alamitos bankruptcy attorney will help you evaluate these factors and help you make the right decision.
Find a Los Alamitos Bankruptcy Attorney Near Me
The process of filing bankruptcy is not as easy. There are a lot of decisions that require analysis and professional input. Therefore, handling the filing process all by yourself is risky and can fail your expectation. However, with the help of our Los Alamitos bankruptcy attorney, you will rest assured of a hustle-free filing process. We are dedicated to taking a case-by-case approach to help you take control of your finances and future. For more information, contact us at 424-285-5525 and schedule an appointment.