Living in California comes with a lot of benefits. However, the cost of living is very high, and it is easy to slip into debt. When your debts are too much to manage, you can opt for bankruptcy to wipe your slate clean and have a fresh start. Declaring bankruptcy grants you an automatic stay that protects you from regular calls from creditors demanding payment.
Even though bankruptcy helps you put your finances in order, this debt discharge is not suitable for everyone. Declaring bankruptcy could see you lose valuable assets and also affect your credit score. Therefore, if you are considering bankruptcy, it is crucial to seek legal guidance. At Los Angeles Bankruptcy Attorney, we will guide you through all the types of bankruptcy and their advice so you can make the best decision. Our San Juan Capistrano Bankruptcy Attorneys are standing by to help all clients throughout Orange County, CA.
What is Bankruptcy?
In California, bankruptcy is the legal process that helps individuals and business entities obtain a fresh financial start by discharging or making a plan to repay debts. If you are caught up in debts and do not have the financial capacity to cover these debts, declaring bankruptcy can always be an option. Even though there are different categories of bankruptcies with varying eligibility criteria, the end goal of all categories of bankruptcy is a fresh start.
When debts are too much to cover, it can be devastating. It is most likely that creditors will continuously call you, threatening to file lawsuits against you for failure to pay. Should you file for bankruptcy, your unsecured debts are discharged. A bankruptcy discharge is an order from the court prohibiting creditors from attempting to collect the discharged obligations.
The two major types of bankruptcy you can explore in California include:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy involves the liquidation of your properties to cover your debts. The court selects a bankruptcy trustee to follow up with your case. The trustee's responsibility is to take your assets, auction them, and distribute the proceeds to creditors. Eliminating your debts is a vital step towards obtaining financial freedom. A San Juan Capistrano Bankruptcy attorney will help you understand your rights and options during a liquidation bankruptcy.
The decision to declare bankruptcy is difficult. This is because liquidation bankruptcy is likely to affect your credit score. However, this category of bankruptcy will provide you with much-needed relief for your money troubles. When you file for liquidation bankruptcy, your creditors cannot call you or threaten to sue you for your debts. When the bankruptcy trustee sells your assets, you are relieved of the obligation to your debts. The remaining debts remaining after the liquidation of your assets will be discharged.
Before you file for liquidation bankruptcy, you need to meet the eligibility criteria. One of the ways you know that you qualify for this discharge is by bypassing the means test. The means test puts into consideration your income and your ability to pay the debts.
Chapter 13 Bankruptcy
A reorganization bankruptcy allows you to form a repayment plan to pay your creditors. When you file for this category of relief, you are allowed to keep your assets. After filing, you will be granted an automatic stay, and your creditor will not call you frequently to demand their money.
The reorganization bankruptcy is designed for debtors who:
- Are not eligible to file for liquidation bankruptcy but would like debt relief and prevent wage garnishment.
- Have debts that are not dischargeable, like child support or alimony, and would likely cover their repayment plan debts.
- You have fallen behind in mortgage payments and want to catch up with the missed payments.
In a reorganization bankruptcy, the bankruptcy trustee will not sell your property. However, you are required to repay your debts in an amount equal to the value of the non-exempt property.
Not all people qualify for reorganization bankruptcy. You must meet the following eligibility criteria to file chapter 13 bankruptcy relief:
- It would be best if you were not a Business Entity. Chapter 13 bankruptcy is meant for individuals and people filing jointly as a couple. A corporation for limited liability business is not eligible for this category. However, if you are a sole proprietor, you can file in your name for your debts.
- You are not in the Middle of another Bankruptcy. If you discharge your debts in chapter 13 within the last two years or in liquidation bankruptcy in the past four years, you are not eligible to file bankruptcy under this chapter.
- A Previous Bankruptcy Petition was not dismissed with the Past 180 Days. You cannot file for bankruptcy if your previous petition to file was denied in less than 180 days for violation of a court or you dismissed the case.
- You need to fulfill the Credit Counseling Requirement. When you are filing for chapter 13, you must present a certificate to prove that you have undergone debt counseling at least 180 days before filing. If the counseling agency created a debt repayment plan, you must provide a copy of this plan in court.
- Steady income. When you file for chapter 13 bankruptcy, you make a plan to continue paying your creditors. Therefore, you are required to prove that you can meet your household obligations and pay your debts. If you have a low or irregular income, the court will not approve your repayment plan.
Understanding Different Types of Debts in Bankruptcy
When preparing for bankruptcy, you should sort your debts into different categories. The type of debt you owe determines whether the debt will be wiped out, the amount you will pay to the creditor, and your ability to keep the property you put up as collateral for your debts. The different types of debts you need to understanding while undergoing the bankruptcy process are:
Secured debts are an obligation guaranteed by collateral. When you take a loan, the lender may ask for the property to hold up if you fail to pay the loan. A debt contract will give the lender an ownership interest in the collateral, which is called a 'lien.' Should you default on the debt, your lender will use the lien to recover their debt.
When you file for liquidation bankruptcy, your bankruptcy trustee may sell your property to pay the secured debts. Alternatively, the creditors can foreclose the property and auction it. However, you are required to state the properties you wish to surrender to the bankruptcy trustee. If you do not want to give up property, you must continue to make payments. The arrangement to keep your assets and continue to pay your creditors could be achieved by entering a reaffirmation agreement.
One of the best things about chapter 13 bankruptcy is our ability to keep your properties. However, you may need to continue making payments for the secured debts and pay for the equity not covered by the bankruptcy exception. For you to achieve a better understanding of secured debts in bankruptcy, insight from a San Juan Capistrano Bankruptcy Attorney will go a long way for you.
Unsecured Debts in Bankruptcy
Unsecured debts are the debts you obtain without collateral. Therefore, when you declare bankruptcy, creditors have no way to recover. Instead, the creditors may need to file a case against you to prove the amount you owe. Should your creditors win the case, they will have a right to garnish your wages. Whether your debt is wiped or creditors will recover on whether the unsecured debt is priority or non-priority. With guidance from a San Juan Capistrano Bankruptcy attorney, you can make decisions that best suit your situation.
Some obligations receive special treatment in bankruptcy since they are more critical. Some of the priority unsecured debts are tax obligations, child support, and alimony. If your assets are auctioned, the proceeds will cover these debts first before distribution to other creditors. If you have a divorce and declare bankruptcy, it is crucial to understand that spousal and child support cannot be discharged.
In Chapter 13, the priority unsecured debts must be covered in your repayment plan. Since a bankruptcy repayment plan cannot go past five years, you need to plan large enough to cover the debt within the specific period.
Most non-priority unsecured debts are discharged when you declare bankruptcy in California. However, you have to prove your inability to pay them. In liquidation bankruptcy, the non-priority unsecured debts are paid last if the money is available.
Bankruptcy and Short Sale
When your debts become unmanageable, it is crucial to look for ways to correct the situation. If you are having trouble paying your mortgage, a short sale may be an excellent solution to the problem. In a short sale, you sell your house at a price lower than the debt balance to clear part of the debt you owe. The creditor will then release the lien on your home, and you will avoid embarrassment brought about by foreclosure.
Short sale deficiency is the amount of debt remaining after part of it is covered from a short sale. In California, lenders are not allowed to seek judgment against you for a short sale deficiency. However, destroying the property or engaging in fraud could attract legal action. It is essential to understand that short sale deficiency judgment law does not apply to limited partnerships, limited liability companies, and corporations.
Filing for bankruptcy and short selling your home are two options forms of debt relief you can explore. Even though both options are beneficial, the most reasonable step will depend on your situation's specific facts. A short sale may be best if the only debt that is unmanageable is the mortgage. However, if you have other debts such as medical bills and credit card debts, filing for bankruptcy may be a better way to obtain debt relief. Your San Juan Capistrano Bankruptcy attorney can guide you through the right option.
If you want to short sell your property after filing for Chapter 7 bankruptcy, you may not need the short sale process. Chapter 7 bankruptcy gives you an option to surrender your properties to the bankruptcy trustee and sell them to pay your mortgage debt. You do not need to undergo the stress of negotiating a short sale if you plan to file for this category of bankruptcy.
When filing for Chapter 3 bankruptcy, shirt sale bankruptcy is different. When you short sell your home, the remaining debt is covered in the repayment plan. However, if you could negotiate a short sale before declaring Chapter 13 bankruptcy, you may lower your payment plan since your unsecured debts are reduced. If you undergo bankruptcy and receive a discharge, you will not be held accountable for your mortgage's balance. If a lender repossesses a property you used as collateral, the costs resulting from the property will no longer be your concern.
A short sale may significantly impact your credit score and the harm done is as bad as a foreclosure. Although you might have to wait a few years to qualify for another mortgage, a short sale may be an excellent decision to reorganize your financial life.
Find a Bankruptcy Attorney Near Me
Deciding to file for bankruptcy may not be an easy decision. However, this step may be the best way to solve your financial issues and put your finances in order. Depending on the category of bankruptcy you declare, all your debts may be wiped out by selling your assets, or you could make a repayment plan to pay your debts. The process of declaring bankruptcy could be complicated since it affects multiple elements of your financial and personal life.
Therefore, seeking competent legal guidance is crucial when you are considering bankruptcy relief. Your lawyer will take you through bankruptcy alternatives and other facts of the process to ensure you decide that best suits your situation. If you are in Orange County, CA, you will need insight from a Los Angeles Bankruptcy Attorney. Call us today at 424-285-5525 and allow us to guide you through the tough times.