When debts become too much for an individual or business entity to pay, bankruptcy is an option for you. Declaring bankruptcy helps protect you from constant calls and threats from creditors seeking payment for the debts you owe. Several types of bankruptcy options are available to suit the needs of each individual. Depending on the kind of bankruptcy relief you qualify, the bankruptcy trustee could sell your assets to pay the secured debts, or you can make a plan to repay your creditors.
Bankruptcy proceedings can be challenging since they significantly impact your financial and personal life. Bankruptcy may be a relief for your debts but could cause you to lose your home, car, and creditworthiness. If you consider bankruptcy as an option to your financial woes, you will significantly benefit from legal insight from Los Angeles Bankruptcy Attorney. Our Yorba Linda bankruptcy attorneys will offer you competent legal guidance and representation in your bankruptcy proceeding to ensure the best outcome.
Overview of Bankruptcy
Bankruptcy is a legal proceeding that gives you a new start when you are buried in debt and creditors are constantly calling you. Some of the situations that would prompt someone to file for bankruptcy include:
- When your wages are being garnished
- You cannot meet your financial obligations
- Creditors are constantly calling you to ask for payments or threaten to sue you
- You have more debt than you can pay
There are two main categories of bankruptcy one could explore:
Chapter 7 Bankruptcy
When you opt to declare bankruptcy under chapter 13, all your debts are canceled, and the trustee sells your assets to pay the secured debts. If you have received bankruptcy relief in the last six to eight years, you do not qualify to file for chapter 7 bankruptcy. Also, if, within the last 18 days, the court dismissed your chapter 7 or 13 bankruptcy, you will not be eligible to file for bankruptcy. When filing for bankruptcy under chapter7, you are required to fill a form that expects you to describe your assets, your monthly income and expenses, and the debts you owe.
By filing for this type of bankruptcy, you will be putting your debts and assets under bankruptcy court control. However, the income and property you acquire after filing for the relief will be exempt from liquidation. If you pledged property as collateral for a loan, the loan is considered a secured debt. If you haven't been making payments on the loan, the creditors could seek to repossess the property. However, if you are current on the payments, you can continue to pay and keep the property.
When the bankruptcy process is finalized, your debts will all be discharged. However, debts like alimony or child support survive bankruptcy. Guidance from a Yorba Linda Bankruptcy Attorney is crucial before you file under Chapter 7.
Sometimes the bankruptcy court could dismiss your case if they think you are trying to defraud your creditors. If you have engaged in any of these activities, the court could deny your case:
- Selling assets to friends or relatives at a price lower than the market value
- Concealing property or money
- Lying about your income on a loan application
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is based on a repayment plan you make to pay your creditors. A repayment plan will last for three to five years, and the amount you pay monthly will depend on your disposable income and the value of your non-exempt assets. Like Chapter 7, Chapter 13 bankruptcy gives you an automatic stay where creditors are not allowed to pursue you.
In your three or five-year repayment plan, you are expected to fully cover car loan arrears, mortgage, and other priority obligations. Chapter 13 bankruptcy is often reserved for individuals with a high income and businesses. Unlike liquidation bankruptcy, where your unsecured debts are dismissed, chapter 13 bankruptcy requires you to pay something to unsecured creditors.
When you file for bankruptcy under chapter 13, you will protect your home from foreclosure. Also, you will not lose your properties from liquidation. Within the three or five years of the repayment plan, you can put your finances in order and still pay your creditors. Before filing for bankruptcy, the insight of a Yorba Linda bankruptcy attorney is crucial.
Declaring bankruptcy may not be a solution for everyone planning to reorganize their financial life. However, you accrue the following benefits from filing for bankruptcy in California:
- Automatic stay. One of the most significant benefits offered by the bankruptcy and insolvency Act is the automatic stay. This keeps all creditors from coming after you to collect their debts. This allows you to reorganize your finances or that of your business without outside pressure.
- Restructure or Discharge of debts. Filing bankruptcy will either discharge your debts or allow you to make a plan that you can use to pay your debts. If you file chapter 7 bankruptcy, all your unsecured debts are discharged, and creditors can no longer claim payment.
- Bankruptcy allows you to rebuild finances and credit. Filing Chapter 13 bankruptcy allows you to build your credit score since you can prove your ability to pay debts by making a repayment plan.
- Bankruptcy protects your property from resale by creditors. If you file repayment bankruptcy, the court requires you to make a plan that lasts up to five years and cover the debts. Since you will be paying your debts, creditors cannot sell the property you used as collateral to cover your debts.
Not everyone should declare bankruptcy. Bankruptcy should be the last option you turn to after numerous attempts of rearranging your finances. Some of the downsides there are in declaring bankruptcy include:
- Loss of non-essential assets. Bankruptcy could affect your ability to retain your assets. When you file for chapter 7 bankruptcy, your assets are liquidated to cover unsecured debts. If you have equity in your home or other assets, the bankruptcy trustee will sell them and distribute the proceeds to your creditors. You may also lose tax refunds in the process of declaring bankruptcy.
- All debts are not discharged. Even though bankruptcy relieves you of your debts, some debts cannot be discharged. If you have secured debts, you can make a repayment plan under chapter 13 bankruptcy or your assets sold to pay creditors under chapter 7. Also, spousal support, child support, and some student loans are not discharged after bankruptcy.
- Your credit score could be lowered by bankruptcy. A bankruptcy record appears on your creditor record for up to six years. If you want to secure loans during this period, it could be quite difficult because creditors may lack faith in your ability to pay the loans.
- Employment considerations. Filing bankruptcy could impact your ability to secure employment if you are in charge of a trust fund.
If you are facing huge debts and you need to restructure your financial life, the benefits of declaring bankruptcy could outweigh the setbacks. However, before you settle on bankruptcy, it is crucial to content a Yorba Linda Bankruptcy Attorney.
Reaffirmation Agreement in Bankruptcy
When you have a loan and declare bankruptcy, the creditor could seek to repossess the property used as collateral to recover the debt. If you are not ready to lose the property you used as collateral, you can enter a reaffirmation agreement with your creditors. Entering a reaffirmation agreement makes you liable for the debt even after declaring bankruptcy. Entering the agreement is a complicated decision during the bankruptcy process.
Before you enter the reaffirmation agreement, it is important to ensure that you can pay the debt to which you want to tie yourself. Your request to reaffirm your debts needs to be reviewed by a judge in bankruptcy court. Sometimes the judge could fail to approve your reaffirmation agreement if they think it is not in your best interest. If the debt you are trying to reaffirm is unsecured or the agreement increases your loan's interest rate, the judge could deny it. When a judge fails to give a written reaffirmation order, you could enter an agreement with your lender.
Some lenders will insist on entering a reaffirmation agreement even when it does not result in your gain. Therefore, the guidance of an experienced Yorba Linda bankruptcy attorney is critical in this situation.
One of the most significant benefits you accrue from entering a reaffirmation agreement is that your credit score is not damaged. Therefore, your attempts to secure another loan in the future are not hindered.
Alternatives to Bankruptcy in California
If you are buried deep in debt, you may be under the impression that bankruptcy is the only option to rearrange your finances. However, there are other alternatives you could explore before resulting in bankruptcy. Before deciding on the course to pursue, insight from a bankruptcy attorney would go a long way for you. Common debt relief options that could help you avoid bankruptcy include:
Debt settlement is an option that involves negotiating with creditors to reduce the principal you owe or make a repayment plan that applies to your situation. Also, you can seek to have the interest rate in your loans lowered. If you have not been able to make payments, it could be easier to negotiate the settlement. When you opt for debt settlement instead of bankruptcy, you will protect your credit score. Consulting with a bankruptcy attorney is crucial if you are weighing between debt settlement and bankruptcy.
If you are overwhelmed with credit card debt or medical bills, obtaining a consolidation loan could be an option for bankruptcy. A consolidation loan is a loan you take to cover all your debts. In this case, you can be left with one common loan to pay. This gives you a chance to lower your interest and make a more feasible plan to repay your debt.
If you have multiple credit card debts, you can combine them into one credit card and pay the debt with little or no interest. An individual with multiple debts, who is not ready to lose their assets in bankruptcy could benefit from debt consolidation.
A loan modification will allow you to obtain affordable interest and monthly payments in your loan. However, loan modification is not automatic. You have to apply for the modification and prove financial hardships to your lenders. A loan modification is an agreement between you and your creditors, but the court will appoint a third party to monitor your communications.
Various nonprofit organizations provide credit counseling to reduce payments, late fees, and interest rates. If you seek to avoid damage to your credit, this will be a great option for you. However, finding a reliable program is crucial.
If you face significant financial difficulties or are far behind in mortgage payments, it would be wise to minimize your losses. With short sales, your home is sold, and the proceeds are used to cover the debts. Therefore, you will not owe any debt, and it's better than bankruptcy and foreclosure.
Find a Bankruptcy Attorney Near Me
It can be devastating to be buried deep in debt and being unable to control your financial life. Apart from the overwhelming financial difficulties, the inability to pay your debts will keep creditors on your back demanding payments. Also, some creditors could try to sue you while attempting to recover their money. Fortunately, bankruptcy allows you relief for your debts and keeps creditors away.
Matters surrounding bankruptcy affect different aspects of your life. When you file for bankruptcy, you may lose some of your property to bankruptcy liquidation. Sometimes, your credit score will decline, and your attempts to secure credit in the future could be futile. Before deciding to declare bankruptcy in California, it is crucial to seek a bankruptcy attorney's insight. Your attorney will guide you through the options available and represent your case in Bankruptcy court. If you are looking for a local Yorba Linda bankruptcy attorney, we invite you to contact Los Angeles Bankruptcy Attorney today at 424-285-5525 to discuss your situation in detail.