If you have been hit by financial hardship, you understand it’s an uphill task to manage debt. Many ways are available to get yourself out of debt, and the most common one is bankruptcy. Bankruptcy provides financial relief and helps you get your finances in order, to get back on your financial feet.
Bankruptcy laws in California are complex and require much legal knowledge, experience, and sacrifices to navigate this debt settlement process. With the right legal representation, you can explore the various ways of eliminating debt through bankruptcy.
At the Los Angeles Bankruptcy Attorney, we have given an overview of bankruptcy laws, advantages, and disadvantages of declaring bankruptcy, various forms of bankruptcy, and filing bankruptcy in this article. That way, if you decide to declare bankruptcy, you can make an informed decision.
Legal Definition of Bankruptcy
Bankruptcy is a set of federal laws intended to provide a fresh start or financial relief to persons or businesses that owe more debt than they can pay. It means all bankruptcy cases in Los Angeles are handled in the federal court systems. Declaring bankruptcy not only gives you long term financial relief, but it also gives you space to breathe because debt collectors and creditors will be stopped from collecting their money until the matter is resolved in court.
Merits and Demerits of Declaring Bankruptcy
Your financial situation is unique to your situation. Filing for bankruptcy might benefit you somehow, and on the other end, it might affect your finances in the long run. However, for many people, declaring bankruptcy is the best thing to do. By filing for bankruptcy, you get an automatic stay against your creditors. The court issues a stay that doesn’t cancel the debt but stops collection until the case is complete.
Filing for bankruptcy will also help you cancel or discharge debt payment obligations for credit card debts, personal loans, and other dischargeable debts. Another benefit of declaring insolvency is that you get exemptions that protect your property from seizure during this process.
Although this option of getting financial relief offers many benefits, if undertaken at the wrong time, it could make your financial situation worse. Some of the disadvantages associated with declaring bankruptcy include:
- Loss of credit cards
- The immediate impact on your credit score affects your future eligibility for loans
- Problems obtaining mortgages and loans
- Loss of property and assets as it is seized and sold to repay the debt
- Denial of local, state, or federal refunds
The pros and cons of declaring bankruptcy have an overlap because of varying financial circumstances among individuals. Different factors also affect individual circumstances. Reach out to a Shadow Hills bankruptcy attorney and discuss your unique financial circumstances with an experienced bankruptcy attorney. That way, you will make an informed decision of whether bankruptcy suits your situation.
The Forms of Bankruptcy In Los Angeles
In Los Angeles, there are two primary forms of bankruptcy. These are:
Chapter 7 bankruptcy, also called liquidation bankruptcy, is a legal procedure that allows you, as a debtor, to get rid of your debts by selling off your assets to repay creditors. The process is a good one because it gives you a clean slate if you meet its conditions. Eligibility for this form of bankruptcy is hard to meet after bankruptcy laws changed in 2005.
You can only file for this form of bankruptcy if you meet the various conditions like the means test. If you fail to qualify for bankruptcy under this chapter, the court will convert your case to Chapter 13 bankruptcy. Despite the strict conditions, disabled veterans who accumulated excess debt while in active military duty can declare bankruptcy under Chapter 7 without meeting the qualifications. All other individuals must meet the requirements of this chapter. To understand the qualifications for bankruptcy under this chapter, talk to a Shadow Hills bankruptcy attorney.
This form of bankruptcy is referred to as liquidation because it necessitates collecting all your property or assets and then selling them to repay creditors. The rest of the debt that remains after the sale of assets is eliminated. However, you should understand that not all assets are seized and sold for debt repayment. Particular property protected from the sale to repay debt.
Property that is exempt from sale for debt repayment includes specific personal property, automobile, and real estate property like your residential home. The property is protected from creditors such that even if you declare bankruptcy, it won’t be sold off to pay the debt. It’s worth noting that although some property is exempt, others are not.
After you file for this form of bankruptcy, you will be given a hearing date, often one to two months after filing the petition. At this hearing, a trustee assigned your case determines if you are eligible for this form of bankruptcy. If your earnings are lower than those of a Californian household’s median wages, you will automatically qualify for this chapter. However, if the yields are higher than those of Californian households’ median income, you will undergo the means test to determine your eligibility.
Once it is determined you are eligible for Chapter 7 bankruptcy, the trustee is granted the authority to seize all your non-exempt property and sell it off to recuperate all the losses caused by the debts. California has relatively generous exempt laws, which means you won’t give up some of your property like real estate and automobile. However, the trustee will seize your vacation home, second automobile, cash, bank accounts, and other investments.
If you are ineligible for Chapter 7 bankruptcy, the other option is to file bankruptcy under Chapter 13. The chapter is a debt repayment plan that allows you to reorganize your finances for three to five years gradually. This is different from Chapter 7 bankruptcy that involves selling off assets to repay debts within a few months. Therefore, a reorganization bankruptcy is a debt relief option for persons whose income exceeds Californian households’ median income.
As per this chapter, you develop a repayment plan to pay your creditor within 36 to 60 months. And although reorganization bankruptcy is for individuals who do not qualify for bankruptcy under Chapter 7, it has its qualifications and set of rules. Under Chapter 13, you can keep your property and assets and repay creditors within three to five months, relying on a court developed repayment plan.
You will be eligible for Chapter 13 bankruptcy if you are an individual or married couple with a regular income to be used to repay the amount you owe. However, businesses are exempted from filing this form of bankruptcy.
If you qualify for Chapter 13 bankruptcy, the process will commence when you file a petition with a bankruptcy court in Los Angeles. When filing a petition, it’s best to have an experienced Shadow Hills bankruptcy attorney by your side because the laws that govern this process are complex and require knowledgeable people.
Once you have filed a motion, you and your Shadow Hills bankruptcy attorney will formulate a 36 to 60 months repayment plan and take it to court for approval. The court then evaluates the proposal, and if it’s approved, you will be required to repay your trustee, who issues the money to your creditors.
Note that when you declare bankruptcy under this chapter, the court imposes legal obligations that must be fulfilled. These legal obligations are:
- Filing bankruptcy forms and paperwork with a local Los Angeles bankruptcy court
- Paying filing fees
- Making payments as per the proposed repayment plan
- Sticking to the repayment plan
Remember that if you follow the agreement and make your payments to the trustee on time, the remaining debt will be discharged at the end of the repayment period. However, even if you obtain a discharge, it won’t clear all your debts. Exception for Chapter 13 discharge include:
- Petitions for the child or spousal support
- Court fines for criminal cases and reimbursement to victims of your wrongful acts
- Specific long term commitments like mortgages loans that extend past the repayment plan.
- Wage-earner plan debts
When you compare Chapter 7 and Chapter 13 bankruptcy, you will notice that although the goal is to provide financial relief, the two are different. Chapter 7 or liquidation bankruptcy wipes out all your debt, but you have to surrender your non-exempt assets to be sold off for clear debts in return. Further, Chapter 7 lacks a refund plan.
Chapter 13, on the other hand, consists of a repayment plan where you pay part of or full amount of the debt within 36 to 60 months. Besides, as a debtor, you have to develop a repayment plan that will be relied upon to clear the debt upon approval by the court. If you stick to the plan, creditors and debt collection agencies will be stopped from collecting their debts.
As stated earlier, both Chapter 7 and 13 bankruptcy have their pros and cons. The nature of your finances is what will decide what form of bankruptcy is right for you. So, you need to consult with an experienced attorney so that whatever type of bankruptcy you opt for will be a success.
How to File for Bankruptcy in Los Angeles
When you decide to file for Los Angeles, you must determine if you want to go through the process on your own or with a Shadow Hills bankruptcy attorney’s help. The best way to be guaranteed your rights and interest are protected in the process is by having an attorney by your side. The steps you or your attorney will follow are:
Gathering All the Necessary Documentation
Some of the paperwork you will need when declaring bankruptcy include:
- Last two years of filed tax returns for Chapter 7 bankruptcy and four years for Chapter 13
- All documents showing your assets like bank accounts, vehicle value, and life insurance
- Information on all creditors that you currently owe
- Six months of income verification in case you are unemployed
Ensure that you gather and prepare these documents and take them to your attorney’s office on time because they are essential in preparing your bankruptcy schedule and petition.
Complete a Credit Counseling Program
Before filing the bankruptcy petition or commencing the legal process, you need to complete a credit counseling program. The classes are on and half hours long and can take place over the phone or online. However, before joining a credit counseling agency, you must ensure the California court system approves it.
The right credit counseling agency will help you review your financial situation and decide if declaring bankruptcy is the best way to manage your overwhelming debt. Keep in mind that this step is mandatory. If you fail to attend credit counseling classes, your bankruptcy petition will be dismissed.
Also, the program must be completed within 180 days of declaring bankruptcy. If the certificate issued upon completion of the program expires before filing for bankruptcy, you must retake the classes because you will need a valid certificate to file a petition.
The last step is to speak to a Shadow Hills bankruptcy attorney. The attorney will guide you through the entire process. Although you can go through the process alone, the chances of the process succeeding are lower than when you have legal representation.
Find the Right Bankruptcy Attorney Near Me
The cost of living in Los Angeles is relatively high compared to other parts of the nation. For this reason, when financial challenges hit, they can cause devastating effects to residents of this city.
So, if you have lost your job, are struggling with an illness or injury, or have been through a difficult divorce that has left you unable to manage your debt, you might want to consider bankruptcy. Although no one wants to make this move, if you have explored other options unsuccessfully, then it might be your best way out.
At the Los Angeles Bankruptcy Attorney, we can give you a more in-depth insight into California bankruptcy statutes and how they apply in your unique financial circumstances. Our attorneys will help you review your options and make an informed decision to give you a fresh start. Call us today at 424-285-5525 for a free consultation.