Whether you are facing significant credit card debts, medical bills, divorce, or job loss, you might fight yourself uncertain about the next step. While it is a confusing situation, you should not ignore your financial situation since it could result in dire effects. With the assistance of the Los Angeles Bankruptcy Attorney, we can work with you to determine the financial circumstances and then recommend the most effective bankruptcy option.
Understanding the Basics of Cramdowns in Chapter 13 Bankruptcy
A Chapter 13 cramdown allows a debtor to lower their loan's principal balance to the value of their asset it's secured by. Using a cramdown helps you save your motor vehicle, real estate, among other assets.
You can cram down secured debt. A secured debt is one whose creditor has a security interest in an asset and could reclaim it if the debtor is behind the loan repayment. Perfect examples of secured debts include auto-loan and mortgage. The borrower can also cram down their household furnishings and goods. However, they can't cram down their mortgage on a principal home.
How the Cramdown Work
Since your motor vehicle starts depreciating immediately you drive it off the showroom, here is a perfect example of how cramdown works. The process is similar to all qualifying loans for a cramdown.
Let's assume you financed your motor vehicle in 2013 for sixty thousand dollars. In 2016, you owed thirty dollars, but your automotive's worth is twenty thousand dollars, leaving forty thousand dollars secured. The cramdown could lower your debt balance to forty thousand dollars or your car's replacement value.
Another advantage is that you can lower the interest rate of your reduced debt balance. The court sets your interest. Depending on where you reside, usually, the rate is lower than the original one.
Limitations on Winnetka Bankruptcy Cramdown
There are limitations on when a debtor could use the cramdown. The limitations prevent a person from cramming down recent purchases, and they depend mainly on the asset securing the loan you want to cram down.
- Nine Hundred and Ten-Day Rule — If a debtor plans to cram down an auto-loan, they should have bought the motor vehicle for more than two years and a half before filing a bankruptcy case.
- A Year Rule — Unlike the nine hundred and ten-day restriction, this rule applies to your personal property. Typically, it is beneficial to cram down debts on household items and goods bought a year before filing a bankruptcy case before the cramdown is permitted.
- Investment Mortgages — Many bankruptcy courts require a loan that is crammed down to be cleared within the repayment period of Chapter 13. It results in challenges to homeowners planning to cram down mortgages since they cannot afford to pay off the mortgage.
Should You File Bankruptcy Immediately After Moving to Another State?
The answer depends on when a debtor moved, how much assets they own, and which state provides them a more favorable exemption.
The aim of filing bankruptcy is to exempt as many assets as possible. Exemption protects your property in a Chapter 7 case and assists you pay your unsecured creditors less in a Chapter 13 case. Nevertheless, every state has its bankruptcy exemption and guidelines on whether a borrower could use the federal bankruptcy exemptions rather than state exemptions.
If you could exempt all assets with any state exemption law when you bring a bankruptcy case does not matter for exemption planning purposes. Nonetheless, if the new state exemptions permit you to safeguard more property, you should delay using that state's exemptions.
When Do You Qualify to Use Your Current State's Exemptions?
Simply because you are in another state does not mean you can automatically use its exemptions. Whether you could use the exemptions hinges on the duration, you have made the new state your permanent residence.
1. The One-Hundred and Eighty-Day Rule
If a debtor lived in the new state for more than two (2) years, they should use the state's exemption when they resided six months before the two (2) years preceding the filing. Therefore, if they want to use their previous state's exemptions, the rule could assist, provided they file the bankruptcy case within two (2) years of the moving.
2. The Two-Year (730-Day) Rule
Before you could use any state's bankruptcy exemptions, you should be domiciled in the state for more than two years before the filing date. Otherwise, the six-month rule determines the state exemptions you should use. Consequently, if you moved to California and want to use the Winnetka bankruptcy, you should delay bringing your bankruptcy case.
Should you fail to qualify in any state exemption system with the 180-day or 730-day rule, you can use the federal bankruptcy exemption.
Why You Should Hire a Winnetka Bankruptcy Lawyer
If you are deemed bankrupt, you are in financial challenges, and it is natural to think that you ought to file the case on your own and save the money your attorney will charge. Well, this might be an expensive mistake that might result in losing non-exempt property, denial of debt discharge, or even a criminal charge for fraud.
An established lawyer could avoid the mistakes and assist you in numerous ways, including:
Considering Alternatives to Bankruptcy
Bankruptcy is not the only method to realize financial peace. If bankruptcy isn't the best choice, your lawyer will suggest an appropriate bankruptcy alternative.
Help You Understand the Available Options and Bring the Best Bankruptcy Chapter
Chapter 13 and Chapter 7 are the most common forms of bankruptcy. Although they both offer protection from lenders, which one you bring depends on your case.
A Chapter 7 case allows a debtor to eliminate several unsecured debts like credit cards and medical expenses. It requires you to liquidate your property except those covered by California exemptions, such as your motor vehicles and homes.
On the other hand, Chapter 13 bankruptcy allows a debtor to reorganize property and consolidate payment to fines and fees and repay all or some of the debts. If you complete your repayment plan, your debts will be discharged, and you will keep your assets.
Ensure You Adhere to Bankruptcy Requirements
Your Winnetka bankruptcy case could be dismissed before a debt discharge if you fail to adhere to the requirements for submitting documents, filing, among other administrative issues. Common requirements include:
- Complying with court orders
- Making the Chapter 13 repayment payment on time
- Attending all creditor's meeting
- Completing a credit counseling class within six months before filing your case
- Filing the necessary documents
Dealing with Loans and Credit Cards
Your lawyer should explain the most effective method to handle your loans and credit card debts and how bankruptcy affects the credit rating. The legal expert will also advise of the ways to restore your credit score.
Handle Family Situations
The lawyer will analyze the most practical method to handle debt if you're experiencing a legal separation or divorce and develop ways to reduce the impact of bankruptcy on your children, inheritance, and family.
File and Prepare Paperwork
Bringing a bankruptcy case demands you to complete numerous forms. Any experienced bankruptcy lawyer has software that prepares and brings the necessary paperwork to the bankruptcy court.
It would help if you offered your lawyer financial details like your expenses, assets, debt information, and income. The attorney will use the information to prepare official forms and go over your completed paperwork with you to ensure accuracy.
The lawyer will also ensure you submit your paperwork promptly. Missing the deadline might result in:
- Case delays
- Case dismissal
- Other negative consequences
Representing You at a Hearing
Following the case filing, you should appear in the compulsory 341 meeting of creditors. And depending on the bankruptcy case, you might attend more hearings.
Typical forms of hearings you could anticipate the lawyer to represent you are:
- Chapter 7 reaffirmation hearing
- Chapter 13 confirmation hearing
- Any objection or motion hearing brought by you, the trustee, or your lenders
Life Following a Chapter 7 Bankruptcy Case
Like everyone, you want to remain free from debts after a debt discharge in a Chapter 7 bankruptcy case. Enjoy the fresh start using the following tips:
Staying Within Your Budget
Most people bring bankruptcy after going through unexpected events like identity theft, unemployment, divorce, or illness. Even so, you could benefit from cutting pointless costs.
Staying within your budget and analyzing the spending habits is an excellent place to begin. Avoid purchasing things on credit that you cannot afford to clear.
Credit Score After Bankruptcy
Filing a bankruptcy case could adversely affect your credit score. While the Chapter 7 case will stay on the record for ten (10) years, the effect reduces with time. Fortunately, bankruptcy does not stop you from moving on with your life and receiving another loan.
Credit card firms know that a discharge frees up your money for other bills, and you can repay your debts following the bankruptcy.
Purchasing a Home or Motor Vehicle Following a Chapter 7 Bankruptcy Case
Most debtors are surprised to discover that bankruptcy will not derail purchasing a home or vehicle for long. If your Winnetka bankruptcy case helps you wipe your debts, your dream might come true faster than you think. If you follow the steps to rebuild your credit, you can get a reasonable interest rate when purchasing a motor vehicle within two years following bankruptcy.
Rebuilding Credit Following Bankruptcy
Keeping the available credit high is one of the factors while driving up the credit score. Therefore, when you start re-using credit, you should keep your balances below thirty percent.
Here are more factors to put into account:
1. Analyzing your Credit Card Offer
Typically, you'll start to receive credit offers after filing bankruptcy. Nonetheless, most of these offers have high-interest rates, substantial annual fees, and low limits. Make sure you review the offers' terms before acquiring another credit card.
If you are not eligible for an unsecured credit card, you could begin rebuilding the credit by acquiring a secured credit card from the bank. You should deposit money in your bank as collateral. The card rebuild credit since your lender reports payment on the credit report.
2. Monitor the Credit Report
It is paramount to analyze the credit reports for errors after the debt discharge. If a debtor identifies a mistake, they should rectify it immediately to prevent it from hindering the efforts to restore their credit score.
Frequently Asked Questions
Any experienced bankruptcy attorney will tell you they have answered the following frequently asked questions over and over:
1. How Debts Will You Repay if You Bring a Chapter 13 Bankruptcy Case?
What you repay depends mainly on the forms of your debt. Below are the guidelines:
- You should pay all your spousal support, child support, and student loan.
- Bankruptcy fees — A debtor should pay one hundred percent of the filing fees, attorney's fees, and trustee commissions.
- Secured debts — If a borrower wants to keep their motor vehicle or house, they should pay all the amount they're behind on loan.
2. How Long will Your Repayment Plan Last if You Decide Filing Chapter 13?
Your repayment plan duration depends on the income. If the monthly income is above the median, the plan should last five (5) years. And if the income is below California median monthly income, you could use a 3-year repayment plan.
3. What are the Advantages of Chapter 13 Over Chapter 7?
It is popularly believed that Chapter 7 is better than Chapter 13 because the former allows a debtor to wipe out all qualifying debts while the latter requires the borrower to repay all or some debt. Well, that is not always the case. Every chapter has tools that help solve specific problems.
Below are reasons to bring Chapter 13:
- You are behind on your auto-loan or mortgage
- You require more time to repay the debts
- You've domestic support arrearages or tax obligation that cannot be discharged
- You have non-exempt assets that you want to keep
4. Can You Use Retirement Benefits to Fund the Repayment Plan?
The essential part of your Chapter 13 case repayment plan is establishing that you've adequate income to satisfy the payment obligation. Generally, bankruptcy courts permit borrowers to use various sources, including retirement benefits, to fund the repayment plan.
Find Experienced Bankruptcy Guidance Near Me
When you find yourself experiencing creditor harassment, repossession, or wage garnishment, you might consider filing for Winnetka bankruptcy. Well, the decision isn't easily made since every financial case is unique. Additionally, there are pros and cons to Chapter 13 and Chapter 7, and you should meet specific criteria. The Los Angeles Bankruptcy Attorney can take time to analyze your financial condition and offer an assessment to assist you in deciding whether bankruptcy is the best debt relief option. If you decide you want to file a case, we can stand with you throughout the process. Contact us today at 424-285-5525 for your initial consultation.