Struggling with debt can be frustrating and stressful. Many people become overwhelmed and don't know what to do when they face financial troubles. Filing for bankruptcy can be a relief, but most people don’t know how to prepare for it. Whatever the reason you have, preparing for bankruptcy is crucial to the success of the entire process. This article gives insight into how you can prepare for bankruptcy.
Understand the Type of Bankruptcy to Declare
In California, you can choose among several forms of bankruptcy. The forms include Chapters 7, 11, 12, and 13. The common types of bankruptcy in California include Chapters 7 and 13. Below learn the fundamental aspects of these two types of bankruptcy.
The Basics of Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, you can wipe your debts and get a fresh start. In this type of bankruptcy, debtors liquidate where the trustees collect their assets and sell them apart from exempted assets. The trustees then distribute the net proceeds of the assets, with a commission taken by them.
In a Chapter 7 bankruptcy, debts like alimony, fraudulent debts, student loans, child support, and certain items aren’t dischargeable. Most debtors who file Chapter 7 bankruptcy have significant credit card debts and other types of unsecured bills, but with very few assets. Filing for this bankruptcy helps them eliminate all these debts.
You can keep certain secured debts like your house or furniture by reaffirming those debts. You can do this by signing a voluntary “Reaffirmation Agreement,” which bars you from wiping out your debt again for eight years. You’ll still owe the debt and must continue repaying it just as you had agreed to continue it before filing bankruptcy.
Reaffirming your debt also requires you to bring your debt to current. This means if you were three to four months behind, you should pay your due back payments to reaffirm it. Fortunately, you can state that you intend to reaffirm certain assets like your house and furniture and have the rest go back to their creditors.
You can set aside a reaffirmation agreement during the earlier sixty days after an agreement has been filed with the court or after the court has issued an Order of Discharge.
Under California bankruptcy laws, couples can separately make claims to a comprehensive set of exemptions unless otherwise noted. To keep the non-exempt property, debtors must generally pay the trustee the value of the non-exempt property.
Please note that you can use certain federal exemptions other than the California exemptions. California has established two sets of exemptions that you can choose from. These systems are referred to as system 1 and system 2. Your attorney should help you go through these systems and help you pick one that suits you best.
The Basics of Chapter 13 Bankruptcy
Unlike Chapter 7 bankruptcy, Chapter 13 proposes a repayment plan that lasts for three to five years. YOu can make the repayment through all or part of the debtor’s future earnings. Debtors use Chapter 13 to avoid a house foreclosure, repay their taxes, mortgage payments, and avoid high interest on unpaid taxes. Chapter 13 bankruptcy also allows debtors to keep valuable non-exempt properties.
As long as you can stick to the repayment plan, all the remaining dischargeable debts are released after the repayment plan. California Mean Test determines the debtor’s disposable income. The total amount payable in a Chapter 13 bankruptcy must also be at least as the debtor would have paid through a Chapter 7 bankruptcy filing. Therefore, you should have a regular income source and have disposable earning for a Chapter 13 bankruptcy to work.
Chapter 13 bankruptcy is ideal for debtors who intend to keep secured assets like cars and homes and have more equity in their secure assets to protect their California bankruptcy exemptions. It also allows debtors to repay their overdue payments over a specific timeline and reinstate their original payment plans. If a debtor has valuable non-exempt property and would want to keep it, chapter 13 may be the better option.
Learn About California Bankruptcy Exemptions
Knowing the exemptions that apply in bankruptcy is a crucial step in your bankruptcy filing. It helps you decide whether filing a particular type of bankruptcy is suitable or not. Once a property has been exempted, it means that you can keep it even after your filing is successful. Even so, debtors cannot exempt the non-dischargeable debts.
There is an exemption limit that applies to the equities that debtors have on their property. Equity refers to the difference between a property’s value and the amount that its debtor owes to it. For instance, if you have a vehicle valued at $2000 with a loan worth $1500, its equity value stands at $500.
If a debtor’s secured asset like a home or car through a loan and is current with the payment, the exemption will cover the equity. Therefore, you can continue repaying the debt and keep the property even after filing bankruptcy. If the exemptions do not cover the equity, trustees can elect to liquidate that particular property and distribute its proceeds to the creditors. In this case, you can receive cash payment for the value of the exemption.
Learn the Steps of Filing Bankruptcy
After deciding on which chapter suits you best, you need to start the filing process. There are specific procedures related to filing bankruptcy in California, and they are as follows:
Gathering Relevant Documents
Just like other legal processes, you must provide particular details to start your filing process. These documents are as follows:
- Valid identification like your Social Security number, driver’s license, or birth certificate
- All your bank accounts
- A list of all your insurance policies that could lead to a claim made by you or made against you
- Relevant documents that prove you’ve filed your tax for the last two years. If you haven’t, you’ll be required to file before filing the petition.
- Evidence of ownership for all properties that you own, like your car registration and deed to your property
- Evidence of your last six months’ income. You should provide this proof even when you are currently unemployed. Any money you have earned within the last six months should be submitted to the court with evidence of pay stubs.
- Evidence of your particular situation that brings the need for bankruptcy. If your divorce or medical expenses have been a significant cause of your dire financial situation, you must provide relevant evidence proving that these events are responsible for your financial troubles.
Attend The Credit Counseling Course
Regardless of the bankruptcy you file, you must submit proof of attending both debtors’ education course and credit counseling course. This kind of evidence only applies to individuals, not businesses. You will still have to prove that you attended these courses, your financial problems accumulated due to your business.
For spouses filing joint petitions, each of them must attend this class separately. Let’s learn more about these two types of credit counseling courses.
-
Credit Counseling Program
The credit counseling program aims to review your finances and ensure that your decision to file bankruptcy is your most appropriate step to your financial troubles. It tries to help individuals understand the impact of bankruptcy and thoroughly investigate other alternatives. Once you complete this course, you will receive a certificate which you’ll use as your evidence of the course. The course can go for two hours or more and can be held online.
-
The Debtor Education Course
Although you have to take a credit counseling course, this course is completed until you file for bankruptcy. This course aims to help you better your finance management after emerging from bankruptcy to avoid filing again. Those filing under a different bankruptcy chapter other than Chapter 7 should submit your debtor education course’s certificate any time before completing your repayment plan. Those filing under Chapter 7, their submission deadline, rely on the date set for the Section 341 meetings of creditors. Once the date is set, you’ll have sixty days to submit the certificates.
The requirement to submit your debtor education course’s certificate may appear to be less critical than other bankruptcy procedures, but you need to complete it efficiently. The court usually reminds Chapter 7 debtors about the requirement for this course’s certificate.
Failure to submit the certificate effectively attracts harsh consequences. These consequences include the inability to obtain a discharge of some of your debts unless you complete the course. You will also have to pay additional fees and file a special motion to ask the court to accept late certificate submission. If the judge accepts this motion, you will have to file another motion to discharge your debts.
Learn the Basics of Section 341 Meeting of Creditors
Whether you’re filing for bankruptcy under Chapter 7 or 13, you’ll need to attend a meeting of creditors. Your bankruptcy trustee for your case usually conducts these meetings. This meeting allows trustees and creditors to ask questions about your finances and help you understand what to expect in your repayment.
If you can’t attend this meeting for any reason, you should inform your trustees immediately and have the meeting rescheduled. Valid reasons can include military service, medical emergency, or natural disaster. If you have to travel for work, the trustees and creditors will probably turn down your decision to reschedule since you can attend the meeting over a telephone call.
Failure to attend the meeting will have your case dismissed, probably without prejudice. In this case, you’ll have to file another type, meaning that you must file an additional motion to trigger the automatic stay. Section 341 Meetings of creditors are different while filing bankruptcy under Chapters 7 and 13. Let’s have a closer look at these meetings.
Section 341 Meeting Under Chapter 7
Section 341 meeting under Chapter 7 happens within 21 to 40 days after filing bankruptcy. Five business days before the meeting, the trustee will go through your paperwork to ensure that everything is accurate. They will check whether you’ve committed any bankruptcy fraud or whether all your finances are accurate. The trustee will check documents like your tax returns, car titles, proof of insurance, title deeds of your real property.
At the meeting, you’ll have to prove your identity. Therefore, you should bring proof of your Social Security number and a photo ID. Failure to provide this proof will have the trustee schedule the meeting later or arrange to provide the information later. You can bring along any additional documents to supplement those that you had provided in your initial filing.
Before the meeting starts, the trustees and creditors will provide you with a booklet detailing what to expect. Those that owe child support or don’t have an attorney will need to complete additional paperwork. The trustee and creditors will request you to submit your identity documents and swear under oath that you’ll truthfully answer their questions. Their questions usually cover straightforward issues like:
- Your listed property.
- Whether your situation will change after filing bankruptcy.
- Whether you’re owed any money.
- The likelihood of receiving an inheritance.
It’s recommendable to maintain an attorney since he or she will advise you on these questions and how you’ll answer them. If there are no complexities, the meeting should end within ten to fifteen minutes.
Section 341 Meeting Under Chapter 13
There are a lot of similarities between a Section 341 meeting under Chapter 13 bankruptcy and Chapter 7. The trustees will review the documents similar to how it’s done in a Chapter 7 meeting. However, the meeting is held between 21 to 50 days after filing bankruptcy. You should have your attorney attend the meeting if you have one, but you should not expect a judge.
The bankruptcy trustee will ask questions regarding the value of your property and debts, your family situation, expenses that you claim to be reasonable, sources of your income, and necessary support to you and your family. They may also ask whether you’ve started repaying your debts as proposed in the payment plan.
Once the trustee finishes their questioning, your creditors ask you questions about the specific debts you owe. In most cases, the creditors don’t appear at the meeting but may file written objections to their proposed repayment plan. The objections can be resolved at later hearings.
Learn How a Bankruptcy Attorney Will Help You
Filing for bankruptcy is a burdensome process that needs the intervention of a professional. Hiring an experienced bankruptcy attorney is the single most essential step in the bankruptcy filing process. Your bankruptcy attorney will not only give you legal advice but he or she will help you handle all the paperwork. Let’s briefly look at what you should expect from your attorney.
Maintaining Competence in the Entire Bankruptcy Process
Even though bankruptcy cases are not complicated, not all of them are easy. Regardless of the nature of your case, look for a skilled attorney with enough competence to handle your case. The following factors can complicate your bankruptcy process:
The details of your case
- Whether you’re filing bankruptcy 7 or 13.
- The possibility of a sale of your property by the trustee.
- Whether you own a small business.
- The involvement of the bankruptcy lawsuit.
One suitable way to determine whether your attorney of choice is appropriate enough is by asking them about their experience representing clients in similar situations.
Provision of Sound Legal Advice
Generally, your contract with the attorney outlines the type of services that your bankruptcy attorney will provide. Therefore, you expect competent legal advice throughout the bankruptcy process.
Firstly, you should expect advice on whether filing bankruptcy is the best option to solve your financial problem. Your attorney should also advise you on the best Chapter to pick based on your situations, what to expect in the filing process, and the possible difficulties you’ll encounter.
Preparation and Filing of Your Paperwork
Filing for bankruptcy requires you to complete a lot of paperwork. Fortunately, most bankruptcy attorneys have specialized software that will help you prepare and file your paperwork on time. Prompt submitting your paperwork is essential since it enables you to avoid delays, dismissal of your case, or other adverse consequences.
Representation at Hearings
Depending on the type of bankruptcy you’ve filed, your attorney will have to attend most of the hearings. Common types of hearing that your attorney should attend include:
- 341 Meeting of creditors for Chapter 13 bankruptcy.
- Chapter 13 confirmation hearings.
- Chapter 7 reaffirmation hearings.
- Objections filed against the creditors or trustees.
Contact a Los Angeles Bankruptcy Attorney Near Me
If you’re struggling with debts and think that filing for bankruptcy is your right choice, you need to contact a professional bankruptcy attorney. At Los Angeles Bankruptcy Attorney, we have helped thousands of clients file for bankruptcy successfully. Contact us today at 424-285-5525 and let us review your financial situation and help you choose the bankruptcy form to solve your financial problems. Our attorneys will respond to your queries as soon as you reach out to us.
