For some people who are crippled with debt, filing for bankruptcy may be the only tenable option left for them. It should not be taken lightly, however, and is always best done with the help of legal experts who are well versed in these kinds of cases. Although bankruptcy proceedings fall under federal laws, California state laws affect how the bankruptcy will affect the particulars of property ownership and exemption. If you are a resident of Los Angeles and are considering filing for bankruptcy to get you out of your debt, then Los Angeles Bankruptcy Attorney is the right firm for you.
What Does It Mean To Declare Bankruptcy?
Declaring bankruptcy is the legal means by which you (also referred to the debtor) legally declare that you do not have the means to repay the people and/or entities that you owe (referred to as creditors). The process of declaring said bankruptcy will result in a variety of changes and restructuring to your finances, including the possibility that some debts will not have to be paid (discharged) or can be repaid on a payment plan.
It is important to consider any alternatives to declaring bankruptcy. Is it possible for you, as the debtor, to avoid declaring bankruptcy and correct your finances without outside intervention? You should try and lower your expenses, increase your income, get lower interest rates on any loans, and/or sell any property that is not absolutely vital. Any of these changes may help you start paying off your debts independently.
It is also possible to seek out help from an agency that provides credit counseling. This is particularly useful if you need someone to advocate for you to negotiate a payment plan with considerably lower interest rates and stop collection agencies from engaging in aggressive practices. It is advisable to be vigilant, however, because many of these same agencies also engage in predatory practices. Furthermore, there is only so much that one of these agencies can achieve. At some point in time, it might just become necessary to declare bankruptcy.
What Are The Types of Bankruptcy?
There are three basic kinds of bankruptcy that individuals can declare. They are:
Chapter 7 bankruptcy: is the most common kind of bankruptcy that individuals can declare. It is a type of liquidation bankruptcy¸ meaning that the court steps in and sells off all your assets to earn capital to then pay off your creditors. Some of these assets will be exempt from the sale under either federal Bankruptcy Code or California state law (if you live in Los Angeles). Chapter 7 has the capacity to wipe clean most of your debts. If Chapter 7 is declared, then you cannot repeat this filing for six (6) years. It is necessary to consult with a bankruptcy lawyer to ascertain if you qualify for Chapter 7.
Chapter 11 bankruptcy: is a type of bankruptcy that is a reorganization proceeding that is very complex and multi-layered. It is frequently filed by corporations or partnerships, though individuals in certain conditions can file for it too. Under Chapter 11, the debtor holds on to their various assets and develops a repayment and reorganization plan to pay off their creditors. Chapter 12 is a similar reorganization plan but developed specifically for family farmers.
Chapter 13 bankruptcy: is essentially the same as Chapter 11 except that it always applies to individuals. It consists of a reorganization and repayment plan for individuals with a regular, legitimate income and the ability to pay off their debts over a three (3) to five (5) year period. All property and assets are kept by the individual. Because there are limits to how much and what kind of debt is owed, it is necessary to speak to a bankruptcy lawyer to determine your eligibility for Chapter 13.
Each of these is named after the chapter of the federal law known as the Bankruptcy Code that codifies them. The vast majority of bankruptcies will be either Chapter 7 or Chapter 13. A bankruptcy lawyer will help you decide which is best for you depending on your debt structure, property and assets, any liens against said property and assets, and your potential versus actual income.
What Are Some Signs That You Need to File for Bankruptcy?
Everyone has unique financial needs and obligations; no person’s life is exactly the same as another person’s. That means that no two sets of debt are exactly alike, and some people can slowly pull themselves out of the hole without having to use outside intervention and declaring bankruptcy. However, there are several warning signs that an individual’s financial situation has become too untenable and that they will likely need to file for bankruptcy.
People who have consistent financial problems are most likely to file for bankruptcy. Furthermore, unpaid and exorbitant medical bills contribute to over 60% of bankruptcy cases in the United States today. However, bankruptcy is most common amongst people who find it difficult to save money. It is possible that they are unable to save money because they entered the workforce saddled with debt via student loans, and extensive studies show that usually debt begets more debt. For some individuals, consolidating their debt and discharging some of what they owe will allow them to start setting money aside.
Furthermore, it is a red flag if you paid unsecured debts, like credit card bills or medical bills, using a home equity loan. This is alarming because you have used a secured property (backed by collateral) to pay off an unsecured debt (not backed by any collateral). You have just effectively endangered your home to pay off debts that can potentially be discharged in a bankruptcy filing. Furthermore, it is only advisable to use home equity to pay off unsecured debts if you retain the income capable of sustaining the monthly mortgage payments. If not, then your home could be in jeopardy.
If unpaid debts you owe have been sent to collection agencies that are contacting you constantly, it is a sign that you may be heading towards total financial ruin. Most debts that are past due by thirty (30) to ninety (90) days will be transferred to specialized debt collectors that will do anything, short of illegally harassing you, to collect those debts. Furthermore, your credit score will likely have already taken a serious shellacking due to these debts. It is crucial to note that paying the minimum required on various past due bills is never enough to return you to good financial standing; most of the time, it is not even paying off the principal (only the interest).
Finally, you may have turned to a high-interest loan as your only way to survive. These are also known as payday loans. This is financially dangerous and is generally a desperate, last-ditch gambit to stabilize. Predatory lending agencies know this and take advantage of vulnerable people. These types of loans have utterly absurd interest rates, some of which are above 180%. The general rule of thumb is to never take a loan with an annual percentage rate (APR) above 25%. A bankruptcy lawyer may be able to help you qualify for a consolidation loan, allowing you to pay off your most pressing debts without having to pay an exorbitant interest rate.
In situations where the debt is utterly overwhelming and tensions are mounting, it may become necessary to quickly take action to reduce the amount of financial damage. Some of these actions can be taken quicker than others, and some benefits of bankruptcy are immediate.
For example, the moment that you file for bankruptcy in Los Angeles or California, an automatic stay goes into effect. This immediately keeps your creditors from taking certain actions that might financially devastate you. This automatic stay is also implemented without the creditors being notified and it immediately puts a stop to any punitive measures that creditors may take to have debts repaid. The stay also protects certain creditors who are less aggressive in having debts repaid; it temporarily levels the playing field so that all creditors must take a step back to give the debtor some time.
An automatic stay also stops creditors from:
- Making any collection calls and/or attempts, either by the creditor or a third-party collection agency.
- Repossessing and/or seizing any assets or property (cars, houses, commercial real estate, valuable jewelry, et cetera) to satisfy secured debts.
- Being able to file or pursue a debt collection lawsuit against you.
- The ability to garnish any wages or implement any bank levies to satisfy the debt’s outstanding balance.
- A Chapter 7 stay automatically stops any foreclosures (though the property in question may ultimately be repossessed to satisfy the outstanding debt).
- Any eviction action from a residence.
- The act of cutting off any utilities (water, natural gas, and/or electricity).
It is, in essence, a stopgap measure designed to give an overwhelmed debtor some time to reorganize while they hash out the details of their bankruptcy. In the case of Chapter 13 bankruptcy, it gives the debtor time to confer with the Bankruptcy Court and the presiding judge to hash out the details of their repayment plan.
There are limits to these stays, however. They cannot protect you from any criminal charges and/or civil lawsuits in action against you at the time of the bankruptcy. This includes instances when the crime is financial and may even be linked to the bankruptcy proceedings. Furthermore, financial obligations delineated in a divorce settlement (alimony and/or child support) are exempt from automatic stays. Finally, the collection of taxes is temporarily stayed, but any audits, assessments, or notices will continue.
What Information Do You Need When You File for Bankruptcy?
The decision to file for bankruptcy is not an easy one to make, but for some beleaguered debtors it is the only rational option. It is important to confer with a bankruptcy lawyer that is highly knowledgeable about the bankruptcy process in California. Even though the Bankruptcy Code is federal, there are state laws that affect what kinds of exemptions can be made on assets and/or properties. If you are a resident of Los Angeles, remember that you need a California bankruptcy lawyer to guide you through these state laws.
To be able to go through the filing process, you will have to gather a sizable amount of information. This includes all large financial transactions for the previous two (2) years, your living expenses (per month or per year), a comprehensive listing of all debts (secured and/or unsecured), and all property. It is important to note that the sum total of your property will be evaluated, not just real estate. This includes any assets you may own, such as a car, boat, jewelry, musical instruments, and so on.
It is also crucial to collate all tax returns for the previous two (2) years, all deeds to any pieces of real estate, the titles for any cars, and all paperwork regarding outstanding loans. Furthermore, the courts will analyze every source of income, including:
- Income from a business,
- Income from rentals and/or real estate you may own,
- Dividends and/or interest,
- All pension and/or retirement plans,
- Any household expenses that are paid by other people,
- Unemployment, disability, and/or Social Security benefits.
Once all this information is gathered and organized, the process of analyzing your financial situation can properly begin. Retaining a top-flight bankruptcy lawyer will ensure that you organize all this relevant paperwork in a manner that is most advantageous to you. They will essentially be building a case in Bankruptcy Court to work out a favorable agreement for you.
It is absolutely essential that you be completely honest with the Bankruptcy Court. If you knowingly and intentionally perjure yourself or provide dishonest and/or inaccurate information, then the penalties can be severe. They include up to $250,000 in fines, a 20-year prison sentence, or both. The federal government takes this kind of fraud very seriously so it is best to be completely transparent about your financial situation. This type of fraud includes instances of trying to hide assets and/or pieces of property, including signing them over to someone else’s name or trying to stockpile money in hidden bank accounts.
The Means Test
Furthermore, your lawyer can help you determine what type of bankruptcy you are eligible for: Chapter 7 or Chapter 13. Under the Bankruptcy Act of 2005, all of your expenses, income, and financial particulars will be analyzed to determine what kind of bankruptcy you qualify for. This analysis is known as a means test, whereby the courts will examine your average income for the six (6) months preceding the bankruptcy filing. This figure will then be compared to the California median income for a household of comparable size.
If the means test shows that your income is less than the median, you will be eligible to pursue Chapter 7. If your income is higher than the median, there are further parts of the means test to determine if you can pursue Chapter 13. You will have to calculate your expenses so as to give the Bankruptcy Court an accurate assessment of what you can afford to pay off. This analysis of your expenses will then be compared to figures that are based on national, state (California), and city (Los Angeles) standards and averages. These figures come from the Internal Revenue Service (IRS) and Census Bureau.
You then subtract these expenses from your income to determine what your monthly income will be over the next sixty (60) months. If it is less than $7,475 then you pass the means test and you will have to file for Chapter 7 bankruptcy. If it is over $12,475, then you fail the means test and do not have the option of filing for Chapter 7. If your monthly income lies somewhere in between those two figures, then your lawyer will have to do further analysis to determine your Chapter 7 eligibility.
Because Los Angeles has a high cost of living, your expenses will be considerably higher, thereby decreasing your monthly income figure in the means test. In these situations, it is best to have a bankruptcy lawyer handle the details of your case to secure the best filing option for your particular financial situation.
For some debtors, Chapter 13 is preferable so that they do not have to liquidate any property and/or assets. For other debtors, however, Chapter 7 is preferable if they do not wish to retain a secured piece of property and want to have a higher percentage of their debts discharged. It is important to examine your particular case carefully so that your lawyer can advise you on which type of bankruptcy filing to pursue.
If you are saddled with excessive debt it can feel like you are stuck in quicksand or running in place. The interest rates alone terrify you and the notion of opening up bills fills you with dread. We understand how stressful this can be for you and your family. Sometimes you just need a fresh start. Contact Los Angeles Bankruptcy Attorney (424-285-5525) to jumpstart your new, debt-free life today!