With the current hard economic times, you may be wondering if filing for bankruptcy will ease your mind. The overwhelming feeling of helplessness you feel every time a creditor calls you, the worry that there will be foreclosing on the only place your family calls home. You seem like you have reached the end of the road with nowhere to turn to ease your debts. Then you need to explore bankruptcy as a way to have some much-needed breathing space. This article will answer some of the questions that might be plaguing your mind at this time.

What is Bankruptcy?

You or your bankrupt attorney can start a legal process by filing a petition in court. Your assets will be evaluated and then sold off to repay some of your debts. The process also allows you to come up with a way to repay your creditors comfortably.

Advantages of Filing for Bankruptcy

With all the going on in your life and your business on the verge of falling apart, bankruptcy may come in handy. You will be in a position to take control of your life and enjoy the following benefits:

●        Receive an Automatic Stay

When you file a bankruptcy petition, the court guarantees you an automatic stay which stops the creditors from contacting you through various means like endless calls and letters. This automatic stay also allows you to develop a repayment plan and some much-needed peace of mind. In addition, with the automatic stay, your creditors can not foreclose on your home or take any action against you until the court deals with your petition.

●        It Allows You To Make The Overdue Payment

 Filing for bankruptcy allows you to meet some repayment obligations, as creditors cannot foreclose on your property. For instance, you can meet your mortgage payments as you continue with the bankruptcy petition.

●        Offer You Peace of Mind

A successful bankruptcy petition will take care of most of your debts, allowing you to start afresh without the endless phone calls from creditors. However, there are some debts that bankruptcy doesn’t take care of, like child upkeep and mortgage payment, among others you will have to pay.

●        Stop Wage Garnishment and Bank Levies

Sometimes your creditor can have the ability to take a certain percentage from your salary, and this is known as wage garnishment. Applying for bankruptcy takes away this ability from your creditor, which is a huge relief to you and stops bank levies on your money. In addition, you can use this money to meet some financial obligations while the case is in court.

Types of Bankruptcy

If you are considering bankruptcy, it is crucial to know the type which will be ideal for you. You should consult with a bankruptcy attorney to receive guidance and a breakdown of each type of bankruptcy. Bankruptcy is divided into four chapters; chapters 7, 11, 12, and 13. Chapter 7 and 13 are the most commonly used.

Chapter 7

The court will sell most of your assets, and the proceedings will be used to clear off your outstanding debts in this type of bankruptcy. One of the advantages of filing for this type of bankruptcy is retaining some assets that the law exempts. Bankruptcy exemptions are assets that the law allows you to keep during and after the bankruptcy proceedings. Some of these exemptions include:

  • Car
  • Personal belongings
  • Pension
  • Home
  • Some properties.

The court will appoint a trustee who will oversee the whole process of selling off your assets and repaying off your creditors.

Chapter 7 Bankruptcy Application Requirements

When it comes to filing for chapter 7 bankruptcy, there are some requirements that you must meet before the court processes your petition. These requirements include:

●        Filing Fee

When filing for a bankruptcy petition, the law expects you to pay $338 in filing fees during your first visit to the bankruptcy court. If you are not in a position to do so due to wage garnishments, you can talk with your bankruptcy attorney, who will come up with a viable payment option. In some instances, your attorney can apply for the filing fee waiver if you happen to earn 150% less than the federal poverty guidelines.

●        Income Requirement

When it comes to bankruptcy petitions, the law requires only those in dire need to apply. It, therefore, has put in place a mechanism that eliminates any person who is in a position to repay their debts. You will have to undergo a mean test that tests your ability to repay your debts, and if you pass this test, you are not in a position to repay your debts, and you can apply for bankruptcy. You should consult a bankruptcy attorney to calculate your basic household income and compare it with a similar household.

●        Undergo Credit Counseling Classes

The law requires you to enroll and complete a credit counseling class 180 days before applying for your bankruptcy when filing for bankruptcy. Ensure you enroll for this course in your district and approve the course by the district bankruptcy trustee.  This course aims to ensure that you know the options available to you before filing for bankruptcy. After completing this course, which can take place either online or offline depending on what you want, you will be issued a certificate. Attach a copy of this certificate to your bankruptcy petition.

●        Prove Your Debtor Status

You can easily prove your debtor status when you show the court that you are an individual, a business entity like limited liability corporations or companies. The federal court will consider your application if:

  • You have not withdrawn a petition by your creditors from a court trying to delay paying your creditors off.
  • You have not defied a court order leading to your bankruptcy petition being thrown out of the federal court within the last 180 days.
  • Eight years have passed since your last bankruptcy petition was filed and discharged.

Chapter 11

This is a reorganization bankruptcy where your company continues in operation as it pays off its creditors. This type of bankruptcy allows you to continue operating as you develop ways to clear your debts. When it comes to this type of bankruptcy petition, your creditors may file for your bankruptcy, or you can do it voluntarily.

After either you file for bankruptcy, you will have four months to develop an organizational plan. When this time is up, your creditors have the right to develop an organizational plan which will ensure they recover their debt. You will also have to reorganize your organizational structures, and once you have done so, the federal courts may allow you to trade off your old stock with the company’s new stock. You should note that the federal bankruptcy court has the final word when it comes to your stockholders, whether they will receive anything or not.

Qualification for Chapter 11 Bankruptcy

You qualify for this bankruptcy if you are into a partnership, corporation, or sole proprietor. Chapter 11 bankruptcy petitions are risky and take time, resulting in a high execution cost. However, it is ideal for you if you do not wish to liquidate your assets or when your debts are too high; athletes and celebrities commonly use it.

Reorganizational Plan

A reorganizational plan is crucial for chapter 11 bankruptcies as it represents a contract between you and your creditors. This plan shows how you intend to pay your creditors off if you are going to downsize your business and the strategy you intend to use to meet your financial obligations to your creditors. When developing a reorganizational plan, it is advisable to seek the assistance of an experienced bankruptcy attorney, who will help you negotiate with your creditors for some favorable terms.

A reorganizational plan will help you assess some of the assets to sell, develop ways to reduce the company’s expenditure, and have it run smoothly and at a profit. When coming up with a reorganizational plan, it is essential to note that not all your creditors will be for the idea. Some may want you to sell off your company’s stock and clear their debt.  Other creditors will want your chapter 11 bankruptcy dismissed and have you apply for chapter 7 instead. But this should not worry you as your attorney may request the federal bankruptcy courts to force the creditors into accepting your reorganizational plan.

When coming up with a reorganizational plan, you will have to consider your debts which include; secured, unsecured, and priority debts. This way, you will pay off your creditors once the process is done and have some peace of mind to rebuild afterward. In addition, you must consider the time it will take to execute a chapter 11 bankruptcy.  Though the federal court gives you four months to develop a reorganizational plan, you may find this time extended up to 18 months. This extension usually makes a chapter11 bankruptcy a costly affair.

Confirmation of your Reorganizational Plan

Once you have come up with a reorganizational plan, the federal courts will have to go through it and confirm the plan. There are times when your creditors disagree on the reorganizational plan you come up with, and the federal courts have to step in and evaluate if your plans are viable. The court will consider the following facts before confirming your reorganizational plan:

  • The court will check to see if your plans are feasible and that you will be in a position to meet all your financial obligations.
  • If the plan has your creditors’ interest at heart, you can do this by showing the courts that each creditor will receive an amount equivalent to what they could have received if you had liquidated.
  • The court will also check if you came up with the plan with good intention and did not act in bad faith.

Chapter 12 Bankruptcy

You can only qualify for this type of bankruptcy if you prove that you derive most of your income from farming to the federal bankruptcy court. This type of bankruptcy will enable you to work out a repayment plan while you continue with your farming activities and, at the same time, keep your properties.

Qualification for Chapter 12 Bankruptcy

To qualify to file for this bankruptcy, you will have to show the court that you earn a stable farming income that can support a repayment plan. You may file individually or as a business entity like a partnership or a limited liability company. However, you will also have to prove that:

  • As a farmer, your total debt doesn’t exceed $4,153,150 or $1,924,550 as a commercial fish farmer.
  • 80% of your total debt is due to your fish farming, or 50% is due to your farming activities.
  • Fish farming or any other farming contributes to more than 50% of your total earnings.

Chapter 12 Bankruptcy Procedure

After filing your petition, the court will appoint a bankruptcy trustee to communicate with your creditors, monitor your farming operations, collect and disburse payment. You can come up with a repayment plan that ranges from three up to five years, and once you have filed the petition, the court will set a confirmation hearing that should take place within 45 days.

Repayment Plan

One of the advantages of chapter12 bankruptcy is the option to continue with your farming activities as the bankruptcy process continues. However, you will have to develop a repayment plan that will allow you to pay your creditors off within a period that ranges from three up to five years.  If you can pay them back within the shortest time possible, the better, but sometimes this is not possible if you have to meet other financial obligations like paying child support.

Chapter 13

In this type of bankruptcy petition, you are allowed to make adjustments to your debt repayment plan. Like in the chapter 7 petition, you will also need to attend credit counseling classes 180 days before filing for the petition. You will also need to prove that you can repay your debt in a period that ranges from three up to five years.  After completing the creditors’ counseling classes, you will have to pay the required filing fees and attach the relevant documents. This is where the services of a competent attorney come in handy as they will ensure everything is in order. The court then appoints a bankruptcy trustee to oversee your repayment plan, communicate with your creditors, and schedule any meeting between you and your creditors.

Qualification for Chapter 13

The court requires you to prove that you have every intention of paying back your debts. This assurance extends to your secured and priority debts. However, you should also show that you intend to pay off some of your unsecured debts as well. The difference between a secured and unsecured debt is that you had put a property as collateral with secured debt, while any collateral does not back up the unsecured debt. The court will require you to provide a way of repaying your debts, and once the trustee entrusted by the court approves your repayment plan, they will ensure that your creditors receive what you had agreed on.

Are There Some Debts That Can Not Be Discharged?

Yes, there are some debts which a successful bankruptcy petition cannot take off, these debts are unforgivable, and you will have to clear them. They include:

  • Government fines and penalties
  • The court-ordered child support,
  • Tax liens,
  • Alimony payments ordered by the court,
  • Court penalties and fines,
  • Reaffirmed debts.

Bankruptcy Repercussions

Though you will gain much-needed peace of mind, bankruptcy comes with a price. Apart from the filing fee, you may lose some of your properties sold to clear some of your debts. At the end of the process, you may end up losing vehicles, antique furnishings, jewelry, and real estate, among others.

At other times, a bankruptcy petition may end up affecting your loved ones financially. For instance, if your partner co-signed on your car loan, they will be responsible for some part of your debt if you file for bankruptcy. A bankruptcy will also negatively affect your credit score; you will realize that some lenders will be hesitant to offer you loans until you work on your credit score.  With a bankruptcy record, the only loans available to you will mostly have less favorable terms with high-interest rates.

You may find it difficult to find a mortgage after bankruptcy, and the best option is to pay off your mortgage payments during the bankruptcy proceedings rather than give up your home and try to apply for a new mortgage afterward. You will find that most lenders will decline your loan applications, and the one who accepts will have high rates and ask for a huge down payment. The best course of action for you is to rebuild your credit once your bankruptcy case is over.

Find a San Diego Bankruptcy Attorney Near Me

Having decided to file for bankruptcy, you will need to have a clear mind to make the hard decision that comes with the territory. You will have to face life after bankruptcy which can be hard, as some of your business associates may leave you. Having to rebuild your business and life from scratch without the benefit of having accessible financial support from most institutions is not something easy.

You will need to have someone you can rely on for advice who will have your back as you rebuild your life and business. At San Diego Bankruptcy Attorney, we will have your back and guide you on ways to rebuild your life and business and, at the same time, show you ways to avoid bankruptcy. Kindly contact us at 619-488-6168 and schedule your appointment with our attorneys.