Yelling “I declare bankruptcy!” at the top of your lungs like Michael Scott, will not get rid of your financial stress let alone your debt. Filing for bankruptcy is a process that requires a clear understanding of your assets and of your debts. Each bankruptcy case is handled differently mainly due to the fact that individuals are filing for bankruptcy from different stand points in life. Whether you are a high earning individuals or an individual with substantial student loans and credit card debit, your financial situation will usually determine the type of bankruptcy you qualify for.
Bankruptcy practices and laws have been around since 1787, providing individuals with the ability to have a “fresh start”. In a bankruptcy, an individual files a bankruptcy claim to the court and if the court approves the claim, the individual will have to pay back their debt one way or another. Under Chapter 7, an individuals will have to pay back their debt by giving up their non-exempt property which will be sold and used to pay off the creditors. In this proceeding an appointed trustee will acquire all of the non-exempt property with the purpose of selling the properties and will be discharged and the individuals will be freed from any debt collecting activity. Chapter 7 bankruptcy cases are the most common in a court of law making up to 65% of court hearings.
Chapter 13 petitions are also very common in court cases across the states. Chapter 13 differs from Chapter 7 in that individuals who are not capable of liquidating their assets are capable of “reorganizing their debt” and establishing a repayment plan. Under Chapter 13, an individual's income will be highly considered when determining how much of the debt may be relieved and how much an individuals will have to pay back in the course of 3 to 5 years. Individuals with high annual earnings are capable of finding some form of financial relief through Chapter 13.
If you are considering bankruptcy it is because you may have a student loan, a mortgage loan, or substantial debt that cannot be paid off. Even individuals who make all of their monthly payments may consider a type of bankruptcy that allows them to reduce their monthly payments and build credit faster than they would by paying off the monthly minimum charge. Bankruptcy is not a taboo, in 2015 there were over 800,000 bankruptcy cases in the United States.
When considering bankruptcy there are a few factors to take into account before engaging with the filing procedure. Bankruptcy and the way your debt will be handle will highly depend on your:
- Current income: in some cases if you make more money than the annual average for a household of your size, you may not qualify for “liquidation” under Chapter 7. However, you may qualify for a reduction of payment in Chapter 13.
- Different types of debts: some debt may not qualify for Chapter 7 or Chapter 13 of the bankruptcy law. Debts that are not discharged by bankruptcy include student loan debt. However, your student debt may qualify for some relief under the College Cost Reduction and Access Act. Other debts that cannot be settled through bankruptcy may include: taxes, debt accumulated after a bankruptcy, debt accumulated six month before filing for bankruptcy, fraudulent loans, alimony and child support, debts accumulated as a result of breaking the law.
- Exempt and non-exempt property: Under Chapter 7 or Chapter 13, you be able to keep some of your property by following a state exemption program or a federal bankruptcy exemptions program.
- State laws: state laws apply their own regulations for bankruptcy laws under the the US Constitution (Article 1. Section 8). State law may determine the cap on exempt property and can determine the procedure for your bankruptcy proceedings.
Filing for bankruptcy can be an entangling ordeal that can cause more harm than good when the filing process has no clear direction. The San Diego Bankruptcy Attorney, can help you determine the right procedure for your case by evaluating your assets, your debt, and income. The person filing for bankruptcy must be able to proof that bankruptcy is their only option to repay their debt. For many reasons, you should have an experienced bankruptcy attorney by your side to assure that your bankruptcy claim is accepted by the court. The San Diego Bankruptcy Attorneys can be reached 619-488-6168. We are ready to guide your bankruptcy filing and provide representation in any court of law.
Types of Bankruptcy Chapters
Your bankruptcy situation depends highly on your state law, your property, your type of debts, and your current income. Due to the various factors that impact your economic situation, each chapter regarding bankruptcy will apply to different individuals who wish to file for bankruptcy. The following section will include information about each chapter regarding the types of relief and to whom it may influence.
As mentioned earlier, Chapter 7 Bankruptcy also known as liquidation or complete bankruptcy, is the most commonly filed type of bankruptcy within the United States court system. In many respects Chapter 7 bankruptcies allow for a clean start by acquiring all of the assets a person owns. In Chapter 7 cases, individuals will have an assigned bankruptcy trustee who will acquire all of the assets and then sell the assets for cash. The cash is distributed amongst the creditors and any debt that remain unpaid is discharged. After your claims are discharged, your creditors can no longer pursue you for payment, doing so is a violation of law after the debt has been discharged in a U.S courtroom.
Under State law an individual may keep some clothing, the family car, and tools that allow them to continue work. The property you are allowed to maintain is called exempt property and exempt property varies by state law. Any individual including couples and corporations can apply for Chapter 7 if they find themselves substantially in debt. Corporations and partnerships cannot have a total discharge of debts under Chapter 7.
In Chapter 7 petitions, the debtor (the person filing for bankruptcy) will need to fill out a petition that includes the following:
- A statement of incomes and expenditures
- A statement of property (assets) and debts
- A statement of your finances (monthly expenses) including any financial contracts and active leases
After you have filed your bankruptcy petition, your debt collectors are unable to pursue any debt collecting activities including phone calls or other debt collecting measures. Under U.S Code 365, the Securities Investor Protection Act of 1970, your debt collectors may encounter penalties if they pursue debt collecting after you have filed for bankruptcy.
The debtor and the appointed trustee will be required to attending a meeting with the creditors no later than sixty days after the petition is filed. In this meeting no bankruptcy judge is allowed to be present and creditors are not required to attend. This meeting will include a variety of questions which will be asked by the trustee to ensure that the debtor is aware of the policies and regulations that guide his or her specific case. In addition, the trustee will shine light on how the debtors credit history will be affected, on how the debtor can pursue different options offered through other bankruptcy chapters, and on the policies regarding the discharge process.
Chapter 13 bankruptcy otherwise known as “Consumer Debt Adjustment” applies to individuals with renewable income who have a desire to pay back their debts but are unable to do so. Chapter 13 bankruptcy allows debtors to keep their property and pay back their debts through installments. Individuals choosing to file under Chapter 13 are capable of proposing a three to five year repayment plan to the bank who can then accept or deny the plan of repayment. The individuals filing for Chapter 13 will need to include a full repayment plan for some of the debts accumulated, otherwise, the Chapter 13 claim will not be approved.
Individuals who qualify for a Chapter 13 petition are individual with unsecured debts that amount to less than $394,725 and secured debts no greater than $1,184,200.
- Secured debts: secured debts are debts that hold real value such as debts accumulated off of mortgages and car loans.
- Unsecured debts: unsecured debts can include medical bills, utility bills, credit acquired from department stores, and credit card.
After filing for bankruptcy under Chapter 13, the creditors are automatically unable to pursue any form of debt collecting. The official petition should include all of the information that is provided when filing a Chapter 7 bankruptcy form. In addition, you will need to provide your IRS tax statement forms from the last four years. Failure to provide tax forms may require an extension on your Chapter 13 or may cause your Chapter 13 claim to be dismissed.
After your petition is processed, you will be assigned a partial trustee who will engage with your case as a guide for your filing petition and as a distributing agent. You and your trustee will hold a meeting where creditor attendance is option. After the creditor meeting, after the debtor is briefed on the consequences of filing for bankruptcy, the debtor will present a repayment plan to a bankruptcy judge during a court hearing. The judge will determine if the repayment plan is lawful and practical. If you plan is accepted, your creditors will receive a notice of the repayment plan and will have 25 days to review and object. Once your repayment plan is good to go, you have thirty days to begin paying your trustee who will then distribute the payments to the creditors.
If the repayment plan is dismissed, the debtor will have the option to file under Chapter 7 or to resubmit a modified repayment plan. The evaluation process will continue until the court dismisses the case or finds the right solution.
It is crucial that payments are met each month once a repayment program established. The debtors trustee will serve as a money distributing agent until all the debt is paid off or until the end of the repayment program. Keep in mind that while some debt is required to be paid in complete other debt can be modified so that only a portion is paid back. To learn about the Chapter 13 please visit the United States Courts website at www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics
Chapter 9 bankruptcy otherwise known as Adjustment of Debts of Municipality, allows villages, towns, cities, school districts, utility companies, to file for bankruptcy. Under this chapter, municipalities will be required to establish a repayment program such as the program for companies filing for bankruptcy under Chapter 11. Municipalities, towns, villages, school districts will also be protected by the automatic stay clause which prohibits any debt collecting activity after a bankruptcy has been filed.
Chapter 11 is similar to Chapter 13 in that it allows an individual's or a company the option to resettle their debt. The debt resettlement program will include financial counseling and a meeting with the creditors. In Chapter 11 the business will need to bring a repayment program to a judge who will either approve or disapprove of the program. If the program is approved by the judge and the creditors or stockholders, the business will continue to run and pay off their debt. If disapproved the business owner may have to recreate a repayment program.
The bankruptcy laws can become complicated when dealing with big corporations, but regardless of your situation, the bankruptcy code was designed to provide the debtor with financial relief. If you are a business or a single individual who is considering bankruptcy, contact a local state attorney who is capable of processing your case and knowledgeable of your state law. The San Diego Bankruptcy Attorney are ready to help you file your bankruptcy petition and represent your case in a courtroom or creditors meeting. Our attorneys can be reached at 619-488-6168 or you may visit our offices at 750 B Street, Suite 2510, San Diego, CA 92101.