In the United States today, consumers are finding it harder and harder to maintain financial stability, as the middle class shrinks, and income inequality rates increase. As a result of the substantial financial pressures placed on consumers in the present financial climate, many find themselves sinking deeper and deeper into debt. If you find yourself in this situation, there is no need to despair, as there exists a solution that can help solve most of your financial problems. You may be able to declare Chapter 7 bankruptcy for consumers, which can give you the breathing space you need to get a handle on your finances, and help you gain a fresh start.
Since bankruptcy law for consumers is highly complex, and there exist a number of different forms of bankruptcy for consumers in California, it is generally recommended that you hire someone with professional bankruptcy experience to guide you through this thorny process. While it is true that some people try to file for consumer bankruptcy on their own, without legal support, these people rarely succeed in doing so, as one study indicated that less than 1% of consumers filing alone are able to successfully file for bankruptcy. To speak with the top bankruptcy lawyers in the greater San Diego area, reach out to San Diego Bankruptcy Attorney at 619-488-6168.
As mentioned above, consumers in California can declare different kinds of bankruptcy, depending on their particular financial situation. One such form of bankruptcy is called Chapter 7 bankruptcy for consumers, which is the most commonly used type of bankruptcy by consumers in California and across the US. This page will explain how one goes about filing for Chapter 7 bankruptcy, through a step-by-step guide that walks you through the entire process.
Difference Between Chapter 7 Consumer Bankruptcy and Business Bankruptcy
Consumer bankruptcy is used for consumer debts incurred by an individual for personal purposes, whereas business bankruptcy is used for debts associated with the operation of a licensed business. If the debts were established in order to purchase goods for personal purposes, or for your household, then these debts are consumer debts. This is an important distinction, as only those declaring Chapter 7 bankruptcy for consumers need to pass the means test, which will be discussed in more detail later on. To qualify for consumer bankruptcy, more than 50% of your debts must be consumer debts. Examples of consumer debts include credit card debts incurred as the result of personal purposes, mortgages, and personal car loans.
Deciding if Consumer Bankruptcy is the Right Choice for Me
Filing for consumer bankruptcy is a major life decision that will have a long-lasting impact, so you should think long and hard before deciding if bankruptcy is the right choice for you. To help make this decision, it is advised that you take a close look at the current state of your finances. You should create a full list of all your debts, and then divide them into secured debts and unsecured debts. Know that when you file for consumer bankruptcy, it is the unsecured debts that will be discharged, meaning that secured debts, such as those tied to a house or car, generally won’t be eliminated through bankruptcy. If you feel that you can no longer make payments on your debts, and most of your debts are unsecured, then consumer bankruptcy is probably an option you should strongly consider.
Seeing if I’m Eligible to Declare Chapter 7 Bankruptcy for Consumers
Not every consumer looking to file for Chapter 7 bankruptcy is necessarily eligible. In fact, in order to declare Chapter 7, you are required to pass a means test to confirm your eligibility, which was added to the bankruptcy code in 2005. If you are able to demonstrate that your income is equal to or below the average income for a family of a comparable size in California, then you’ll automatically qualify for Chapter 7 bankruptcy for consumers. However, if your income is above the average for a family of a comparable size, then you may not qualify, depending on if you pass the means test. While the means test is complicated, it can be broken down by explaining that it basically comes down to the issue of disposable income.
Via the means test, your disposable income will have to be determined. This is calculated by seeing how much money you have left over after paying key monthly expenses, such as tax debts, your mortgage, car payments, child care, etc. If you maintain a high level of disposable income, then you typically won’t be able to file for Chapter 7 for consumers. What counts as a “high” level of disposable income? Well, while there is no exact definition under the means test, it is generally understood that if you are able to make substantial monthly payments to your creditors with your disposable income, then you probably aren’t going to be able to qualify for Chapter 7 for consumers.
Participating in Credit Counseling Before Declaring Chapter 7 Bankruptcy for Consumers
In California, it is a legal requirement that you complete mandatory credit counseling before filing for consumer bankruptcy, to help you determine if bankruptcy is the right choice for you. This credit counseling session must take place no more than 180 days before the date when you actually file for bankruptcy. Through this session, you will meet with a trained credit counselor, who will help you go over your finances, and help you see if it is possible for you to handle your debts without filing for bankruptcy. This advisor may also be able to supply you with advice on how to reorganize your finances or consolidate your consumer debts, to help you secure your financial future. Note that you must complete credit counseling before declaring bankruptcy, and that you must obtain physical proof that this credit counseling actually occurred. If you are unable to present evidence showing that you attended credit counseling, your case might be summarily dismissed.
Meeting with an Attorney
While it is legally permitted for a person to represent themselves and file for consumer bankruptcy without legal help, which is called a “pro se filing,” this type of filing rarely ends in success. All legal processes are complicated, but bankruptcy might be the most complicated, as it combines legal intricacies with financial intricacies. For this reason, almost everyone hires an attorney to help them navigate the bankruptcy process, and fill out all the unbelievably complicated paperwork that must be completed in order to file. To hire the very best consumer bankruptcy attorneys in San Diego, contact San Diego Bankruptcy Attorney at 619-488-6168.
Filing for Chapter 7 Bankruptcy for Consumers
After meeting with an attorney and reviewing your finances, and having decided that Chapter 7 bankruptcy for consumers is the best choice, you must go through the legal process of actually filing for bankruptcy. A consumer bankruptcy case is initiated by filing the official petition for bankruptcy, as well as schedules and statements of your financial affairs.
These forms will require you to list out all your obligations and assets as a consumer, as well as your recent financial history. When completing this documentation, you must make sure that every creditor’s mailing address is correct, and that your schedules include all of your property. Also, in this schedule, you are allowed to choose which pieces of property you will choose to exempt. California maintains relatively relaxed exemption standards, meaning most consumers are able to exempt the property that matters most to them and avoid having key pieces of property seized. Schedules are submitted under the penalty of perjury, meaning that filling out the schedule with false information could lead to serious legal repercussions. These documents must be filed with the bankruptcy clerk who occupies the district which the consumer inhabits.
When you officially file for consumer bankruptcy with the correct bankruptcy clerk, you will be granted what is called an automatic stay. An automatic stay essentially creates a legal barrier between you and your creditors. This means that once the automatic stay is put in place, your creditors are not allowed to make attempts to collect money from you while the consumer bankruptcy process is still ongoing. The purpose of the automatic stay is to make sure that all your financial issues are handled within the bankruptcy court system, and that these processes are not interfered with by outside creditors. When you file for consumer bankruptcy, your creditors will be notified by the courts of the presence of the automatic stay. If your creditors try to collect from you after the automatic stay has been granted, then they will face severe legal penalties.
Trustee Reviews Your Consumer Finances
After filing for consumer bankruptcy, your case is placed in the control of a Trustee, who is in charge of handling the bankruptcy process from start to finish, and generally acts as a mediator between you and your creditors. The first thing your Trustee will do is evaluate your assets, in order to see if any of them are non-exempt and can be seized in order to compensate your creditors. Next, the Trustee will examine significant consumer financial transactions you’ve made over the past couple of years, in order to determine if any of these transaction can be undone in order to help your financial standing. In most cases, the Trustee finds that all the consumer’s property is fully exempt, and that no financial transactions can be undone.
Meeting of the Creditors
After the Trustee has reviewed your consumer finances, he/she will schedule what is referred to as a meeting of the creditors, also known as a 341 Hearing. This hearing will take place sometime between 21 and 40 days after you submitted your petition and other documentation. At minimum, you, your attorney, and the Trustee must be present at this meeting. Despite its name, the creditors normally choose not to attend, unless they disagree with how the consumer is filing for bankruptcy.
At this meeting, the Trustee will ask the consumer a series of important questions regarding your financial situation. While the Trustee is free to pose any questions that he/she desires answers for, certain questions will always be asked. These include questions regarding why you are choosing to file for consumer bankruptcy, if the information included in your filing is totally accurate, and other basic information about your debts. These questions are answered under oath, meaning that anyone who is caught lying when answering these questions will face the penalties associated with perjury. During this session, creditors are also given time to ask questions, if any creditors are actually present at the meeting. Creditors will usually ask questions about how you plan to handle secured consumer debts that are important to them. A creditor associated with your house may want to know if you plan to continue to make payments on your mortgage.
After the Meeting of the Creditors
After the meeting of the creditors has been completed, then the consumer bankruptcy process begins in earnest. Any property that has been exempted must be surrendered to the Trustee, who in turn will make arrangements to sell these pieces of property. The proceeds from these sales in property are first used to pay for the administration of the bankruptcy filing. Any money left over is distributed to the creditors, in order to help them recuperate their losses. A Trustee may also at this time choose to look over your income and schedule of expenses, to see if you have any money left over. If the Trustee does find you have extra money available, he/she may require you to give some of this money to your creditors. However, any money that the consumer is able to earn after the case has already been initiated belongs to the debtor in full, and the consumer can’t at this point be forced to hand that money over to creditors.
Also after the meeting of creditors, it must be decided how secured debts will be handled. If you are behind on payments associated with secured debts, the court may choose to lift the automatic stay and allow the creditors to repossess or exercise a foreclosure on the property. If not, then you’ll be given an option; you may either give up the property or reaffirm the debt. If you reaffirm the secured debt, that means you are agreeing to continue to make normal payments on the property. Reaffirmed debts cannot be later discharged in the bankruptcy proceeding, so it is important to carefully think about if you really want to discharge those debts.
Discharging Your Consumer Debt
After the 341 Hearing, the creditors as well as the Trustee are granted 60 days to challenge the consumer’s right to discharge. If no challenges are submitted, then the order that actually discharges the debts is entered after the 60 day limit expires. Note that the challenge to the consumer’s right to discharge does not delay the discharge process itself, meaning that a challenge does not extend the 60 day deadline. Also, before receiving their discharge, consumers are required by law to complete a specialized financial education class, from a provider that has been approved by the court system. Failure to complete one of these classes and/or file the certificate of completion will result in your case being closed without a discharge.
Individual consumer debtors will typically get their debt fully discharged within roughly 4 to 6 months after the discharge is entered. Once debts are discharged, that means they are entirely forgiven, and that you will never have to make payments on these debts. Creditors will be in violation of bankruptcy law if they attempt to collect on debts that have been discharged, and you can sue them if they harass you with collection calls. Remember that while declaring Chapter 7 will result in the discharge of most kinds of debts, such as personal loans, medical debt, and credit card debt, you will still be required to make payments on other kinds of debt, such as legal penalties, spousal support payments, and student loan debts.
Fresh Start (For the Most Part)
After your unsecured debts have been completely discharged, you can begin to rebuild your financial life. Your credit score will almost certainly be negatively affected by declaring consumer bankruptcy, but this is not a permanent effect, and it is likely that your credit score was already being negatively affected by missing payments on debts. Also, it is illegal in California for employers to discriminate against you based on the fact that you once declared consumer bankruptcy, so you do not have to worry about future job prospects as a result of declaring bankruptcy.
Now that you’ve read this guide, you probably know a lot more about consumer bankruptcy law than you did beforehand. However, it is still probably a smart idea to reach out to a bankruptcy expert if you are considering declaring Chapter 7 bankruptcy for consumers, as the process is clearly fairly complex. Call 619-488-6168 to reach San Diego Bankruptcy Attorney, the top-rated bankruptcy law group in the San Diego area.