Debt is ingrained in our culture, and while having access to credit helps people achieve their goals, too much debt can be crippling. People often find themselves borrowing or spending much more than their income, and if things don't change, debt overwhelms them. Bankruptcy is a legal process in which debtors seek relief from some or all of their outstanding debts.
Your creditors are interested in knowing how you plan on repaying these debts, and the court imposes a bankruptcy order to set things in motion. San Diego Bankruptcy Attorney has a wealth of experience litigating tons of bankruptcy cases and helping clients handle their debts efficiently. The term "bankruptcy" is alarming to many people, and the process can seem unnerving. In this article, we discuss the process of debt resolution and how you, too, can make use of this legal provision.
Filing for Personal Bankruptcy
Bankruptcies are common and even more so personal bankruptcies which account for 97% of all filings per year. This percentage represents an estimated 1.5 million individuals who seek this legal option and retain exempt assets such as furniture, clothing, household appliances, etc. There are two kinds of personal bankruptcy, and the court will usually determine which option best suits you.
Chapter 7 is ideal for people whose incomes are lower than the state's median or their debts are too high to repay after paying for basic things. Chapter 13, on the other hand, is a plan that allows the debtor to pay back some or all their debts within three to five years. Under this code, you can save your home from foreclosure provided you keep up the mortgage installments.
People who have lost their livelihood can file under Chapter 13, so the court can stall the auctioning, thus giving you time to secure another job. If your income reduces or bills, increase significantly, or both, filing for bankruptcy stops the collection and foreclosures albeit temporarily.
Why Do People File for Bankruptcy?
Individuals usually file for bankruptcy due to the following reasons:
- Medical Bills
Researchers from Harvard University derived that 62% of personal bankruptcies are linked to medical debt, and more than 70% of these people had insurance. Cancer, kidney disease, and other significant illnesses are difficult to treat, and patients usually undergo elaborate procedures that rack up the expenses.
The American Journal of Public Health noted that despite coverage under the Affordable Care Act, the number of people filing for bankruptcy due to medical bills remains the same. Inadequate health insurance is cited as the primary culprit as people still have to pay out of the pocket of severe illnesses. Only 40% of Americans have at least $1,000 saved up for emergency medical expenses, a study finds.
This grim picture is an everyday reality for people who have to drain their savings, sell off property, and sink into debt to cater for treatment. When the bills stack up, the only recourse is dealing with their creditors in court.
- Getting a Divorce
Separating from your life partner after years of marriage can yield too much debt to bear. The courts will divide your assets which comprise of savings, real estate, and of course liabilities. You will also have to pay attorneys and find a new place to live and a new car. Running parallel households increases your expenditure, and the breadwinning spouse may have to pay spousal maintenance. Child support is another expense that is owed to the custodial parent.
Timing is everything, so decide if you need to file for bankruptcy before or after separating. Nonetheless, if your combined income prevents you from filing under Chapter 7, then getting a divorce first is your best option. Whichever way you choose; the courts will treat your income as per your current marital status. Divorce proceedings can be protracted over several months as warring couples deliberate on children and other things.
If you file for bankruptcy before the divorce petition, the latter must be completed before launching into the disillusionment of marriage. San Diego Bankruptcy Attorney advises clients who are in good terms to file together so the debt is addressed together and you eliminate all marital debt. This approach removes the liability that has plagued the marriage, and nobody wishes to move forward with it, such as a mortgage or car loan.
If you meet the eligibility criteria for Chapter 7, you can do away with unsecured debts within three months. For couples who are eligible for Chapter 13, the repayment plan applies to both spouses and disposing of assets to pay off debt may not be feasible in this scenario. Remember, there is an upside to divorcing first and then filing for bankruptcy so couples can understand the actual income left. H
- Credit Card Bills
Being out of work, getting a pay cut in an economic downturn, utility bills, unwarranted spending can wreak havoc on your credit card. Inflation can also lead to money problems for individuals and families as they are still expected to survive with the same income.
If you find yourself with mounting credit card bills, creditors may start harassing and suing you relentlessly. Debt collection will only become more aggressive, so you need to act fast. People who earn enough money to pay for credit cards don't qualify for Chapter 7, so the court may force them to file under Chapter 13.
Chapter 13 bankruptcy requires you to repay some portion of the debt using their disposable income, and it allows you to keep nonexempt assets. Once you file, attempting to pay off these debts is a waste of money. You only continue paying if you are undecided about filing for bankruptcy.
Industrial unrest can have catastrophic effects on your income, which makes paying mortgage installments is difficult. The lenders add late fees and extra costs that make repaying one or more installments further out of reach, and they may demand you pay this money all at once. If your income cannot handle this demand, you risk having your home foreclosed upon by the bank.
Mortgages and car loans fall under secured debts, which means the creditor can seize the property to recoup their money. When this happens, they auction off the property, and this happens through judicial and non-judicial means. The latter doesn't require a court process to take back the property title.
If you are unable to service a mortgage, selling the home may still not repay the outstanding debt, especially if the market is not favorable. Bankruptcy helps to repay the balance, so you get a fresh start free of mounting debts, and if the situation improves, you can buy another home.
What Does Bankruptcy Litigation Entail?
Litigating bankruptcy is not an easy affair, and petitioners need to familiarize themselves with the process and manage their expectations. There will be compromises here and there until you, the creditors, and other stakeholders reach a workable agreement.
The domestic and international economy is volatile, which means creditors must be ready to use this tool to recover losses as needed. Bankruptcy aims to alleviate debts that creditors are unable to pay or need additional time to gather funds. This tool also levels the field such that bigger creditors don't take advantage of less significant creditors who lack robust resources to facilitate debt collection.
- Automatic Collector Stay
Once you file, an automatic collector stay comes into effect to manage the debt collection. This court injunction protects you from harsh actions from creditors such as sending demand letters and calling you daily. These actions would undermine the essence of this credit management tool and complicate the process unnecessarily.
If your creditor is adamant and wishes to carry on with debt collection, they will have to request the bankruptcy court to lift this automatic collector stay. Before lifting the stay – or not – a judge will examine your case to determine who stands to benefit from continued debt collection. Please note, if there is an ongoing lawsuit, these proceedings can continue autonomously from the bankruptcy court.
Creditors often get upset over unsuccessful debt collection, so they file a lawsuit to nudge debtors to pay. In doing so, they are hoping the court will rule in their favor and grant them the power to recoup their money. They can achieve this goal by freezing your bank account and get a lien over real estate properties.
In this case, a "Suggestion of Bankruptcy" will inform the judge in the collection suit that a bankruptcy case is underway and therefore, creditors will halt until you are discharged from debt. The collection suit usually goes away once the debt has been addressed appropriately.
- Stopping Judicial Foreclosures
As mentioned previously, there are two ways of pursuing foreclosures; judicial and non-judicial. A judicial foreclosure helps the bank to obtain a deficiency judgment against the homeowner, but these are not common in the state of California. Non-judicial foreclosures are more prevalent here, and they occur when the property’s deed of trust has a power-of-sale clause.
Non-judicial clauses empower trustees to offload the property to pay off debt if the borrower defaults. This approach is swift and less expensive than the judicial method. Filing for bankruptcy immediately thwarts judicial and self-help foreclosures, so you have a chance to save your primary residence.
- Writ of Possession
If your landlord is waiting for overdue rent checks, they can obtain a writ of possession from eviction court. This judgment enables them to remove your belongings from the rental unit lawfully. Without this judgment, the automatic stay will bar them from evicting you and changing the locks. If the landlord can prove that you are damaging the property or using drugs therein, they can legally remove you.
- Family Court Matters
The bankruptcy court does not interfere with child custody deliberations or marriage disillusionment. Nevertheless, the court may wield its power when it comes to property distribution, so the resources are not unfairly distributed to favor one creditor over the other.
Chapter 7 bankruptcy does not cover child support debt. If you file under Chapter 13, you will have to pay these late checks within three to five years or risk legal action from your ex-spouse. Please note, alimony and property settlement contracts will survive bankruptcy as well.
- Active Criminal Cases
If you have ongoing criminal cases for one offense or another, proceedings at bankruptcy court will not interfere with police business. The automatic stay comes into effect in scenarios where a criminal case entails refunding the government some money, but things get murky here. For example, the prosecutor will not interfere with a criminal case involving bad checks.
- Abandoned Constructions
If your construction company files for bankruptcy, the government may request to instill building codes so they can eliminate abandoned buildings. These sites are an eyesore on a residential neighborhood or city streets, and they can even lower the value of surrounding properties. The bankruptcy court must act to ensure the welfare of citizens prevails.
- Debtor's Court Cases
The bankruptcy court does not block you from pursuing legal action against another party, especially if it can help you settle outstanding debts. You don't have to request the court to lift the automatic stay.
When Should I File for Bankruptcy?
If you have decided to file, we advise clients to wait until the emergency such as medical treatment is over. Filing too early can expose you to accruing more debt which may leave you in bad financial shape even after declaring bankruptcy. Some scenarios, however, necessitate setting things in motion for protection. For instance, filing can prevent the bank from foreclosing on your primary residence until you figure things out or get re-employed.
How Much Does Bankruptcy Cost?
Whether filing under Chapter 7 or Chapter 13 bankruptcy procedures is not cheap. Be prepared to pay attorney fees to the tune of $1,500 - $ 2,500 and $2,000 - $4,000 respectively. San Diego Bankruptcy Attorney offers free initial consultations so feel free to contact us. Please avoid working with non-qualified lawyers as they can create a bigger mess than what you initially had. We endeavor to handle your case with the utmost professionalism and help you sort your debt problems seamlessly.
What is the Aftermath of Bankruptcy?
Heading to court to deal with your debt problems is a reasonable action so you can devise a plan to repay creditors. A judge from bankruptcy court will order you to attend a credit counseling program for ninety minutes and follow this up with a two-hour session after the process concludes. These classes typically cost $50 per session, and you can attend in person or through telephone.
People who are relying on disability payments from Social Security are exempted from paying these fees and so are people getting free or discounted legal services. Remember, filing for bankruptcy will go on the record and remain on your credit history for ten years. People who have been plagued by debt problems such as always missing payments or paying late will not see a considerable impact on their credit score.
In this case, filing for bankruptcy can even improve the score, thus making you more appealing to future lenders. Divorcing couples may find themselves in a tight spot after the decree is granted. If only one spouse files for bankruptcy on joint contracts, the other person is expected to take full responsibility. Debt is a sensitive issue even in blissful marriages, so when it comes to separating, ensure there is a sound debt distribution plan in place.
Bankruptcy is a matter of public records, so your colleagues, friends, and future partners will have access to this information if they know where to look. Your current employer may get a hold of this information, but they cannot legally terminate you due to financial woes. Nevertheless, if your job entails handling money such as accounting, things may turn out differently.
Also, filing can bar you from getting employment in private companies, and specific jobs are out of reach until the bankruptcy concludes. For example, you cannot be appointed as a trustee of a nonprofit, company director, magistrate, school governor, or some positions in government.
If you are a member of a professional association, you may have to relinquish this membership until the receiver discharges you from bankruptcy. San Diego Bankruptcy Attorney understands that safeguarding your job is an essential part of addressing debt, so you don't fall back into the same trap. We advise clients who work in financial services or other sectors like medicine, armed forces, etc. to research the consequences of filing for bankruptcy.
Find a San Diego Bankruptcy Lawyer Near Me
The decision to file for bankruptcy and ensuing proceedings is complex and calls for qualified attorneys to handle every aspect of your case. Your creditors are pursuing you aggressively, and you stand the risk of losing your home. Our lawyers at San Diego Bankruptcy Attorney are highly experienced in litigating Chapter 7, Chapter 13, and other codes of bankruptcy filings.
We treat every client as per their unique needs and take strategic measures, so you get an agreeable outcome. If you are contemplating filing for bankruptcy in San Diego, contact us at 619-488-6168 for a free consultation so we can help you exit a situation before things become worse.