Financial difficulty is not something that a person chooses to experience. The increasing cost of living, a job loss, demotion, or a pay cut can affect a person financially. People who suffer injuries in accidents are also forced to make difficult financial decisions. When such unexpected changes or expenses become overwhelming, bankruptcy may seem like the best way out for most people. At San Diego Bankruptcy Attorney, we have a dedicated team of competent attorneys who are ready to help you understand California bankruptcy laws better and what to do if you want to file for bankruptcy.
Understanding the different types of bankruptcy that you can file, the options you have, how it works, and also the discharge of debts is essential. Our experience in the industry helps us offer quality assistance and advice to ensure that you are making the right decisions. Therefore, if you are thinking about filing for bankruptcy, get in touch with us.
Understanding California Bankruptcy Laws
Bankruptcy refers to the legal process over which anyone that is in a tight financial situation can go through to find relief. If you are struggling to pay your debts or bills, bankruptcy could be the best solution for you to gain a financial reprieve. In the state of California, everyone has a legal right to petition the court for bankruptcy. The federal laws are what provide this right. It means that national court systems are what handle all cases related to bankruptcy in the state of California.
Filing for bankruptcy is not only meant to give a person long-term financial relief but also a short-term relief. Creditors automatically stop expecting payments from you until the court determines your debt issue.
Filing for bankruptcy in the state of California comes with many benefits. It helps a person to eliminate most, and sometimes all of their debts. The financial situation of the person determines this. It will also prevent repossession of some of the most important properties you own, like your car. Also, it could help avoid foreclosure on your house as well as endless calls from debt collectors.
There are drawbacks to this legal process, for instance, debts that you cannot eliminate through bankruptcy, such as taxes, and fines owed to government agencies. Again, filing for bankruptcy affects your credit score. You may find it challenging to obtain a loan in the coming years.
With that in mind, it is essential to understand the different types of bankruptcies one can file in California. There are two main types of bankruptcies for people seeking to enjoy financial relief: Chapters 7 and 13. Each of them has its own set of advantages and disadvantages, depending on a person’s financial situation.
California Bankruptcy Chapter 7 is the liquidation type of bankruptcy, which gives the person an ability to eliminate all their obligations and start again in life. You have to qualify for this type of bankruptcy, however. After sending a bankruptcy petition to the court, the applicant gets a hearing date, which is usually within 1-2 months. Depending on your active income, you may or may not qualify for California bankruptcy under Chapter 7.
If your income is less than the average income of similar-sized households in the state, you may be qualified for this type of bankruptcy. If you are fully eligible, the bankruptcy trustee will receive the power to sell off all your assets and pay off all your debts. All debts will be paid off except for those that are exempt under California laws.
California Bankruptcy Chapter 13, on the other hand, allows a person to reorganize and pay off their debts over a more extended period. This time could be between three and five years, depending on how much you owe in debts. Your bankruptcy trustees, in this case, will help you come up with a payment plan, through which you will pay off most or all of your debts. The primary qualification for this type of bankruptcy is a regular income that can pay off your debts.
Dischargeable and Non-Dischargeable Debts
As mentioned above, bankruptcy is a way to manage debts for many people so that they can start again in life. However, you cannot eliminate all debts through this process. There are two types of obligations in the bankruptcy process: the dischargeable and non-dischargeable debts. Dischargeable debts are those that you could eliminate through the process. Non-dischargeable debts are those that can survive the bankruptcy discharge.
Dischargeable Debts: these are the types of debts that can quickly be wiped out through bankruptcy discharge. When the bankruptcy court grants you discharge, you are no longer required to pay off any of those debts. It also means that creditors will stop calling you or sending collectors to harass you over unpaid debts. Some of these debts include:
- Credit card debts
- Medical bills
- Personal loans obtained from family members, friends, or other sources
- Utility bills that are past due
However, there is always much confusion about whether or not the court will discharge an ongoing account. What happens to a bill such as a utility bill that comes after you have filed for bankruptcy?
In most cases, the court will consider the filing date before discharging that kind of debt. The new bills that a person incurs after filing for bankruptcy, also called post-petition debts, do not get removed. It means that the person will be expected to pay them. The only obligations the court could eliminate are those that existed before you filed for bankruptcy, also called pre-petition debts.
Non-dischargeable debts: These are the types of debts that you cannot eliminate through bankruptcy. They are, for instance, taxes, including federal, local and state taxes, student loans, alimony, child support, and money obtained from credit cards to pay taxes. If a creditor does not agree to the discharge, a person filing for California bankruptcy will still have some debts to repay even after the court grants their bankruptcy petition.
Any debt that arises from a divorce, marital settlement, and obligations incurred through fraudulent actions are some of those that cannot be discharged. Others are debts accumulated from malicious deeds to other people or their property, theft, debts accumulated from embezzlement, and from breaching fiduciary responsibilities.
How Are Non-Dischargeable Debts Determined?
Non-dischargeable debts come from a debtor's act of malfeasance. An act of malfeasance, in this case, refers to outright sabotage on the part of the debtor, which results in intentional damage. Anyone that incurs losses by acts of malfeasance is allowed by law to pursue settlement through a civil lawsuit. Other non-dischargeable debts stem from errors of omission, for instance, unscheduled debts. These are debts that were not listed down in the insolvency petition. If such obligations exist, the court may not exclude them. This is so especially if creditors were aware that you were filing for bankruptcy and did not take any action.
Under California bankruptcy Chapter 7, there are other types of non-dischargeable debts. These may include payments that the debtor owed a person that suffered personal injuries as a result of their negligence. If the debtor was driving a car while intoxicated, for instance, then caused an accident in which a person suffered a severe injury. If the debtor still owes the injured party part or the full amount of the compensation, it will be non-dischargeable during bankruptcy.
Bankruptcy courts also allow creditors to disagree with charges that their debtors want to remove through bankruptcies. If the court accepts such an objection, those debts will fall under the category of non-dischargeable debts. Such charges could include purchases the debtor made for luxury goods, which exceed a certain amount of money, at the expense of a single creditor. The costs might be excluded from discharge if the debt occurred within three months of the liquidation filing.
The debtor can have such a debt discharged, though, but only if they prove to the court that the items purchased were not extravagant items also if they intended to repay the debt.
Other non-dischargeable debts are cash advances that exceed a certain amount that was obtained within seventy days of the insolvency filing.
Also, there are instances when a court can declare the debts as non-dischargeable under Chapter 7. Such situations are when it is established that the debtor destroyed financial records to hide the debts, transferred properties to protect them from creditors, or if the debtor is unable to account for some missing assets or if he/she failed to complete a course on personal finance management.
Lastly, if the debtor had previously petitioned for insolvency and had all their debts discharged, their obligations could be declared no dischargeable in their most recent bankruptcy. It, however, depends on the kind of bankruptcy one is filing and the length of time between the two bankruptcy processes.
Barriers to Debt Discharge Under Chapter 7
As mentioned above, bankruptcy under Chapter 7 is the most preferred type of bankruptcy by most debtors in the state of California. Going through the process is very easy for many people. However, having all your debts discharged is not always a sure thing. Specific barriers could see some of your debts becoming non-dischargeable. Some of these are:
- If a debtor fails to follow court rules and the entire procedure. Bankruptcy courts are stringent on the process and court rules. Failing to adhere to the set rules will, for instance, cause the court to deny your petition for bankruptcy under Chapter 7. If this happens, you will be left to deal with all your debts, even those that the court could have discharged under this type of bankruptcy.
- Some of your debts do not qualify for discharge: as mentioned earlier, there are certain types of debts that automatically fall under the category of non-dischargeable debts. Some of these debts are not to be discharged as a matter of public policy. These are debts that should not be eliminated unless there is an extraordinary reason for it. If you have debts falling under this category, you will have to pay them even after the court has declared you bankrupt.
Bankruptcy under Chapter 7 laws, however, allow the debtor to challenge the elimination of some of these debts during the bankruptcy proceeding. If their creditors do not object to the discharge, and the court agrees, the court may discharge the debts.
Grounds for Discharge Denial in Bankruptcy Under Chapter 7
In Bankruptcy Chapter 7, a debtor does not always have a complete right to debt discharge. To get a discharge on some or all of their debts, they must fulfill specific requirements provided by the bankruptcy law. If the debtor does not follow the provided rules or fails to provide all the mandatory information, his/her creditor or the bankruptcy trustee can refute to the entire discharge provided under Chapter 7. Here are some of the reasons the court might deny you Chapter 7 discharge:
- If you fail to produce all the required tax documents
- If you do not complete a task on personal financial management, as mentioned above
- If you transfer some or most of your assets to hide them and hinder or defraud your creditors
- If you destroy or protect financial records so that your creditors may not know precisely what you have and how much income you are receiving
- If you commit perjury and other fraudulent deeds in connection with the bankruptcy case
- If you are unable to account for assets you claim to have lost
- If you violate court orders
- If you had previously filed for bankruptcy and debt discharge was granted
Other Debts That Are Permanently Non-Dischargeable Under Chapter 7
In addition to the debts mentioned above as non-dischargeable, additional obligations are always non-dischargeable under Chapter 7. Note that only in extraordinary circumstances will the court discharge these debts:
- Debts the debtor owes tax-advantaged retirement plans
- Debts owed to specific cooperative or condominium housing fees
- Attorney fees from such cases as child support and custody
- Court penalties and fines, as well as criminal restitution
However, it is possible to eliminate tax debts in a bankruptcy case, though it is not always as easy as it sounds. Most tax debts are nondischargeable, but a debtor can still discharge his/her federal income taxes under bankruptcy Chapter 7. It is only possible if the following the debtor meets the following conditions:
- That the only fees you owe are income taxes: Other taxes such as fraud penalties and payroll taxes cannot be discharged in a California bankruptcy case.
- That you did not willfully evade paying taxes or commit any fraud concerning the payment of taxes: For instance, if you filed a false tax return, or you willfully attempted to avoid paying taxes, the court may not be able to help you discharge tax debts.
- That the tax debt is three years old as a minimum: The court can only discharge a tax debt that was initially due, as a minimum, three years before the filing of the bankruptcy petition.
- That you filed a tax return: There is a chance to have your tax debts discharged if there is proof that you had filed a tax return for that debt. The tax return should have been presented at least two years before the filing of the bankruptcy petition. Note that most courts will consider a late file for tax returns as a failed file and will, therefore, not discharge that debt.
- That you exceeded the 240-day requirement: This requirement states that an income tax debt must be assessed by the IRS at least 240 days before the filing of the bankruptcy petition. The court may still be considerate if the IRS had not done the assessment yet.
Debts That Become Non-Dischargeable After a Creditor Objects
As mentioned earlier, some debts are not automatically discharged in a bankruptcy case. Sometimes creditors could request the court to decide whether or not their debts are dischargeable. If the creditor does not bring up the issue of dischargeable debts, or if the creditor brings up the issue, and the court doesn’t agree, the court will not discharge the debts. Some of these debts include:
- Cash advances: if a debtor obtained a cash advance of more than $1000 from a creditor within 70 days of filing the bankruptcy petition, the court will consider such a debt fraudulent and will, therefore, not discharge it.
- Purchase of luxurious goods through credit cards. When the debtor spent more than $725 of credit card debt within 90 days of filing the bankruptcy petition, the court will consider this debt as fraudulent and hence, non-dischargeable. Note that the creditor will be expected to present the facts of such a case in court as a form of a lawsuit.
- Debts that were fraudulently obtained or through pretense. In most cases, the debtor has no intention of paying back such obligations, and so, the court will not discharge them.
- Debts incurred from malicious and willful injuries. If the debtor intentionally injured another person and was required to pay restitution to that person, that court will not discharge that debt. The same will be the case if a person intentionally destroyed another person's property
Find a San Diego Bankruptcy Attorney Near Me
Filing for bankruptcy is the right way of dealing with debts. However, the process is a little complicated and could be difficult for a person that is going through it for the first time. At San Diego Bankruptcy Attorney, we help our clients understand how bankruptcy works. We also take them through the process to ensure that they meet their needs in the end. Call us at 619-488-6168, and let us help you get out of debt.