Bankruptcy is a federally sanctioned court process designed to assist consumers and businesses in having have their debts discharged or to repay them under a bankruptcy court approved payment plan. Bankruptcies can generally be described as “liquidations” (when debt is discharged) or “reorganizations” (when debt is repaid with a payment plan). Debtors should confer with a bankruptcy attorney to determine which format is most beneficial.
Individuals, as guided by a bankruptcy attorney, can file either a Chapter 7 or a Chapter 13 bankruptcy. A Chapter 7 is generally available to consumers with lower incomes and equity. Referred to as a liquidation, unsecured debts are typically discharged and the filer keeps essential property which they can afford such as homes, vehicles, personal belongings, etc. A Chapter 13, known as a reorganization, sets up a payment plan under which the debtor pays back a portion of outstanding debts.
Once a Chapter 7 or Chapter 13 bankruptcy case is filed, all creditor collection efforts must stop. Creditors cannot call, write, bill, visit, repossess, foreclose, file a lawsuit, or continue with a lawsuit already in progress. Any court-ordered wage garnishments will also be stopped. Creditors may resume collection only if given permission by the bankruptcy court.
The means test is the test used by courts to determine eligibility for Chapter 7 or Chapter 13 bankruptcy. It was added to the bankruptcy code in 2005 to prevent wealthy debtors from filing for Chapter 7 bankruptcy. The means test assists the court in determining whether a debtor’s income is above or below the state’s median income. Debtors below the median are usually allowed to file for Chapter 7. Those above line file for Chapter 13. A bankruptcy attorney usually can determine which bankruptcy will yield the best result prior to the debtor taking a means test.
A Chapter 7 stays on a report for ten years. A completed Chapter 13 stays on for 7 years. If a Chapter 13 isn’t completed it stays on credit reports for 10 years.
Unsecured debt is a loan which isn’t secured by an asset. An example of unsecured debt is the balance owed on a credit card. Secured debt is backed by an asset, such as a house or a car. A bankruptcy attorney should be consulted regarding a debtor’s balance of unsecured and secured debt. It can make a difference in which type of bankruptcy will provide better results.
Social Security benefits are protected under bankruptcy from assignment or garnishment. Social Security benefits remain protected after their payment as long they are not co-mingled with monies in savings, checking, and other types of accounts and can be identified as funds from Social Security. This is a common oversight made by individuals who file for bankruptcy without an attorney.
Exemptions in the bankruptcy code allow individuals to keep “exempt” of property. While exempt property differs between states, personal property usually includes vehicles and homes with equity up to certain values. Experienced bankruptcy attorneys can assist in the proper valuations of these assets to ensure optimal outcomes. Personal belongings and furniture are also generally exempt.
All debts must be included when documents are filed with the court. However, a debtor can choose to keep some debts out of the discharge or reorganization by “reaffirming” the specific debts to be excluded.
In a Chapter 7, debts are discharged after the process is completed, usually about four months from start to finish. In a Chapter 13, remaining debts are discharged once the court approved re-payment plan is completed by the debtor.
To schedule a free and confidential consultation call the Law Offices of Zhou & Chini today and speak with a California Bankruptcy Attorney at (888) 483-2902
