Following a divorce, a long period of being unemployed, or a lengthy illness, you may find yourself saddled with huge debts that may have you thinking that you have come to the end of the road and there is no way back. In such a situation, your best option is to contact a bankruptcy lawyer at San Diego Family Law Attorney. Declaring bankruptcy in California is a difficult choice, especially with the fact that it has the ability to affect your self-image, reputation, and future credits. However, it could be that you’ve done everything to avoid it. Maybe you’ve sold stuff to make payments or you’ve cut back on spending, but even with all the effort, you’ve come to the conclusion that bankruptcy is your only option. There is no shame in filing for bankruptcy and it could be the best way to work on your financial life and get it back on track.
Do not wait for creditors to start calling you or send a notice that they are contemplating suing you. Since the 2005 Bankruptcy Laws were passed, it has become even more complex and taxing to file for bankruptcy than it was before. It is therefore paramount that you have a lawyer with extensive knowledge and experience in this field, and who can assist you get through the process. San Diego Family Law Attorney has just such attorneys for you. Contact us today at 619-610-7425 for a free, initial consultation.
Understanding the Meaning of Bankruptcy
When you file for bankruptcy in California, you’re simply telling the court that you are not in a position to pay your debts. This process gives you a chance to start over as it cancels many of your debts. It also allows creditors to get a share of any money that you’ll be required to pay back as ordered by the court. When you file for bankruptcy, most creditors cannot sue, write, or call you in an effort to collect money from you. Bankruptcy can also stop garnishment of your wages, repossession of property, or foreclosure on your home.
Types of Bankruptcy
If you’re declaring bankruptcy in California, there are several different chapters which allow for different types of debt relief. The most common ones are Chapter 7 and Chapter 13. The type you file will be dependent on your circumstances and the types of debts you are facing.
How Chapter 7 works
Chapter 7, also referred to as a liquidation bankruptcy, is a court-supervised process that allows the defaulter to eliminate or discharge every debt outstanding that would otherwise qualify for discharge. Certain debts may be discharged under restricted conditions under bankruptcy laws. They include:
- Tax debts
- Student loans
- Debts that arise after bankruptcy
- Debts outstanding from injury inflicted on someone else while the defaulter was under the influence of alcohol and
- Compensation resulting from a criminal sentence
- Debts incurred fraudulently
- Alimony and child abuse
It is common to have all the eligible debts discharged, however, on some rare occasions, the debtor could have some of their assets sold by a court-appointed trustee to offset those debts. In such cases, however, there are some assets that are protected or exempted from a sale and this may include:
- Accounts that hold your retirement benefits such as profit sharing and stock bonus, pension, IRAs and delayed compensation schemes like your 401(k) account
- Your primary house of residence or homestead up to some equity confines
- Your primary automobile such as the one you use as business or to ferry your children, if you stay in a region that does not have public transportation; and
- Any item that is not worth over six hundred and seventy-five dollars (US$675), for instance, jewelry and valuable antiques may be listed as assets. The Trustee may be reluctant to get to such items due to the expense and time required to verify every item, however, legally they may get to that.
California provides two schemes of indemnities and many defaulters do not have to give away any asset at all in bankruptcy. It is worth noting that you will only be eligible to file Chapter 7 bankruptcy if your debts are high enough and your income is low enough. In this case, you will be left with the option of filing a Chapter 13.
How chapter 13 works
Chapter 13, also referred to as the wage earner’s plan is the most common option and is available to individuals who do not qualify for Chapter 7 because they have a high income, and at the same time, they are not willing to give up their property. With a Chapter 13, you agree to follow strict budget monitored by the court and make monthly payments to the creditors. Different from Chapter 7, which discharges and eliminates every debt within a few months, Chapter 13 works allowing you to develop a repayment to pay off a percentage or all of your arrears over a period of three to five years. This will depend on the debts and the equity in your assets that is non-exempt. For every monthly payment that you make, it will be the duty of the trustee to dispense it to the creditors. The money left over from each month will service debts owed to unsecured creditors. The remaining unsecured debts will be eliminated at the end of the chapter 13 plan. With time you will be able to catch up on your car and mortgage payments and carry on making regular disbursements. Oftentimes, individuals who file for Chapter 13 bankruptcy don’t successfully finish their plans. In such a case, a debtor may choose to file a Chapter 7 bankruptcy afterward. This will eliminate the chances of creditors resuming their efforts to accumulate the full balance owed.
Filing for Bankruptcy in California
Bankruptcy is not a matter of throwing yourself at the mercy of the court by telling the judge that you are broke. It is a confusing and complicated process full of rules and regulations that individuals must walk through in order to succeed. If you’ve come to the painful conclusion that you may need to file bankruptcy, contact a bankruptcy attorney at our law firm and get the assistance that you need at this time. In filing for bankruptcy, you will take the following steps:
a) Complete a Credit Counseling Class
Under the 2005 Bankruptcy Act, you are required to finish a credit counseling session before your liquidation case. The session is roughly one and a half hours long and may be completed by phone or online by an approved credit counseling agency. The credit counseling session ought to be finished six months before you file for bankruptcy relief. You are advised not to complete the session unless you’re prepared to file because the credit counseling certificate has an expiry date and you will need to retake the class if it expires. Conversely, after filing bankruptcy, you will have to undergo a financial management instructional course.
b) Put together documents necessary for your case
To begin the bankruptcy process you will need to compile all your financial records: For you to complete your paperwork you will require having:
- 7 months of paystubs if you are employed and 6 months’ loss or profit statements if you are self-employed or an independent contractor. Those who are unemployed or retired-unemployed are expected to produce pension stubs
- Collect information about every creditor that you owe. You will be required to avail their addresses and an estimate of the amount money you owe each creditor
- Put together documents that give evidence on all your assets including whole life insurance policies, bank accounts, mortgage statements, 401k, IRA, vehicle value, and retirement
- Filed tax returns for the past two years, both federal and state taxes. For chapter 13 bankruptcy cases, you will be required to provide filed tax returns for the last 4 years
- If you are a plaintiff or defendant in an ongoing case, you must provide copies of the lawsuits
You should provide your bankruptcy attorney with this set of documents. The attorney will review them to ensure accuracy and completeness of your bankruptcy petition.
c) Complete Petition & Schedules
Once your attorney has reviewed all the documents, it is time to determine which property is exempt from seizure. To file for bankruptcy, you will have to complete a two-page petition and other forms referred to as schedules. Schedules ask you to describe your recent financial transaction (within the last 2 years) as well as your current financial status. The location of the court where you will file your bankruptcy schedule and petition will depend on the location of your residence for the past one hundred and eighty (180) days. If the judge or your creditors find out that you have not been completely forthcoming, the outcome of your case could be jeopardized.
d) Provide the trustee with tax returns
Upon filing, the court will assume legal control of your property and debts. In this case, property only includes those that are not covered by your California exemptions. The court will also appoint a trustee to your case. You will be required to provide the trustee with federal and state tax returns for the past two (2) years if you’re filing a Chapter 7, and tax returns for the past four (4) years if you’re filing a Chapter 13 bankruptcy. The individual appointed to your case will review your paperwork comprehensively. The role of the trustee is to ensure that your creditors are paid as much as possible.
e) Attend 341 Hearing
A 341 hearing will be scheduled by the trustee roughly a month after filing. The 341 hearing involves a meeting of creditors but you must also be there. The court will send a notification indicating the time and location of the meeting. The trustee will be interested in having you answer questions regarding your creditors, income, and assets. These are normally simple yes or no question and take a short time. Typically, the 341 meeting of creditors lasts about five minutes. Chapter 7 filings in most cases involve no non-dischargeable assets, nonetheless, if you do have such assets and you filed for chapter 7, you will be required to return the assets or cash worth the value of the property to the trustee once the meeting is adjourned. The property will be sold by the trustee and the proceeds distributed to your creditors. Your creditors and trustee may challenge your right to a discharge, and if no challenges are raised, the court will send a notice within 3 to 6 months indicating that your dischargeable debts have been discharged.
Things to Avoid If You Intend to Declare Bankruptcy
Making cash and asset transfer
Whether you intend to declare bankruptcy now or in the near future, the process will proceed smoothly if you desist from making certain kinds of transactions prior to filing. Certain transfers and purchases will appear to the court as fraud and you might be accused of making these transactions to fleece your assets prior to the bankruptcy court seeing them. You may be of the opinion that there is nothing erroneous with shifting the ownership of your car to your spouse or giving it to your children as a gift. The court may, however, see these transactions as fraud.
Paying off some Creditors and leaving out others
You may be tempted to pay off creditors that in your opinion have treated you well despite you owing them money. But paying them off and getting them off the list of creditors is not a prudent idea. The court will be inclined to treat this as preferential transfers that will only complicate the bankruptcy proceeding and could result in a claw-back. If the trustee assigned to your bankruptcy case feels that the disbursement was made to evade placing the creditor on the bankruptcy plan, he or she may compel the creditor to return the money to the bankruptcy estate.
Contact Our San Diego Family Lawyer Today
If you are struggling with debt and feeling overwhelmed, don’t wait far too long before looking into the option of bankruptcy. Delays in declaring bankruptcy could leave you in a situation where the relief is no longer available to you. The process of bankruptcy is not a simple matter that you can go about on your own; it is full of complex rules and regulations. With extensive legal experience, San Diego Family Law Attorney will analyze and take care of any issue that may arise in your case, however complex. Will treat your case in a unique manner. Contact us today at 619-610-7425 to schedule your initial consultation. Your troubles are our concern.