When your debt exceeds your ability to find a way forward financially, one of the options you have to consider is filing bankruptcy. For many consumers in California, this will mean filing for protection under Chapter 7 of the bankruptcy code. There are two basic items which may prevent such a filing — a debtor has had a Chapter 7 bankruptcy discharged within the past eight years, or they fail to pass a means test.
Chapter 7 Bankruptcy may provide the following advantages:
- No payment plan
- Discharge (get rid of) your debts
- Keep Your Home and Car
Requirements for Chapter 7 Filings
California residents who are filing for protection under Chapter 7 will be required to do the following:
- Fill out the required forms
- Participate in credit counseling courses
- Participate in debt management courses
- Pass a Chapter 7 means test
- Provide an accurate list of their debts
- Provide a current list of assets
- Provide documentation of income
Understanding the Bankruptcy Means Test
In California, the “mean” income is $71,228. Therefore, anyone who has disposable income below this amount is automatically considered to have past the means test required by the Bankruptcy Court. Your income is calculated based on the six months of income prior to your filing, less any income used to pay past-due taxes or child or spousal support which is being paid by a member of your household. If your income falls below this after those deductions, you may still file Chapter 7. Your attorney can help you prepare the documents which support your options.
Chapter 7 Bankruptcy Exclusions: What Is Not Eliminated
One of the reasons a consumer decides to use California’s Chapter 7 bankruptcy is because it allows them to get a fresh financial start. However, it is important to note that there are certain debts which may not be eliminated in a bankruptcy filing including:
- Past due taxes ** there are exclusions to this which your bankruptcy attorney will explain
- Past due child support payments
- Most student loan debt
Your Assets and Chapter 7 in California
One concern many have about filing Chapter 7 is the potential loss of assets such as homes, motor vehicles, or tools and other items needed for gainful employment. While anyone who files for Chapter 7 bankruptcy protection may have some assets sold to pay off their creditors, for most California residents, the exemptions they are allowed to take are very generous resulting in consumers being able to retain many of their assets.
California has two different methods of working out exemptions in a bankruptcy. Debtors must decide which one is most beneficial for their specific needs. However, in most cases, consumers will be able to retain their primary residence, automobile, and their retirement savings plans without worrying about them being liquidated to pay creditors. When you meet with an experienced bankruptcy attorney at The Law Offices of Susan J. Wolf, we will help you determine which exemption plan is best suited for your needs.
Protection Offered Consumers Filing Bankruptcy
Many consumers who have fallen behind on their bills are dealing with late notices, threats of foreclosure or eviction, or are having their wages garnished. When you file Chapter 7 there is a “stay” which will help eliminate these issues. You will have to notify your creditors that you have filed for Chapter 7 bankruptcy protection and once you take that step, all collection activities, foreclosure or eviction actions, and wage garnishments will cease.
Understanding Reaffirmation Agreements
When you have secured debt including real estate loans or a motor vehicle loans you will have to decide about what happens “after bankruptcy”. Keep in mind, while a bankruptcy filing will stop collection actions, it does not address past due amounts, nor does it address amounts due between the date of the filing and the date of discharge. Keep in mind, once you have filed bankruptcy, you will have to continue making payments on real property.
If you know at the time of your filing you cannot afford your mortgage payments because you are unable to return to work due to an illness or disability, you may have to sell your home after you file for bankruptcy. If you can afford your mortgage payments, or car payments, then you may be asked to sign a reaffirmation agreement. There are dangers associated with these agreements, so it is important to discuss them with your attorney.
Creditor’s Meeting After Bankruptcy Filing
After filing for bankruptcy, your attorney will be notified of what is called a 341 hearing or a creditors meeting. This meeting is to allow creditors to question your bankruptcy petition information should they wish to do so. The Law Offices of Susan J. Wolf will help you prepare for this meeting if one is necessary. In many cases, Chapter 7 creditors often will not attend such a meeting, instead you will be asked specific questions about your petition by the Trustee assigned to your bankruptcy.
Your Credit, Bankruptcy and Moving Forward
Chapter 7 allows you a fresh start financially. However, it will also have a negative impact on your credit score for several years. You can increase your credit score by making regular payments on any debt which remains after discharge. Many people are concerned that obtaining a credit card or other credit is impossible following a bankruptcy, but this is not always the case. Your bankruptcy attorney can help you understand the options you may have available to you following discharge.
The decision to file bankruptcy is not an easy one and some consumers are fearful of the future. However, if your financial life is in turmoil because of a divorce, job loss, health issues, or for any other reason, it may be an option worth considering. Chapter 7 provides an opportunity for you to eliminate unsecured debt, keep your assets, and get a fresh financial start. For most consumers, the opportunity to eliminate unsecured debts is the first step towards a better financial future.
The Law Offices of Susan J. Wolf has several offices in and around Southern California including the main office in Canoga Park, CA and additional locations in Palm Desert, CA serving the Coachella Valley as well as Oak Park, CA, Ventura County and Riverside County so if you need help with a bankruptcy filing contact us at (818) 992-1182 or (760) 285-8225 and let us help you with the process.