Debt can be absolutely terrifying. Unforeseen events such as the loss of a job, a divorce, or a sudden illness can leave finances spiraling out of control. Panic often sets in as bills begin to pile with no relief in sight.
Fortunately, the United States Government offers legal relief for Americans struggling with debt under the US Bankruptcy Code and you don’t have to struggle with overwhelming debt alone. A local bankruptcy lawyer can guide you through the bankruptcy process to ensure you receive maximum debt relief. Through a Chapter 7 or Chapter 13 bankruptcy, an attorney can help you:
- Eliminate credit card debt
- Save your home and car
- Stop wage garnishments
- End creditor harassment
- Protect your retirement savings
Megeredchian Law has helped residents throughout California earn debt relief via Chapter 7 and Chapter 13 bankruptcies. Give yourself room to breathe and learn about your legal options for debt relief.
- Chapter 7 Bankruptcy in California
- Chapter 13 Bankruptcy in California
- Which bankruptcy chapter should I file?
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is often considered a fresh start, because it allows Americans struggling with debt due to unforeseen hardships to discharge various forms of secured and unsecured debts. A Chapter 7 bankruptcy is the most common type of bankruptcy filed (with 8.7 million bankruptcies filed nationwide from 2005 to 2017). Debtors filing for Chapter 7 are able to keep exempt property while also eliminating most, if not all, outstanding debt.
Exempt Property in California
Unlike some states, California does not allow debtors to choose between using the state and federal exemption systems. Debtors can elect from one of two categories (704 or 703) for exemptions. Debtors with substantial home equity often prefer the § 704 system, because it allows an individual to protect a larger portion of equity in a principal residence. On the other hand, the § 703 system does not provide as large of a homestead exemption. Instead, the § 703 system allows for a wildcard exemption which can be sliced and diced to protect different types of assets as needed. Exempt assets in a Chapter 7 bankruptcy may include:
- A home
- 401ks & IRAs
- Social Security and disability benefits
- Home furnishings
- Alimony and child support
- Pensions and other qualified retirement plans
Dischargeable Debt in a Chapter 7 Bankruptcy
In addition to protecting various exempt property, you will also be able to discharge various secured and unsecured debts in a Chapter 7 bankruptcy. Debts that can be discharged include:
- Medical bills
- Credit card bills
- Personal loans
- Business debt
- Utility bills
- Payday loans
- Tax debt (at least 3 years overdue)
Unsecured Vs. Secured Debt
While both secured and unsecured debt can be discharged, there is a clear distinction between secured and unsecured debt. Secured debt is secured by property which a creditor can take if a debtor defaults. Common forms of secured debt include mortgages and auto loans.
When secured debt is discharged, your liability to repay the debt is removed, but the creditor still has the right to repossess the property that the debt was secured by. During a Chapter 7 bankruptcy, debtors need to express how they would like secured debts to be handled. A debtor could give back the property, reaffirm the debt, redeem the property, or continue making payments (if the creditor agrees to allow so).
Qualifying for a Chapter 7 Bankruptcy
Unfortunately, not everyone who wants to file for a Chapter 7 bankruptcy qualifies for one. If your income is below the California median for your household size, you will qualify for a Chapter 7. Individuals with incomes above the median must pass the California means test to be eligible for a Chapter 7 bankruptcy.
The means test takes into account your income and expenses to determine whether or not you could pay a portion of your unsecured debt through a Chapter 13 bankruptcy. Individuals who are not eligible for a Chapter 7 bankruptcy may still be eligible for a Chapter 13 bankruptcy. A qualified California bankruptcy attorney can review your finances to help determine eligibility.
Chapter 13 Bankruptcy
Chapter 13 bankruptcies are designed to reorganize debt rather than eliminate it. This form of bankruptcy is available to help individuals with a steady income stream keep all of their property while receiving more time to pay off debt without additional interest or penalties. The result of a Chapter 13 bankruptcy will be a court supervised repayment program based on a plan submitted by the debtor.
Typically, a debtor does not have to repay all outstanding debt. Remaining unsecured debt and some forms of secured debt can be discharged with the conclusion of a repayment program. An experienced bankruptcy lawyer can help you significantly reduce your unsecured debt obligations in a Chapter 13 bankruptcy.
Length of a Chapter 13 Bankruptcy
The greatest benefit provided by a Chapter 13 bankruptcy is the additional time granted to pay off outstanding debt. Payment plans in a Chapter 13 bankruptcy will either last three or five years depending on income level. If a debtor’s current monthly income is less than the state median for a family of the same size, the payment plan will last three years. If a debtor’s income is more than the state median, the payment plan will last five years. Of course, the plan can end early if outstanding unsecured debt is paid in full over a shorter period of time.
Which Bankruptcy Chapter Should I File?
It’s very common for individuals to ask which chapter of bankruptcy is the best to file. For most people, Chapter 7 bankruptcies are always the more attractive option, because they provide a fresh start free of debt in a very short amount of time. However, the trustee will be able to sell all of the unexempt property you own in a Chapter 7 bankruptcy.
Individuals with significant equity in nonexempt assets and a steady paycheck may instead opt to keep all of their property and file for a Chapter 13 bankruptcy. Of course, the best chapter to file will largely depend on your unique financial situation. Before you decide to file for bankruptcy, it’s always advised to have an attorney review your finances and provide insights into the most suitable course of action for debt relief.
Schedule a Free Initial Consultation
The attorneys at Megeredchian Law are always available to help you achieve bankruptcy relief in the Glendale/Greater Los Angeles area. We can ensure you secure maximum debt relief and offer insights into which type of bankruptcy is best suited for your specific case. Interested in learning if bankruptcy makes sense for you? Call (888) 243-2050 or fill out a contact form to schedule a free initial consultation today.