Although most people never predict their financial situation will decline to the point where they can no longer cover their obligations, declaring bankruptcy can be a helpful option when facing serious economic hardship. If you are experiencing mounting bills, endless harassing phone calls, and threats of foreclosure on your mortgage, your circumstances can quickly become a situation that seems impossible to recover from. Filing for bankruptcy can serve as an effective debt navigation strategy that provides much-needed stability, allowing you to finally regain a sense of control over your life.
Because of the advantages that bankruptcy provides people struggling to maintain financial solvency, millions file for bankruptcy each year. However, before you file, it is imperative to understand the types of bankruptcy, the eligibility requirements of each, and how the bankruptcy process works so you can make the right decision for your future.
Bankruptcy can be a valuable solution, but it is not the right choice for everyone. An experienced Orange County Chapter 7 lawyer can help you review your options and determine the best course of action for overcoming your financial obstacles, protecting your assets, and getting your life back on track. Learn more about Chapter 7 bankruptcy by considering the information below, then contact The Law Offices of Christopher P. Walker today to discuss your circumstances and discover how we can help you.
Bankruptcy exists in two primary forms: liquidation and reorganization. A liquidation bankruptcy involves debtors surrendering their property for eventual sale, with the proceeds from the sale disbursed to creditors to cover their debts. A reorganization bankruptcy allows debtors to retain their property in exchange for agreeing to a payment plan that reimburses creditors a percentage of the total owed amount.
To file for bankruptcy, a debtor must submit a petition to the bankruptcy court, along with a fee of approximately $300 for personal bankruptcy cases. This petition includes sworn statements from the debtor regarding how much they owe to different creditors, their income, their typical expenses, and a full inventory of their assets. The court then holds a hearing to review this information and finalize the terms of the arrangement.
Chapter 7 bankruptcies are the most filed type of bankruptcy in California. These liquidation bankruptcies require debtors to surrender all “non-exempt” property to an official called a bankruptcy trustee appointed by the court to administer the case. Exempt property typically includes household items, tools needed for work, clothing, and, in some cases, vehicles and homes.
A bankruptcy case compiles all legal and equitable interests belonging to the debtor into an estate, which becomes the temporary owner of the property usable to pay creditor’s claims. The goal of the bankruptcy trustee is to liquidate all non-exempt assets in a way that maximizes the compensation provided to the creditors. This official has the authority to collect assets and property free of liens and sell it to recover funds to pay creditors, as well as recover any additional funds or property.
Depending on the amount of non-exempt property that exists, creditors may only receive a small portion of the debts they claim. However, filing for a Chapter 7 bankruptcy means all loans and other financial obligations experience discharge and legal forgiveness. Creditors cannot attempt to collect these debts in the future without facing severe federal penalties.
To be eligible for Chapter 7 relief according to the Bankruptcy Code, a debtor whose current monthly income exceeds the state median must submit to a means test to determine if this filing would be “presumptively abusive.” The bankruptcy court will presume abuse if monthly income amounts to over $12,850 or represents 25% of nonpriority unsecured debt, if that amount equals a minimum of $7,700. The debtor can overcome this presumption by demonstrating special circumstances requiring additional expenses or modifications of the current monthly income. If unable to do so, the court will usually dismiss the case or convert it to a Chapter 13 bankruptcy with the debtor’s agreement.
While subject to the means test, some form of debt relief is available to debtors regardless of the total amount of the debts owed or whether the debtor remains solvent or insolvent. A solvent debtor is an individual with assets that surpass their debts and can pay all creditors using these assets within one year. An insolvent debtor has debts that surpass their assets and is unable to pay creditors. A debtor seeking Chapter 7 bankruptcy must accept credit counseling from a court-approved agency within 180 days before filing a bankruptcy petition. If the debtor creates a debt management plan during counseling, they must file it with the court.
Debtors cannot file for bankruptcy under Chapter 7 or another chapter of the Bankruptcy Code in the following circumstances:
- The court dismissed a prior bankruptcy petition during the previous 180 days because the debtor refused to appear in court or comply with the court’s orders
- The debtor dismissed a prior bankruptcy petition after creditors pursued relief from the court for the purpose of recovering property liens