Helping Debtors & Businesses Eliminate Debt Fast
Filing for bankruptcy is a difficult decision. Nevertheless, there comes a point where a person’s debts greatly exceed their ability to pay them.
At the Law Office of David C. Winton, we help consumers and businesses determine whether to file for bankruptcy and which chapter to file under. This is a complicated analysis, and you should only file after meeting with a local bankruptcy lawyer for a free consultation.
Debt & Bankruptcy
The purpose of bankruptcy is to eliminate, or “discharge,” debt. But what debt can you eliminate? The bankruptcy code identifies some debts as non-dischargeable, so you cannot use a bankruptcy to get rid of them.
Generally, our clients can eliminate:
- Personal loans
- Credit card debt
- Medical debt
- Some court judgments against them
- Old income taxes
Other debts are impossible to eliminate or much harder. For example, you cannot get rid of domestic support obligations, such as child support or alimony payments. Student loans are also very hard to discharge.
Secured loans deserve special mention. These loans are backed by collateral. And although you can eliminate the debt, you will have to turn over the collateral. The only way to keep your home, for example, is to reaffirm the mortgage.
Chapter 7: Fast & Easy
This bankruptcy is available to consumers and businesses. It is the fastest bankruptcy. Consumers can eliminate eligible debts within 3-4 months of filing their paperwork with the court. When you receive your discharge, you are no longer responsible for any of the debts that you eliminated.
Exempt Property
Chapter 7 comes with a big catch, however. In exchange for eliminating debt, the trustee who oversees your bankruptcy can take property you own and sell it for the benefit of your creditors. For example, you might have $10,000 in cash sitting in a savings account. If so, the trustee will take it and distribute this money to your creditors. If you have equity in a car, the trustee can sell the car, too.
Fortunately, debtors can exempt some property. California has two lists of exemptions you can choose from, called System 1 and System 2. Review them with an attorney. As an example, System 1 allows debtors to exempt:
- Up to $75,000 in a homestead if single (more if married, disabled, or over age 65)
- Up to $3,325 in a vehicle
- Household items
- Jewelry or artworks up to $8,725
However, property exceeding these sums can be taken by the trustee.
The Means Test
Not all consumers are eligible for Chapter 7, either. Generally, your household income must be below the median for a household of your size in California. This is the “means test.” If you are under the median, you automatically qualify.
If you are over the median, you might still qualify. But a local bankruptcy attorney will need to take a closer look at your expenses. Those who do not qualify under the means test will have to choose a different bankruptcy.
Chapter 13: Long & Tedious…But Has Its Place
Chapter 13 is an alternative to Chapter 7 for consumers (but not businesses). Debtors will enter a repayment plan that lasts 3-5 years. All your disposable income goes to creditors, and only when you complete your repayment plan can you wipe out qualifying debt.
We rarely recommend Chapter 13 since you are under the government’s thumb for up to 5 years. But it does have its place. Its primary benefit is that you do not lose any property. Instead, you pay your creditors what they would have gotten had you filed for Chapter 7.
You cannot file for Chapter 13 protection if you have too much debt. The limit fluctuates based on inflation, but as of 2021 the maximum unsecured debt is $419,275 and the maximum secured debt is $1,257,850.
Chapter 11: Great for Businesses & Wealthy Individuals
Chapter 11 tends to get ignored, but there is no reason why. Typically, businesses use Chapter 11 as an alternative to Chapter 7 when they don’t want to liquidate. Chapter 11 allows businesses to secure additional financing and keep the lights on as they rework their debt. Even better, a judge is empowered to force a debt repayment plan on creditors even if they oppose it.
Historically, Chapter 11 was too complex for small and family businesses. But Congress recently made Chapter 11 more attractive to small businesses by lifting some of these requirements.
Individuals can also use Chapter 11, but they tend to be wealthier individuals who can’t qualify for Chapter 7 or who have debts that exceed Chapter 13 limits.
Benefits of Filing for Bankruptcy
Our clients reap many benefits as soon as they file:
- No more calls from collection agencies. The court enters an automatic stay as soon as you file, which prevents creditors from taking any collection actions, including calling you. You gain peace of mind.
- Stop an eviction or foreclosure. The automatic stay can also keep you in your home, at least until the bankruptcy is completed.
- More money to live. Wage garnishment and other collection activity must stop, leaving you with more money each week to support yourself and your family.
- Free up money to pay off other debts. Even if you can’t discharge a debt (like student loans), you can free up money by discharging other debts.
There is no reason to delay. Please contact a local bankruptcy lawyer to review whether bankruptcy is right for you.
Why You Need an Attorney
Many people wrongly assume they can file for bankruptcy themselves. After all, they can print off fill-in-the-blank forms and insert all the required information.
However, studies show that debtors who file without a lawyer are less likely to receive a discharge. The bankruptcy courts in central California published a study in 2011 that showed filers who had an attorney received a Chapter 7 discharge nearly 95% of the time. By contrast, those who proceeded without a lawyer received a discharge only 61% of the time.
Debtors should also fear accusations of fraud since they sign all paperwork under penalty of perjury. If you leave off a creditor or an asset (like a second home), the trustee might suspect fraud.
Contact a Bankruptcy Lawyer Today. We serve clients along the 80 corridor with offices in Navato, Nevada City and Auburn California
Seek a fresh start by contacting the Law Office of David C. Winton today. Our bankruptcy consultations are free.