If you’re like most people, your paycheck helps you keep a roof over your head, the pantry stocked and the bills are paid. However, sometimes, life throws you a curveball. Unexpected medical expenses, long-term unemployment or underemployment can make staying current with monthly minimum payments nearly impossible. I often help my clients determine if filing bankruptcy is the best option, or if there are alternatives that better meet the needs of their specific situation.
When should I file bankruptcy in California?
Living with overwhelming debt is stressful. Trying to figure out how to make ends meet may be the first thing you think about in the morning and the last thought at night. Although declaring bankruptcy is an extreme option, it can also provide some breathing room. It may be a chance for a fresh start and let you take back control of your financial future.
One of the most important points is that filing California bankruptcy is time-consuming and can be expensive. Don’t wait until you’re completely broke before getting help. There are filing fees and a lot of documentation required for the court to accept your petition. Chapter 7 and Chapter 13 are the two different types of personal bankruptcy. The one that works best for you depends on your circumstances.
Chapter 7 Bankruptcy
This is the “liquidation” option that most people think of when they hear bankruptcy. The court’s trustee arranges the sale of all nonexempt property and puts it towards your financial obligations. When you file Chapter 7, this is what happens:
- The process typically takes 3 to 6 months
- Asset liquidation pays off unprotected property
- When all is said and done, most of your debt is cleared
Your income must fall below California’s median income to qualify for Chapter 7. You may need to submit a “means test” to see if you meet the requirements. There is no minimum or maximum debt for filing this type of bankruptcy.
Some debt is not discharged in bankruptcy, including:
- Child support
- Tax debt
- Student loans
- Debt from fraudulent activities
Although this debt isn’t wiped out, there may be options to help you handle them.
Chapter 13 Bankruptcy
If you have steady income that meets specific requirements, you may qualify for Chapter 13. Instead of liquidation, you submit a 3 to 5-year plan to repay creditors. Although you do not have to liquidate assets, the income after basic needs are met goes to pay off your debt. When you file Chapter 13 in California, this is what happens:
- Create a plan to repay debt in no more than 5 years
- Keep your property as long as you stick to the plan
- Your income must fit the proposal you submit to the court
Although there are no minimum debt limits, there are maximum limits for secured and unsecured debt.
Creating the Plan
Filing bankruptcy correctly is critical to take advantage of the benefits it offers. Exceptions to the general guidelines could affect how you file and when. With Chapter 13, you can keep your house and your car, as long as you make the agreed-upon payments, which might be significantly lower than before bankruptcy. Creating a budget and figuring out your income status is the first step to getting past the debt and moving on with your life.
Contact Me for a Free Consultation
Filing for bankruptcy is a big step. It can have a huge impact on your credit and affect your ability to get a loan, hold certain jobs and get an apartment. But it can also help you move forward and begin building good credit quickly. I can help ensure you understand the complex requirements and meet the deadlines the court gives for submitting your information. Missteps can be costly and could result in the court denying your claim.
I have more than 10 years’ experience working with the California bankruptcy court. I know what needs to be done to get you the help you need. We can set up a consultation at a convenient time, whether over the phone, online or in-person. Why wait? Contact me today and stop being bogged down by debt.