If you find yourself in an impossible financial situation, you are not alone. Hundreds of thousands of Americans find themselves in the same situation every year. Those hundreds of thousands turned to bankruptcy for a clear-cut solution. Many others are still out there, struggling to make ends meet or failing to make ends meet. The availability of bankruptcy is to provide hope in hopeless financial situations. Don’t ignore it. Get to know bankruptcy and know when it’s time to allow the bankruptcy code to clear your debts.
And Overview of Bankruptcy:
When it comes to personal bankruptcies in California, most concern themselves with Chapter 7 and Chapter 13. There are two other types of bankruptcy, but they aren’t usually applicable. Chapter 11 is mostly pertaining to companies or individuals who have assets and financial portfolios that resemble a corporation (in other words, hot shots). Chapter 12 is basically a Chapter 13 for farmers and fishermen. They do get a few additional perks or benefits because we like to encourage financial health amongst those who are growing the food for our nation’s citizens.
For our purposes, let’s focus on Chapter 7 and Chapter 13.
Chapter 7 Overview: The “Straight” Bankruptcy
When filing for Chapter 7, it’s as if the individual went to the court and told them straight up – I can’t pay back my debts. Hearing this, the court gathers up the filer’s assets, sells them and splits the proceeds amongst the creditors in virtual line for payment. (This includes luxury items such as that gorgeous diamond necklace your college boyfriend gave you or that Rolex you got as a bonus at work when you signed a high paying account). When all is said and done – Chapter 7 filers no longer owe anything to creditors listed in the bankruptcy case. Since they are only to keep items needed to live (household items like pots, pans, utensils, one television, a suit so they can get a job, etc.) their list of assets is also next to nothing once the bankruptcy is completed. You’ll be free of your debts. It’s a great solution for those looking to break the cycle of always owing money and barely making it (or not quite making it). What’s the catch? The bankruptcy itself will appear on your credit report for 10 years. Anyone considering filing for Chapter 7 bankruptcy must first decide that it’s worth it. In many cases, the financial situation that led them to consider bankruptcy in the first place would have a far more negative result on their credit if bankruptcy isn’t utilized to put an end to the late payments, overwhelming credit balances, etc.
Chapter 13 Overview: The Reorganization
When filing for Chapter 13, it’s a bit different. Rather than the clean slate that the Chapter 7 filer walks out with, filers who opt for Chapter 13 walk out with a plan. The general idea is that this filer has a job. They have a good income. They also have more debt than is feasible in their current situation. In many cases, their financial crisis was created by a sudden need for a lot of money for unknown expenses such as medical emergencies, unforeseen long-term care needs, etc. Filing for Chapter 13 is the legal equivalent of dropping by the court and letting them know that you want to pay your creditors back, but with what they want you to pay right now – that’s impossible leaning towards nuts. You’re basically requesting a new plan for repayment – reorganization, if you will. For your sake as well as the sake of the creditors, you come up with a realistic plan to pay back all or a portion of the debt over an agreed upon time frame (3-5 years). During reorganization such as this it may be agreed upon to decrease the total amount to be repaid, the interest rates, the fee schedules, etc. Filers agree to a plan and then they have to stick to it for the agreed upon time frame. Again, filing Chapter 13 bankruptcy isn’t for everyone. It’s not without a cost – it will show up on your credit report for 10 years just like the Chapter 7.
Chapter 7 and Chapter 13 are both viable options in certain situations. They aren’t easy or simple, but they can be the perfect answer to an impossible financial circumstance. Contact Westgate Law today to discuss your options with a California bankruptcy attorney.