Sometimes you need a fresh start and according to the law, Bankruptcy can be that option. Depending on what your particular situation is will determine whether you need to file a Chapter 7 or 13 bankruptcy. At the Law Office of Robert C. Smith, our legal team will consult with you and advise you as to your alternatives and which form of bankruptcy is best in your situation. Below you will find some basic information about bankruptcy and the different types we provide.

After you've had a chance to review the information below please feel free to fill out the client contact form so that when you arrive at our office the completed form will assist our staff at your free consultation.

WHAT IS BANKRUPTCY?

Bankruptcy is a legal procedure designed both to protect an individual or business that can't meet its financial obligations and to protect the creditors involved. To begin the process, proper papers must be filed.

There are specific chapters of the federal bankruptcy law. Proceedings under Chapter 7 (known as straight bankruptcy) involve taking most of the borrower's property. The court appoints a trustee to sell off the assets and distribute the cash among the creditors. Proceedings under Chapter 13 (known as wage earner's bankruptcy) involve the borrower proposing a plan for repaying a portion of the debt in installments from the borrower's income. Chapter 11 of the Federal Bankruptcy Act is generally used by corporations and not by consumer debtors. Its proceedings are expensive and complex. Consumer debtors normally use Chapter 7 or Chapter 13.

Once the bankruptcy proceeding ends, the borrower is no longer liable. This occurs when the bankruptcy court enters a discharge order in a Chapter 7case or the borrower has paid the debts due to the credit grantors according to a plan in a Chapter 11 or a Chapter 13 case. In legal terms, the court has discharged the borrower from the debts. The borrower then starts over again with a clean financial slate, but the record of the bankruptcy will remain on the borrower's credit record for up to ten years.

Bankruptcy may be the best, or only, solution for extreme financial hardship. However, it should be utilized exclusively as a last resort, since it always has long lasting consequences. Be sure to consult a financial expert before resorting to bankruptcy as a means of solving your economic troubles.

For a free consultation to determine whether filing bankruptcy is best for you call the Law Office of Robert C. Smith at 909-563-8644 or complete the Client contact form.

DO I QUALIFY FOR A CHAPTER 7 BANKRUPTCY?

Median income test or "means test"

If your monthly household income is less than the California median income for a household of your size, you are presumed to be eligible to file for Chapter 7 bankruptcy under Section 707(b)(2). Compare your household income over the past six calendar months to the state median. This will require that you take the "means test" to determine if you qualify based on income and family size.

The bankruptcy law determines your income by looking at your household income during the six full calendar months before your bankruptcy filing.

Consequences of the 6-month income rule
If your income declined suddenly within the past six months and has not yet increased, waiting until after the first of the month to file will lower your monthly income figure used for the means test. That is, even if you don't qualify this month, you may qualify after the first of next month, or the month after that, if your income remains below the average monthly income for your state.

Ramifications of the number of people in your household
When making the determination with the means test calculator as to whether you qualify for chapter 7 bankruptcy the number of persons in the household dramatically affects the median income figure. You can't include a roommate who is not your dependent in your household size, yet you may have to include the portion of their income that contributes to the overall income of the household.

For a free "means test" evaluation and consultation call the Law Office of Robert C. Smith at 909-563-8644 or complete the Client contact form including your income for the last 6 months and the size of your family.

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CAN BANKRUPTCY HELP TAX MATTERS?

Taxes are debts to a government agency much like debts you might have to individuals and companies. They are different from other debts, however, because the governmental agencies collecting these taxes have greater power over you and your property than other creditors have.

Since the Bankruptcy Code provides for protection to anyone filing bankruptcy, these taxing authorities may have less ability to affect you and your property while you are under bankruptcy protection. The filing of a bankruptcy case may stop collection activity of governmental agencies for the collection of taxes owed. A Chapter 13 bankruptcy can provide for level monthly payment of your tax obligation without additional interest or penalties. Chapter 7 and Chapter 13 can reduce or eliminate certain tax obligations that have been due and payable for more than three years.

Bankruptcy may be the best, or only, solution for extreme financial hardship. However, it should be utilized exclusively as a last resort since it has long lasting consequences. The record of a bankruptcy remains in your credit files in credit bureaus for as long as ten years. It is recommended to consult a financial expert before resorting to bankruptcy as a means of solving your economic troubles.

CAN CO-SIGNERS BE PROTECTED?

If you file Chapter 7 bankruptcy, the creditor can proceed against your co-signers, according to the terms of the debt agreement. However, if you file a Chapter 13 debt adjustment, a co-signer is protected if the following conditions are met. The debt must be a consumer debt. Also, the debt may not be incurred in the ordinary course of business, and the co-signer cannot benefit from the proceeds of the debt. As long as the debtor is making the required payments under the Chapter 13 plan, the creditor cannot act to collect from the co-signer. The purpose of this provision of Chapter 13 is to allow a debtor to repay the debt without the creditor approaching the co-signer for repayment.

In conclusion, if you file a Chapter 7 bankruptcy, your creditors have the right to immediately demand payment from your co-signers. If, on the other hand, you file a bankruptcy petition and a proposed payment plan under Chapter 13, your creditors cannot collect from your co-signers unless it becomes clear that the Chapter 13 plan will not pay the entire amount owed.

It is important to choose a qualified lawyer or financial adviser to set up your repayment plan. If you are unable to make your payments under Chapter 13, you may still file for Chapter 7 bankruptcy. However, your creditors would then have the right to immediately demand payment from your cosigners.

CAN CREDITOR HARASSMENT BE STOPPED?

There are several strategies for dealing with creditor harassment. First, be as honest as possible. If you explain why your account is in default, you may be able to persuade the creditor to allow you more time for payment or to make other arrangements for payment. But this is not always the case. Some creditors and collection agents are reasonable; others may rely on threats and intimidation.

A second method of stopping creditor harrasment is to file for bankruptcy. Though bankruptcy can have long-lasting consequences, it may be the best solution in certain cases. In addition, filing for either Chapter 7 or Chapter 13 bankruptcy will immediately stop creditor harrasment.

CAN HOME FORECLOSURE BE PREVENTED?

If a person gets behind on his or her house payments, the creditor may call the loan in default, accelerate the debt, and begin foreclosure proceedings. When a debt is accelerated, the full balance of the note, not just the monthly payments, is due, in full, immediately. This is usually preceded by the creditor's refusal to accept monthly payments.

In the event a creditor begins foreclosure, you will receive a notice of the foreclosure proceeding. Unless the creditor is willing to accept payments to reinstate the loan, you will have to either pay the full balance remaining on the loan, or file bankruptcy for protection to stop the foreclosure. One additional option is to contact HUD for mortgage assistance. Sometimes creditors will agree to stop foreclosure while HUD is reviewing your file.

The beginning of a bankruptcy case, if before the foreclosure sale date, will stop the foreclosure sale from taking place. Under a Chapter 13 plan, you can make regular monthly payments and be given a reasonable period of time to bring your loan payments up to date to save your property.

Bankruptcy may be the best solution for extreme financial hardship. However, it should be used as a last resort, since it can have long- lasting consequences in relation to your credit.

For more information on foreclosures, consult with an attorney at the Law Office of Robert C. Smith toll free 909-563-8644 or complete the online Client contact form.

CAN MONTHLY PAYMENTS BE REDUCED?

If you have unmanageable debt and file a Chapter 7 bankruptcy, you will not be required to repay your debts. This affords you a clean slate with which to approach future obligations. Those electing to repay their debts under Chapter 13 must first determine their expected future monthly income or take-home pay. All types of income can be considered, such as wages, commissions, child support, spousal support, workers compensation, unemployment, disability benefits, retirement, and dividends, so long as they constitute regular income. Money received that is not considered income under the bankruptcy code for qualification under the "means test" is social security and payments received for victims of violent crime.

After determining income, an amount should be set aside to provide for normal living expenses. The amount of income remaining after providing for living expenses is the maximum amount available for debt payments. If you cannot repay your debts in full over three to five years, you may be eligible for a partial repayment plan, or a "best efforts" plan. According to the "best efforts" plan, the idea is to repay as much as you can afford. At the end of the plan, any unpaid plan debts will be discharged. In any event, Chapter 13 almost always reduces your payments to an amount you can afford.

HOW WILL MY CREDIT BE AFFECTED?

How your credit will be affected by filing either a Chapter 7 bankruptcy or a Chapter 13 debt reorganization petition depends on a number of individual factors. One is your credit status today. If your credit is perfect, bankruptcy will have a negative affect on your credit. More likely than not if you have to file bankruptcy your credit is already in bad shape, the benefit is not so much your credit score but your daily financial ability to survive! If your credit is substantially impaired, now or in the near future, filing bankruptcy may be one of the best things you can do to getting on the road to improving your credit. There are two main reasons for this. After filing bankruptcy you are debt free, making your ability to repay any new credit better after bankruptcy than before, simply because you have no other debts to pay after declaring bankruptcy.

There are time restrictions on when you are eligible to receive another discharge, depending on whether you previously received a  Chapter 7  or Chapter 13  discharge and the type of bankruptcy you want to file now.

Chapter 7 to Chapter 7.  If you have already received a discharge in a Chapter 7 bankruptcy, you must wait eight years from the date you filed the previous case before you can file another Chapter 7 and receive a discharge.  

Chapter 13 to Chapter 13.  If your debts were discharged in a prior Chapter 13 case, you cannot receive a discharge in a subsequent Chapter 13 unless it is filed at least two years after the date the first case was filed. Because it usually takes three to five years to complete a  Chapter 13 repayment plan  and receive a discharge, you can typically file for another Chapter 13 bankruptcy and be eligible for a discharge immediately after your first case is closed.  

Chapter 7 to Chapter 13.  If your first discharge was under a Chapter 7 bankruptcy, you can file for a subsequent Chapter 13 and be eligible for a discharge if the case is filed at least four years after the filing date of the initial Chapter 7. But keep in mind that filing a Chapter 13 bankruptcy after receiving a Chapter 7 discharge can still help you pay off priority debts or get caught up on missed mortgage or car loan payments even if you are not entitled to a discharge.

Chapter 13 to Chapter 7.  Finally, if you received a discharge in a previous Chapter 13 bankruptcy, you must wait six years from the date the Chapter 13 was filed before you can file for and receive a discharge in a subsequent Chapter 7 case. But there is an exception to this rule. The six-year rule does not apply if, in the previous Chapter 13, you paid back:
all of your unsecured debts, or at least 70% of your unsecured debts and your plan was proposed in good faith and your best effort.  

Restrictions on Refiling If Your Previous Bankruptcy Was Dismissed With Prejudice
In addition to the discharge limits discussed above, the bankruptcy court can prohibit you from filing another bankruptcy case for a specific amount of time. This can happen if the court dismisses your previous bankruptcy with prejudice. A bankruptcy case will typically be dismissed with prejudice if you fail to obey court orders, file multiple cases to delay creditors, or otherwise try to abuse the bankruptcy system.

In most cases, a 180-day bar to refiling is imposed if:

  • you willfully failed to obey court orders, or
  • you voluntarily dismissed your previous bankruptcy after a creditor filed a motion for relief from the court imposed automatic stay.

If you commit bankruptcy fraud by hiding assets, lying on your bankruptcy papers, or otherwise filing your case in  bad faith, the bankruptcy court can prohibit you from filing another bankruptcy for a longer period of time or forever preclude you from discharging any debts that could have been discharged in the dismissed case.

Additional Limitations on the Automatic Stay
The automatic stay protects you against collection efforts by creditors during bankruptcy. However, if your first bankruptcy was dismissed and you subsequently filed another case within one year of the dismissal, the automatic stay in your new case is limited to 30 days. If you had two or more dismissals within one year of your new bankruptcy, there is no automatic stay.
As a result, if you file multiple bankruptcies in one year, you may have to file a motion to extend or impose the automatic stay in your current case.

LAWSUITS AND JUDGMENTS

The filing of either a Chapter 7 bankruptcy or Chapter 13 debt adjustment immediately stops any lawsuits from being filed or judgments being taken against you. If a law suit is pending at the time of such filing, it can go no further. If a judgment has been taken, its enforcement can go no further. If a creditor has a judgment and is garnishing your wages, the garnishment can be stopped. Filing for Chapter 7 bankruptcy may relieve you of the obligation to pay the judgment. In a Chapter 13 debt adjustment, you may be able to satisfy the judgment over a period not to exceed five years. If the judgment has placed a lien on your home, that lien can be removed if it interferes with your homestead. If lawsuits or judgments are a threat or reality, the protection afforded under the bankruptcy laws may be an appropriate solution for you.

PROTECTION OF PROPERTY FROM REPOSSESSION

Repossession is the power of the creditor to take back goods because of the buyer's failure to meet the loan payments.

There are two types of loans: secured and unsecured. A secured loan is one that requires you to pledge something as collateral. For example, if you purchase a car, the creditor will usually require you to put up the car as collateral. On the other hand, an unsecured loan, does not require collateral. Using a credit card is usually an unsecured loan.

If you default on an unsecured loan, the creditor's only recourse, after the letters and the collection agency efforts fail, is to sue. But if you default on a secured loan, the creditor can repossess the collateral and sell it. If the money from the sale isn't enough to pay off the loan, the creditor can sue you for the balance of the loan.

Bankruptcy may be able to cancel the debt, or it may give the opportunity to stop the repossession. However, bankruptcy should be used in only the most serious circumstances since it can affect your credit for up to ten years. If your property has already been repossessed, some states give you the opportunity to have your property returned by paying all outstanding loan charges, fees, and costs.

For a free consultation to determine whether filing bankruptcy is best for you call the Law Office of Robert C. Smith at 909-563-8644 or complete the Client contact form.