Bankruptcy

While this is certainly not an exhaustive list, any of these expenses, or a combination of any of them, is enough to bring down even the most frugal and financially responsible people in our society. The drafters of our Constitution provided for bankruptcy protection because they believed that no person should be jailed or stuck in financial ruin forever simply because they became overextended or encountered an event that precipitated financial disaster. Filing for bankruptcy protection will cause the collection efforts of your creditors to cease immediately. Per federal law, once a person files for bankruptcy protection, all efforts from his/her creditors are required to end. This includes collection calls to you, collection calls to loved ones, letters, and other harassing efforts. Creditors continuing collection efforts are subject to severe penalties.

A common misconception among people seeking bankruptcy protection is that they will never be able to obtain a loan, apply for financing for a car or other high-ticket item, or receive a credit card again. This is simply untrue. People who file for bankruptcy protection are often flooded with offers from lenders and financial institutions after filing for bankruptcy protection. This is because the bankruptcy code only allows for an individual to file for bankruptcy protection once every eight (8) years in the case of Chapter 7 filings, and once every two (2) years in the case of Chapter 13 filings. Lenders feel secure lending, albeit at high interest rates, to people who have just filed for bankruptcy because there is no danger of them filing again.

As noted above, individuals can file bankruptcy under two different frameworks under the law, Chapter 7 and Chapter 13. Most individuals considering bankruptcy in California are likely to be candidates for either Chapter 7 or Chapter 13.

• Chapter 7: This is the most common form of bankruptcy protection for the individual consumer. Under a Chapter 7 bankruptcy petition, the debtor is asking the court to discharge all of his/her unsecured debts, allowing for the debtor to “start fresh.” Prior to granting the debtor the requested discharge of debt, the Bankruptcy Court will name a trustee, who will oversee the liquidation of the debtor’s assets, subject to certain exemptions. These exemptions include:
  • A Homestead Exemption: Depending on whether you are married or not, your age, and your income level, California offers varying levels of protection for the equity in your home. If you are single, the homestead exemption can protect up to $75,000 of your home equity. If you are married, the homestead exemption can exempt up to $100,000 of your home equity from the bankruptcy process. This means that if the trustee requires the sale of your home to satisfy the claims of your creditors, you will be able to keep up to the above values.
  • Vehicle Exemption: Debtors filing under Chapter 7 can exempt up to $3,050 of their vehicle’s value.
  • Jewelry and Art: The California exemption provides for $8,000 worth of protection for these assets.
  • Retirement and Pension: Retirement and pension accounts are generally exempt from the bankruptcy process.
  • “Wildcard” exemption: If you do not own a home, the wildcard exemption will allow a debtor to generally apply protection to $26,800 in personal property, in addition to certain other exemptions.
• Chapter 13: Unlike a Chapter 7, a Chapter 13 bankruptcy does not seek a total discharge of all of the debtor’s debts. It is often referred to as a “wage earner’s plan.” This type of bankruptcy is generally designed for people who are earning a regular income and simply need to restructure their debts to make them more manageable. The debtor will propose a repayment schedule to their creditors which will be either over a period of three (3) years or a period of (5) years. During this time period, your creditors will not be permitted to pursue collection efforts against you. One of the largest advantages of a Chapter 13 bankruptcy filing, as opposed to a Chapter 7 filing, is that a Chapter 13 bankruptcy filing does not require that the debtor’s home be foreclosed upon. Similarly, other secured assets, such as vehicles, can be placed on a different payment schedule that will prevent foreclosure or repossession. Another advantage to Chapter 13 filings is that it may protect third party co-signers.

At Anderson Hayes, our attorneys not only understand and sympathize with the difficulty you have encountered in weighing whether to file for bankruptcy protection, but we also are prepared to assist you with taking the necessary steps to start the recovery process towards financial health again. If you believe bankruptcy protection is in your best interests, or are curious to discuss whether bankruptcy is an option for you, please call (858) 756-5558.