Los Angeles Bankruptcy Lawyer

Reorganizing Your Finances Under Chapter 7 or Chapter 13

Bankruptcy is the process in which individuals, as well as companies, can eliminate or pay down certain debts under the protection of a federal court designed for these proceedings. Under the Bankruptcy Code, there are different types of relief that may be sought, with the two most common forms being Chapter 7 and Chapter 13.

Chapter 7 is known as liquidation bankruptcy, or as we call it the “fresh start” choice, in which most debts are discharged without the requirement of a repayment plan. In some cases, if there are assets that cannot be protected, the trustee appointed to your case may choose to sell, or liquidate, the asset to use the funds to repay a portion of your debt. It is important that you consult with a knowledgeable and experienced Los Angeles bankruptcy attorney to determine prior to the filing what assets may be protected and which may be subject to liquidation should you file bankruptcy so as to prevent any surprises.

Chapter 7 is probably the most desired type of bankruptcy to be filed by most because it allows you to eliminate unsecured debts – which are any debts that are not secured by collateral or real property such as credit card bills, medical claims, or personal loans. In a Chapter 7 you eliminate these debts without the requirement of a repayment plan since you are stating that after the payment of your necessary living expenses you have no disposable income left to repay any creditors (which is determined when your bankruptcy attorney calculates the Means Test for you). During this process, if the trustee determines that any of your assets are not exempted (protected), the trustee may sell these non-exempt assets in order to pay creditors. However, some assets are exempt from liquidation, including clothing, jewelry, retirement plans, insurance policies, or income derived from workers’ compensation and certain personal injury claims.

Since Chapter 7 releases debtors from their obligations, the courts in California use a “means test” to determine if an individual qualifies for it. This test follows a specific formula to determine whether the debtor(s) average gross income allows any disposable income to provide for the repayment of any portion of the debtor’s creditors. To qualify, your average gross income must be less than the necessary living expenses you have.

Chapter 13 is known as reorganization bankruptcy that allows you to propose a repayment plan in which you may keep certain property so long as you stay current on your obligations to them through a repayment plan. These repayment plans span a period of 3 to 5 years and allow you an automatic stay protection from your creditors, allowing you to become current on your obligations without the worry of creditor action. This is a viable option for those who have the financial resources to follow a consolidated payment plan after falling behind on mortgages, car payments, or other priority debts. Specifically, it is best option for stopping foreclosures, car repossessions and tax levies. Furthermore, Chapter 13 can provide the vehicle for removing second and third mortgages through the bankruptcy process, should you qualify.

In either type of bankruptcy, some debts remain non-dischargeable debts. These often include domestic support obligations, student loans and certain taxes, and judgments where it has been determined that the injury you may have caused was intentional (DUI) or through fraud (embezzlement). Deciding what option is best for your future can be difficult, and consulting a bankruptcy lawyer in Los Angeles can help you protect your interests.