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Bankruptcy can eliminate, i.e. discharge, your legal obligation to pay back certain debts. It can also stop a foreclosure on your home, repossession of your car, garnishment of your wages, levy of your bank accounts, lawsuits against you, and other creditor collections. In some cases, bankruptcy can give you time to catch up on unpaid taxes, as well as debts that are subject to liens, like arrears on your mortgage or car loan, so you can keep your property while you get current. Bankruptcy can also be used to remove certain liens from your property or reduce the value of certain liens. It also allows you to challenge creditor claims that you dispute.
Dischargeable debts include credit cards; medical bills; lease obligations; civil judgments; personal loans; businesses debts, including debts owed to lenders, vendors, and other business contracts; and in some cases, income taxes, depending generally on how old the taxes are, when the tax return was filed, and when the tax was assessed. If the taxes cannot be discharged, it may still be possible to stop the accrual of interest and penalties on the unpaid tax.
Examples of debts that are not dischargeable include debts obtained by fraud, spousal support, child support, court-ordered fines or restitution in criminal cases, certain taxes, and student loans in most cases.
Chapter 7 is a liquidation bankruptcy. A trustee is appointed over the case to sell any non-exempt assets of the debtor to pay creditors. As discussed below, in most cases, there are no non-exempt assets for the trustee to sell because the debtor can keep most property by exempting it, including their homes, cars, household goods, clothing, jewelry, retirement, and other property, up to certain allowed amounts. The filing immediately stops most creditor collection actions, including foreclosures, wage garnishments, repossessions, bank levies; and lawsuits (judgment liens can be removed in some instances), and the debtor usually receives a discharge of all dischargeable debts within about 90 days of filing bankruptcy. While non-individuals like corporations, limited liability companies, and limited partnerships cannot receive a discharge in Chapter 7, there are situations where a Chapter 7 makes sense for such entities because it allows for the orderly liquidation of company assets and termination of operations.
Chapter 13 is a reorganization bankruptcy for individuals, including sole proprietors. It allows the debtor to keep their property and avoid liquidation; repay creditors a certain amount over a period of 3 to 5 years; and stop most creditor collection actions, including foreclosures, repossessions, wage garnishments, bank levies; and lawsuits. The amount paid to creditors is determined on a case by case basis, but in many cases is only a percentage of the amount owed. After the payments are completed, the debtor receives a discharge of the balance remaining on the dischargeable debts. Chapter 13 is often used to help someone catch up on mortgage arrears, car payments, or taxes over several years. This can enable the debtor to keep their home and avoid foreclosure, keep their car and avoid repossession, and catch up on taxes while stopping the accrual of interest and penalties on the unpaid tax. Chapter 13 can also be used to remove a junior lien against your home or other property, or reduce the value of the lien, and remove judgment liens, in certain circumstances.
Chapter 11 is generally a reorganization bankruptcy for businesses, including corporations, limited liability companies, and limited partnerships, although individuals can also file Chapter 11. In Chapter 11, the business keeps its property and continues its business operations; obtains an immediate stay of most creditor collection actions, including foreclosures, repossessions, wage garnishments, bank levies; and lawsuits; and works to formulate a plan providing for the payment of creditors over a certain period of time, often over several years. There is no set limit on how long the repayment period can be, and it depends on the circumstances of each case. The amount paid to creditors is determined on a case by case basis, but in many cases is only a percentage of the amount claimed. Even if all creditors do not approve of the plan, a business can force a creditor to accept the proposed terms if certain requirements are satisfied. Among other things, Chapter 11 can help a business catch up on rent payments or mortgage arrears; avoid evictions; get out of a bad lease; remove certain liens or reduce the amount of the liens; reduce interest rates on loans to a more manageable rate; pay unpaid taxes over a period of several years; stop costly litigation; restructure other obligations; and resolve disputed creditor claims.
In a chapter 7, a bankruptcy trustee is charged with assessing whether you have any non-exempt assets that can be sold for the benefit of your creditors. In most cases, there are no non-exempt assets for the trustee to sell because the debtor can keep most property by exempting it, including their homes, cars, household goods, clothing, jewelry, retirement, and other property, up to certain allowed amounts. In California, the bankruptcy exemption amounts are more generous to debtors than many other states. The homestead amount in California can cover $75,000 to $175,000 of equity in your home, depending on your marital status, age, income, any disability, and other factors. If you don’t need to protect any equity in your home, you could instead take advantage of an alternative set of exemptions in California that includes a “wildcard” exemption, which currently allows you to protect property up to the amount of $30,825, in addition to any other exemptions that apply to the specific property. For example, if your car has $12,000 equity (car value minus loan amount), you could apply California’s car exemption, currently amounting to $5,850, and then apply $6,150 of the wildcard amount to cover the balance of equity in your car. You can also apply the wildcard to cash you are holding or funds you have deposited in bank accounts.
There are many things to consider when assessing what exemptions to claim and whether you qualify for the exemption. It is important that you discuss with your bankruptcy attorney how best to apply the exemptions available to you to protect your property.
While a bankruptcy filing could stay on your credit report for 7 to 10 years, in most cases, you will receive credit offers shortly after filing bankruptcy. While you can begin rebuilding your credit shortly after filing, it is important that you carefully review the terms of any credit offers to ensure they are right for you, as some may include higher than usual interest rates or require a deposit or other collateral to secure the credit. We help our clients resolve any credit report discrepancies to ensure the report reflects the discharge of debts in their bankruptcy.
Regardless of who you hire as your bankruptcy attorney, there is a court filing fee that must be paid at the time of the filing. The filing fee is $335 for Chapter 7; $310 for Chapter 13; and $1,717 for Chapter 11. Your attorney does not receive any portion of these fees. For the attorney fee, the fee for chapter 7 is generally less than the fee for Chapter 13, and the fee for Chapter 11 is generally the highest.
The Law Offices of J. Luke Hendrix offers free consultations to discuss the circumstances of your case and determine how best to help you. Our fees are competitive with other law firms, but with us, attorney J. Luke Hendrix handles all aspects of your case, including preparing all filing documents and appearing at all required meetings and hearings. Mr. Hendrix is also available for as many phone and office meetings as are needed to help your case succeed. Hiring a bankruptcy attorney is a highly individual decision. It is important that you feel comfortable with your attorney and have good communication with your attorney to ensure you are well represented throughout the entire bankruptcy process.
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We are a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code.
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J. Luke Hendrix is a bankruptcy attorney.