Bankruptcy in California
As the nation reels through the recession that won't go away, millions of Americans, many right here in California, are facing - or will be facing - their own personal debt crisis -- even bankruptcy. Invariably, the most desperate among them begin thinking about bankruptcy. If you're leaning in that direction, you'll want to have a better understanding of bankruptcy laws and how Chapter 7 (straight bankruptcy) and Chapter 13 are providing a new lease on life for many Californians who see no other way out of financial hardships. California businesses in financial stress go a different route, typically turning to Chapter 11 to reorganize.
Regardless of which Chapter you may be investigating, it pays to be cautious. While bankruptcy is a viable method for some, it's wise to consider all its implications and equally wise to consider other alternatives. Bankruptcy does help provide relief from debt collectors and collection agencies, but it's a serious decision that has a long-term impact on personal finances and personal credit.
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As personal debt grows to a point where it becomes un-controllable, the idea of bankruptcy becomes a front-of-mind concept for many seeking debt relief solutions. And while the word "bankruptcy" can leave a sour taste in the mouth of some or even add unwanted "baggage" to the emotions of others, it really shouldn't. The fact remains that in California and as a nation, we are facing a situation nearly unprecedented in size and scope. And in a country where many are facing job loss, disability, medical bills or other financial straight-jackets, bankruptcy should be viewed as a logical means to an end.
It's important to mention that there's a variety of ways to get out of debt, noting that bankruptcy is only one of several alternatives. There's debt management, credit counseling, debt consolidation, and for others who qualify - debt settlement. Depending on your circumstances, debt relief can be used to help reduce interest rates, get late fees and penalties waived, consolidate debts, get payments reduced, and even facilitate the settling of debt for substantially less than what's owed.
To review your debt relief options, simply answer a few online questions and get at no obligation, a free debt relief analysis along with your free savings estimate.
How Bankruptcy Works
Bankruptcy is a debt-discharge process with legal and judicial enforcement in California and nationwide, and it is intended for those simply unable to meet his or her financial obligations. It provides a clean slate and most importantly a fresh financial start for those who cannot go any other route. As pointed out above, it does make sense to seek information on the alternatives that do exist, as bankruptcy is not without its "issues." What bankruptcy can do is to stop the nuisance of relentless debt collectors calling - some at all hours of the day and night, until such time that debts can be sorted out in accordance with bankruptcy law and court rulings. Bankruptcy can also eliminate the financial obligation to pay the lion's share or even all of an individual's debt. It can also provide an effective stop-measure against foreclosure proceedings, giving the debtor time to get back in the driver's seat things on his or her regular mortgage payments. Going bankrupt can also halt automobile repossessions, stop wage garnishments and even put an end to additional and hurtful collection activities. Filing a Chapter 7 or 13 Bankruptcy can even prevent utilities from cutting off services or forcing them to turn services back on. Bankruptcy certainly has its place.
Whether you live in California or another part of the country, bankruptcy is not a universal panacea for all debtors seeking relief. Certain things are not typically insulated from bankruptcy proceedings. Among them: child support, alimony, divorce payments, and government provided student loans. Co-signers to loans will not receive the protection afforded persons filing for bankruptcy. They will still be obligated to the original terms of the agreement/contract/loan, or other.
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Types of California Bankruptcy
Three main types make up the U.S. Bankruptcy codes here in California and nationwide: Chapter's 7, 11, and 13.
Chapter 7, also known as "straight bankruptcy" or liquidation. It's a form of bankruptcy requiring the relinquishment of property owned by the bankruptcy petitioner not covered by "exemptions." Such property is generally sold to pay off creditors.
California, similar to other states, offers exemptions to bankruptcy filers. Exemptions essentially shield or protect certain assets or property from creditors. The list is detailed and specific and it's suggested for those pursuing bankruptcy to consult with a legal expert such as a California bankruptcy attorney or lawyer for all particulars.
When filing bankruptcy, the basic list of items exempted consists of the following:
Principal residences, including mobile homes, houseboats and outbuildings on the same property, household goods, appliances, clothes and personal items, tools of the trade including professional books. jewelry, heirlooms, and works of art, workers compensation benefits, personal injury payments after judgment or settlement.
Monetary exemptions for homestead are $50,000 if single, double when married. $75,000 for families, and $125,000 for those over and 55 years and single, earning less than $15,000. Persons 65 years of age and up enjoy exemptions of $125,000 with no other qualifications.
California has opted out of Federal bankruptcy exemptions, instead creating what's referred to as a two tiered "scheme" system. Each has unique and substantive differences, again complicating the list of choices and making legal advice a functional, practical necessity.
Chapter 11 bankruptcy differs from Chapter 7 in some notable ways, with the overarching difference in that filers of Chapter 11 will not get their debts "discharged" but "reorganized," providing temporary relief and giving the debtor an opportunity to pay back the debt over time. Chapter 11 is typically used by businesses and some individual debtors with large accumulations of debt. Chapter 11 also allows business owners to maintain control of their business during the bankruptcy process and to keep certain assets while a court-appointed trustee monitors the business with specific oversight responsibilities.
Chapter 13 bankruptcy, commonly referred to as "debt adjustment" offers legal relief from debts and creditors while the debtor obligates his or her self to the filing of a formal plan to pay all or a fraction of debts, from present income.
For a review of debt relief options and alternatives to bankruptcy, get a free debt relief analysis and free savings estimate. Simply answer a few questions online.
Qualifying for Bankruptcy in California
On October 17, 2005, new legislation was passed into law, the most sweeping bankruptcy legislation written since bankruptcy protections were created. The new laws created what's commonly known as the "means test."
In order to file Chapter 7 in the State of California, persons must prove that the household incomes fall below the median amount for an equivalent person/family household. The means test is a complex calculation and is applied on a county-by-county basis. So please check to see where you may fall. Minimum thresholds will change over time, and while the threshold amounts vary throughout the state based on county of residence, as of 2010, a median statewide one wage earner and two person-household could "pass" the means test with a household income of $61, 694 or less. A four person household would "pass" with a household income of $77,596. Some individuals are excluded from meeting means tests minimums. Included in that are disabled veterans, active duty military personnel and business debtors.
For individuals able to qualify under the means test, earning less than the minimum threshold amount for their particular California county and household size, it's advisable to work with an attorney or legal representative and to begin that process by filing a statement of financial affairs with the court. The statement should include a list of all debts, secured and unsecured, along with all personal property and assets.
Persons who for any reason fail to qualify for Chapter 7 bankruptcy can seek protections under Chapter 13 - typically by paying-back at least a portion of their debt, usually over a five-year period.
Chapter 11 bankruptcy, as mentioned earlier, is used by businesses - a corporation, partnership, or limited liability company. Each business filing must include an asset and liability report, typically entering a contractual arrangement with creditors and lenders which will allow the business to function "normally," continuing operations until a firm footing can be reached, utilizing more favorable terms to help make that happen.
The bottom line is that by using Chapter 11, a business can learn to better manage its debt while enduring a difficult period and working through the survival stages, heading hopefully onto more solid ground of continued and sustained operations.
Regardless of the California bankruptcy option, it should be stated categorically that ANY decision to use bankruptcy is a serious one, with protections, benefits and long-lasting impact on personal finances and credit. As a result, many choose to enlist the help of a bankruptcy attorney or lawyer or other expert help to review all their debt relief options before proceeding and determining the most prudent option, whether the entity applying for bankruptcy is person or a business.
For a review of debt relief alternatives to bankruptcy in California and to get a free debt relief analysis along with a savings estimate, simply answer a few questions online.