There is a good deal of misinformation concerning bankruptcy. People hear different myths and bits of incorrect facts about bankruptcy from friends, family members, and co-workers. Unfortunately, over the years, many of these misconceptions have wormed their way into the public consciousness. One question that has come up lately regards the average monthly payment required when some files for Chapter 7 bankruptcy. The good news is that there is no monthly payment needed in Chapter 7. Only Chapter 13 debtors are required to make monthly payments to a trustee. However, that does not mean that Chapter 7 does not have disadvantages or is for everyone. Below, our Roseville bankruptcy attorney from The Bankruptcy Group discusses Chapter 7 in California.
Chapter 7 Bankruptcy in California
Chapter 7 is intended to give those individuals facing overwhelming financial hardships and debt a fresh start. By allowing a debtor to eliminate, or discharge, most of their debt, Chapter 7 is usually a significant step towards securing a better financial future. However, one of the things they say about Chapter 7 is true – you could lose your property. While you will not be required to make monthly payments to satisfy your creditors, a court-appointed trustee could take possession of some of your assets, sell them, and disburse the proceeds to your creditors.
Luckily, most debtors in California will be able to protect their property through state exemptions. Most exemptions apply to specific assets, such as the equity in your home or business-related tools and equipment. However, there is a wildcard exemption that could be used for any property. Our Sacramento Chapter 7 bankruptcy attorney will thoroughly review your assets to determine if you have any non-exempt property. In cases where there is significant non-exempt property, our office will likely recommend filing for Chapter 13 instead.
Advantages to Filing Chapter 7 in California in Addition to No Monthly Payment
The primary advantage of filing for Chapter 7 is eliminating most of your debt within five or six months. The majority of unsecured debt, such as medical bills, credit card debt, personal loans, utility bills, and some taxes, is dischargeable. Another significant plus is that when your debt is eliminated through bankruptcy, there are no tax consequences. If you settled directly with your creditors, paying less than what you owe in full satisfaction of your debt, any forgiven amounts would have to be reported as income on your federal tax returns.
You could also discharge secured debt, such as your mortgage or car loan. However, to do that, you would have to give up the property. In some situations, getting out of an unmanageable mortgage payment or car loan is just what a debtor needs to achieve financial stability.
If you want to keep your car or home, you are permitted to reaffirm the secured debt. If you voluntarily sign a “reaffirmation agreement,” you are letting the bankruptcy court and your creditor know that you intend to keep and continue paying the secured debt. In some cases, this agreement must be approved by the court. You also must be current on your payments.
When you file for any chapter of bankruptcy, an automatic stay goes into immediate effect. This legal injunction prohibits your creditors from taking any action to collect their debt, including calling you, sending letters, automatically withdrawing funds from your bank account, garnishing your wages, and filing or pursuing a lawsuit against you. Filing for bankruptcy will not only eliminate your debts, it will give you some breathing room to move forward.
There is no minimum amount of debt necessary to file for Chapter 7. However, our California bankruptcy lawyer will stress that, while bankruptcy is a powerful tool, a debtor should carefully consider their options before filing.
Disadvantages to Chapter 7 Bankruptcy in California
While you will not be required to pay a monthly trustee payment in Chapter 7, there are certain disadvantages. First, it is not available to every person. You have to qualify through what is known as the “means test.” Our Arden-Arcade Chapter 7 attorney will compare your last six months of household income with the median income in your area. If your income is too high, you are not able to file for Chapter 7. Fortunately, many people who do not think they qualify will do so once all their expenses and allowed deductions are calculated.
Another issue with Chapter 7 is that some debt cannot be discharged. There are specific debts that will survive your bankruptcy. For example, you will not be able to eliminate most taxes, child or spousal support, criminal restitution, and, except under very rare circumstances, student loan debt. Our Citrus Heights chapter 7 bankruptcy attorney will review all your debt with you before you file.
As stated above, if you have non-exempt property, the trustee will sell it to pay your creditors. However, in most cases, our California bankruptcy attorney could avoid this issue.
If you have any co-signers on your debt, such as your spouse, parent, or another individual, their obligation under the contract terms will not be discharged. You will no longer be obligated to pay the debt, but they will.
Call Our California Bankruptcy Attorney to Discuss The Benefits of Filing for Chapter 7
Filing for Chapter 7 has its advantages and disadvantages. One thing a debtor filing for Chapter 7 does not have to worry about is a monthly payment. Our experienced Rancho Cordova chapter 7 bankruptcy attorney understands that anyone considering bankruptcy has many questions and concerns. Our attorneys and staff at The Bankruptcy Group are here to provide you answers, guidance, and advice. Bankruptcy is not for everyone, but for many people, it is the best option. To schedule a free consultation and to review your situation, call 800-920-5351.