It is not unusual for people to associate bankruptcy with living paycheck-to-paycheck. However, many professionals and business owners also find it necessary to file for bankruptcy. The reasons why someone needs a financial fresh start are as various as the types of people in Sacramento.
Because most individuals do not discuss their financial difficulties publicly, bankruptcy is rarely a topic of conversation. Because of this, there are many misconceptions regarding bankruptcy. The best way to dispel any myths is to consult with our Sacramento bankruptcy attorneys.
The attorneys and staff at The Bankruptcy Group are dedicated to helping individuals, couples, and families through their economic difficulties. With the assistance of our knowledgeable lawyers, you could be taking the first steps to ensure your financial future. Call our law offices at 1-800-920-5351 to schedule a free and confidential appointment.
Types of Bankruptcies in Sacramento, California
Under federal law, there are six types of bankruptcies – Chapters 7, 9, 11, 12, 13, and 15. However, the majority of bankruptcies filed in Sacramento, and the country, are either Chapter 7 or Chapter 13. The other four chapters make up approximately 1% of the bankruptcies filed.
Chapter 7 Bankruptcy in Sacramento
Chapter 7 bankruptcy is often called a straight or liquidation bankruptcy. A filer is able to discharge most of their unsecured debts, such as credit cards and outstanding medical bills. However, they might be required to sell, or liquidate, some of their assets to pay a portion of their creditors. It is also the fastest and simplest of all types of bankruptcies. It is not for everyone – you must be eligible to file.
Qualifying for Chapter 7 requires passing a means test. The means test calculates your average monthly income over two parts. For the first part of the test, our Sacramento bankruptcy attorney will gather proof of your household income for the previous six months. Household income includes wages, bonuses, unemployment, contributions, tax refunds, and other types of income. Social security retirement or disability benefits are not factored into the means test. If your annual income is less than Sacramento’s median income, you have passed the means test.
Part two of the test only comes into play if your household income is higher than the median. You still have a chance to qualify for Chapter 7. The next step looks at your allowable expenses and deductions, including taxes, food, rent, mortgage, healthcare, clothing, and other allowed monthly costs. These expenses are subtracted from your household income. The remainder is called your “disposable income” and is available to pay your creditors. If this number is low enough, or a negative, you qualify for Chapter 7.
After the means test, our office will examine your assets. As stated above, debtors could be required to sell their assets to pay their creditors. If you file for bankruptcy, all your property, including your car, home, bank accounts, and personal property, goes into the “bankruptcy estate.” All non-exempt property in the bankruptcy estate is available to be sold by a court-appointed trustee.
The key word is “non-exempt.” California has two systems of exemptions that allow debtors to protect and keep their property. The exemptions that are best for you depend on the type of property you own. In most cases, Chapter 7 filers hold onto their assets. However, if you have non-exempt property, you have the option of allowing it to be sold or filing for Chapter 13.
Chapter 13 Bankruptcy in Sacramento
A filer reorganizes their debt through Chapter 13. When you file for Chapter 13, you will submit a repayment plan to the court to pay your creditors over three or five years. You are not required to sell any property. To file a Chapter 13 bankruptcy, you need a regular income that is sufficient to pay your ordinary monthly expenses and your Chapter 13 plan payment.
The amount you have to pay each month depends on your income, assets, and the type of debt. If you file for bankruptcy because you are behind on your mortgage payment, you will have to pay the total arrearage through your plan. Debtors who would otherwise qualify for Chapter 7 could still discharge their unsecured debt.
Another difference between Chapter 13 and Chapter 7 is the amount of debt a person is permitted to have. There is no debt limit for people filing a Chapter 7 bankruptcy. However, a Chapter 13 filer cannot have more than $419,275 unsecured debts and $1,257,850 of secured debts. These limits will increase in April of 2022.
The Bankruptcy Discharge and Sacramento Debtors
When most people file for bankruptcy, they are looking for a discharge. A discharge is a court order that releases the debtor from any legal obligations to pay certain debts. Once entered, creditors and debt collectors must stop all attempts to collect the money you owe. Furthermore, these debts should be reported as discharged on your credit report. One essential thing to remember is that the discharge only eliminates your obligation. If you have a co-signer on a credit card or loan, the lender could still attempt to collect the debt from them.
People have a wide variety of debts. Some of the types that are commonly discharged through bankruptcy include credit cards, medical bills, utility bills, personal loans, and certain taxes.
Unfortunately, not all debts are dischargeable. For example, a Sacramento resident is not permitted to discharge alimony, child support, most taxes, and criminal restitution. It is crucial to review the type of debt you have to ensure filing for bankruptcy is beneficial.
Student loan debt is having a paralyzing effect on many people. Typically, discharging a student loan obligation is difficult and, in many cases, not possible. However, it is not impossible and there are situations when filing a Chapter 13 bankruptcy could alleviate some of the burden. If you are struggling with student loans, speaking with one of our experienced Sacramento bankruptcy attorneys could open a path towards relief.
Our Sacramento Bankruptcy Lawyers Are Here to Help
There are few things as stressful as struggling to pay your monthly bills. When your home is in foreclosure or your car is about to be repossessed, you might not know where to turn. Our Sacramento bankruptcy lawyers are here to help you. Call The Bankruptcy Group at 1-800-920-5351 to discuss your options.