While making the decision to file bankruptcy is never easy, it is important that you understand what personal bankruptcy is and how it works in order to determine if it is the right option for you.
Understanding the law
The Judicial Branch of California describes bankruptcy as follows:
"Bankruptcy is a legal process to help debtors (people who owe money) get relief from the debts they cannot pay and, at the same time, help creditors (people who are owed money) get paid from whatever property or assets the debtor has that he or she does not need to live."
In effect, bankruptcy is designed to give debtors who cannot meet their financial obligations a fresh start.
Not all bankruptcy is the same
For most debtors, there are two types of bankruptcy available. The first, and most popular, is Chapter 7. Under a Chapter 7 bankruptcy filing, the debtor who can meet the means test is allowed to have most of their debt erased in the bankruptcy allowing them to start over with a clean slate. Like most bankruptcy proceedings, there are debts that cannot be eliminated such as student loans, back child support and most taxes. Debtors who own a home are able to keep their home in most cases as long as they are able to meet their mortgage obligations.
In some cases, debtors may be asked to reaffirm debts, meaning they take responsibility for paying back those debts. Except in very rare cases, your bankruptcy attorney may recommend you do not affirm debts unless it is your home mortgage or a car loan.
When debtors cannot meet the requirements of the Chapter 7 means test, they may still be able to file a Chapter 13 bankruptcy. This type of filing is typically called "wage-earners bankruptcy" and will allow most debtors to reorganize their debt and pay it back over a period of three to five years. Once the bankruptcy is discharged, you get a new lease on your financial life.
Which Chapter of the Bankruptcy Code should I use?
The answer to this question is not the same for everyone. Debtors who have very high credit card balances and can meet the Chapter 7 requirements are typically encouraged to file Chapter 7 bankruptcy as it wipes out all of the credit card debt. It is important to know however, that there may be a "look back" period and some of that debt may be excluded from your bankruptcy filing depending on how the trustee of your bankruptcy looks at the debt. For instance, if you purchase a large screen television on a credit card and file bankruptcy two weeks later it could cause you problems.
If you are buried in debt and unable to meet your financial obligations, contact the Law Offices of James C. Shields for help. We can work with you and help you determine what your best course of action may be for filing bankruptcy.