Millions of people in the United States are struggling with debt and wondering what they can do to dig themselves out of the financial hole they have found themselves in. Unfortunately, the stigma attached to bankruptcy keeps many debtors from pursuing one of the best options for relieving overwhelming debt for good – bankruptcy. Chapter 7 bankruptcy is a great debt-relief option for debtors who have more debt than they can afford to pay back, given their income and expenses. With Chapter 7 bankruptcy, you can erase most or all of your dischargeable debts, including medical debt and credit card debt, while still protecting the property that is important to you. If you are considering filing for bankruptcy in Los Angeles, the best way to find out if Chapter 7 bankruptcy is right for you, is to consult a skilled bankruptcy lawyer with experience handling Chapter 7 bankruptcy cases in Los Angeles.
Rising Consumer Debt in the United States
Debt is a major problem in the United States. During the first three months of 2020, household debt in the U.S. hit a new record of $14.3 trillion, and statistics show that 80% of Americans are currently strapped with consumer debt. Most Americans have a combination of sources of debt, including debt from credit cards, mortgages, car loans, personal loans, medical bills and student loans, and for many people, paying for the things they need (and want) simply means taking on debt. The average American currently has about $38,000 in personal debt, excluding mortgage debt, and debt from medical bills is reported as being the number one cause of personal bankruptcy filings in the United States. Unfortunately, when it comes to debt, the state of California is no exception, with its high cost of living and exorbitant home prices. “California is one of the states with the highest cost of living,” notes a recent study of the worst financial fears and stress among Americans, “so it makes sense that 26 percent of those who live there said everyday costs of living are their biggest financial stress.” Fortunately, those struggling with significant financial problems in California have the option of eliminating their debt through Chapter 7 bankruptcy.
Understanding Chapter 7 Bankruptcy
Many people think of bankruptcy as financial failure, when in reality, filing for bankruptcy is the first step towards achieving financial freedom for so many people. If you are struggling with overwhelming debt that you cannot afford to repay, what sense does it make to continue floundering, barely making payments or not making payments at all? Chapter 7 bankruptcy is a powerful bankruptcy tool because it allows debtors to discharge many, if not all, of their unsecured debts, such as medical debt and credit card debt, and get a fresh financial start. In Chapter 7 bankruptcy, also known as liquidation bankruptcy, the bankruptcy trustee overseeing your case will sell your non-exempt assets to pay back your creditors and whatever unsecured debt is leftover after this process will be discharged, or eliminated.
What are the Benefits of Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is more common than you might think and there are several reasons for that. The following are some benefits of seeking bankruptcy protection under Chapter 7, compared to some other debt-relief options you may be considering.
Benefit #1. You can discharge your unsecured debts
The two types of debts that come into play in bankruptcy are secured debts, or debts tied to a specific piece of property, and unsecured debts, or debts that are not tied to a specific piece of property. Secured debts include mortgage and auto loans while unsecured debts include credit card debt, personal loans and medical bills. Only unsecured debts are eliminated in a Chapter 7 bankruptcy filing, so if you are falling behind on your mortgage or car payments, filing for bankruptcy under Chapter 7 will not wipe those out for you, unless you are willing to surrender the asset. Getting rid of your unsecured debts, however, can make it easier for you to manage payments for your secured debts.
Benefit #2. You get the protection of the automatic stay
Thanks to the automatic stay that goes along with both Chapter 7 and Chapter 13 bankruptcy, filing for bankruptcy can put an immediate stop to creditor harassment, foreclosure proceedings, repossession, debt collection lawsuits, wage garnishment and other stressful collection actions. The moment you file the bankruptcy petition with the court, you get the protection of the automatic stay, which makes it illegal for creditors or debt collection agencies to contact you in an attempt to collect payment from you.
Benefit #3. The process only takes a few months
Compared to other types of bankruptcy, which can drag on for years, the entire Chapter 7 bankruptcy process generally only takes about three to four months.
Benefit #4. You can rebuild your credit quickly
You might assume that having your debts discharged in Chapter 7 bankruptcy will ruin your credit score. It is true that bankruptcy will dramatically affect your credit score, but so will continuing to miss payments. Once you file for bankruptcy and wipe out your unsecured debts, you can start to rebuild your credit, being sure to avoid any mistakes you may have made the first time around. With just a little bit of effort, your credit score will rebound quickly, and you will eventually be able to purchase a car or home.
Who Qualifies for Chapter 7 Bankruptcy?
The first step in seeking bankruptcy protection under Chapter 7 of the Bankruptcy Code is passing the bankruptcy means test. Not everyone is eligible for Chapter 7 bankruptcy in Los Angeles, and the means test is the deciding factor. The purpose of the means test is to determine whether you have disposable income to put towards paying off your debt, taking into account your average monthly income for the past six months. Most people considering Chapter 7 bankruptcy are able to pass the means test easily, either during the median income stage or the disposable income stage. If you do not pass the means test, meaning you have “too much” income, you may not qualify for Chapter 7 bankruptcy, in which case a Chapter 13 repayment plan may be more suitable for you.
The Chapter 7 Bankruptcy Process in Los Angeles
If you pass the means test, meaning you are not able to repay your unsecured debts to your creditors, you can file under Chapter 7. In filing for Chapter 7 bankruptcy, you agree to give a bankruptcy trustee temporary oversight over your assets and the trustee is tasked with reviewing your assets to determine whether there is any non-exempt property that can be sold to repay your creditors. The trustee will sell any non-exempt assets and use the proceeds to pay your unsecured creditors and at the end of the bankruptcy process, your remaining unsecured debts will be discharged.
What Will I Lose in Chapter 7 Bankruptcy?
One of the main reasons people are afraid of bankruptcy is because they are worried they will lose everything they own if they decide to file. Keep in mind that Chapter 7 bankruptcy is designed to help debtors get a fresh start and take control of their financial well-being, not make their lives more difficult. That is why only non-exempt property is surrendered in Chapter 7 bankruptcy, while exempt property, or any property that the bankruptcy trustee cannot sell to repay creditors, is protected. In the majority of cases, debtors are able to keep all of their property in Chapter 7 bankruptcy, thanks to the flexibility of California’s bankruptcy exemptions, which allows debtors to choose from two different exemption systems.
California debtors may be able to claim several different exemptions, possibly including the Homestead Exemption, which protects more equity in a debtor’s home, and the Wildcard Exemption, which includes a substantial exemption for miscellaneous personal property. The purpose of the California bankruptcy exemptions is to leave the debtor with some property at the end of the bankruptcy process and these exemption laws determine what property you are permitted to keep after your bankruptcy. Determining which set of exemptions benefits you the most in your Chapter 7 bankruptcy filing depends on your specific situation, which is one of the reasons we recommend consulting a reputable Los Angeles bankruptcy attorney.
What Happens After Bankruptcy?
If you have successfully discharged your debts through a Chapter 7 bankruptcy in Los Angeles, congratulations. Most people feel a sense of relief knowing that they have eliminated their credit card debt, medical debt and personal loans, along with any other dischargeable debts they were carrying. There is no denying the fact that filing for bankruptcy makes you reevaluate your spending habits and financial well-being, and people who file Chapter 7 bankruptcy typically buckle down and get more serious about saving, budgeting their money and rebuilding their credit.
Keep in mind that a Chapter 7 bankruptcy will remain on your credit report for a maximum of 10 years after your filing date, which may seem like a constant reminder of your bad decisions. However, the impact of the bankruptcy on your credit score decreases with each year that passes, so if you continue to make good financial decisions post-bankruptcy, you can stay out of debt and on the track to better credit. After 10 years, the bankruptcy filing will come off your credit report and you will be free and clear.
One of the most important adjustments you can make after bankruptcy is to acknowledge and avoid any mistakes you made in the past that led you to file for bankruptcy in the first place. Credit is an important and often necessary part of life, but you can easily end up with another heavy debt load if you aren’t careful about monitoring your charges and making your payments on time. If you think of bankruptcy as a do-over and make an effort to practice good financial habits moving forward, you can rebuild your credit and make it even stronger than it was before.
How a Knowledgeable Bankruptcy Lawyer Can Help
It is possible to file for bankruptcy without the help of a lawyer, but that is not the recommended course of action. Bankruptcy can be a complicated, confusing process and it can be extremely difficult to navigate successfully without the expertise of a trained bankruptcy attorney helping you make the right choices based on your individual circumstances. Our qualified lawyers at ibankruptcyattorneys.com can help you decide if bankruptcy is the right debt-relief solution for you, taking into account your debts, assets, income, expenses and other relevant factors. If you and your lawyer agree that bankruptcy is the best way to manage your debt, the next step is determining whether you are eligible for Chapter 7 bankruptcy, or if you are restricted to filing under Chapter 13. The bankruptcy process can be complicated and when it comes to getting your financial documentation in order and filing for bankruptcy, a simple error can cause your case to be thrown out, in which case you would have to deal with your creditors on your own. A good Los Angeles bankruptcy lawyer can help you protect the property that is important to you and make sure that you get the most out of your discharge so you can get a fresh start.
Consult Our Chapter 7 Bankruptcy Lawyers Right Away
For some people, debt is a minor inconvenience that they seldom worry about, but for other people, debt is a life-changing issue that affects them every single day. It is easy to feel trapped by outstanding debts and not know where to turn for help. The good news is, you have options for relieving your debt, including Chapter 7 bankruptcy, which can eliminate your debt in a matter of months. Still, filing for bankruptcy is a major life decision, one that should not be taken lightly. If you think bankruptcy may be the right debt-relief solution for you, consult our Los Angeles bankruptcy lawyers at ibankruptcyattorneys.com right away. Our legal team has extensive experience handling Chapter 7 and Chapter 13 bankruptcy cases in Los Angeles and the surrounding area, and we can help you weigh the pros and cons of your bankruptcy options and figure out how to take control of your financial life.