Life is stressful when you are struggling under the weight of debt, trying to keep up with bills for your mortgage, utilities, credit cards, and other expenses. Even when you lower your budget to extreme levels, you may only be able to afford the monthly minimums. Soon, late fees and interest add up, and your money goes toward these amounts rather than what you owe. When debt has spiraled out of control, it may be time to consider filing for bankruptcy in California.
There are two types of bankruptcy for most individual filers, and both allow you to discharge qualifying debt at the end of the process. Chapter 7 will eliminate debt, while Chapter 13 involves a debt repayment plan. If one of your key concerns with the process is how long it will take to file bankruptcy in CA, the distinction between these two cases is crucial.
It is not possible to give you an exact date on bankruptcy proceedings, though you can get an estimate when you review the basics about Chapter 7 and Chapter 13. A California bankruptcy lawyer will explain details and handle the legal requirements, but background is useful for understanding timing.
Overview of Chapter 7 and Chapter 13 Bankruptcy in California
The timing of a bankruptcy case will depend upon the type, but it is not the only consideration. You must also consider eligibility and your assets when looking at options.
- In a Chapter 7 case, you discharge debt and will owe creditors nothing at the conclusion of the process. However, there is a possibility that your assets will be sold to pay some of the amount you owe. With legal help, you can protect a significant amount of your real estate and personal property through exemptions. Much of the bankruptcy case is assessing your eligibility, and then determining whether you have assets that can be liquidated into cash for creditors.
- With Chapter 13 bankruptcy, you work out a debt repayment plan to discharge debts. Instead of your assets being sold to satisfy debt, you will pay creditors a percentage of what you owe. The amount is based upon your income, and you pay monthly. After the initial proceedings and finalizing the plan, Chapter 13 debt repayment will take at least three to five years depending on your case.
Stages of a Chapter 7 Case
The initial steps in these cases are actually preparations you take before filing, and one is the requirement to take a credit counseling course within 180 days prior. You will also need to gather and organize a massive amount of paperwork because an important part of Chapter 7 is proving eligibility. You qualify if your income is at or below the state median income for California. You may also be eligible if you meet the Means Test, which measures your disposable income after paying your mortgage and high-priority, monthly expenses.
After initial preparations are complete, you can move on to the next stages for Chapter 7:
- File the Chapter 7 bankruptcy petition, with schedules.
- The bankruptcy trustee is appointed and the automatic stay on creditor action goes into effect.
- Within 21 to 40 days after you file the petition, the meeting of creditors is held. During this session, you will answer questions and provide details to confirm the information from your petition.
- The bankruptcy trustee will liquidate any nonexempt property and pay creditors, but only if selling is productive and will return a decent profit.
- Approximately 75 days after the meeting of creditors, the bankruptcy court issues a discharge order.
Chapter 13 Bankruptcy in California Proceedings
You will also take steps to prepare before filing when you opt for Chapter 13, and there is still the requirement to take a credit counseling course within 180 days prior. Collecting and organizing your financial documents is also necessary. You need to prove eligibility, which is that you have a steady income that enables you to pay a monthly amount. Therefore, your paperwork is also important for developing the debt repayment plan. Some of the steps in Chapter 13 are similar to Chapter 7, so you will:
- File the Chapter 13 petition and schedules, along with your proposed debt repayment plan. If you did not complete the plan before filing, you have 14 days.
- The court appoints the bankruptcy trustee and imposes the automatic stay.
- You begin paying your monthly amount within 30 days, even though the debt repayment plan may not be approved.
- The meeting of creditors takes place to assess your proposed plan and allow creditors to object to it. You will be allowed to settle and modify.
- The court approves your debt repayment plan at a confirmation hearing.
- You pay your monthly amount for three to five years, at which point the court issues a discharge order.
What You Can Discharge in Bankruptcy
The rules of the US Bankruptcy Code are complicated, but you can eliminate most types of unsecured debt through Chapter 7 or Chapter 13. Unsecured debt is amounts you borrowed or bills you owe which do not have collateral to support the debt. Secured debt is a loan in which the lender takes a security interest in an asset to ensure payment, and the bank can always sell the asset to recoup your debt.
At the conclusion of a Chapter 7 or Chapter 13 case, you may be able to discharge the following types of unsecured debt:
- Credit cards;
- Personal loans and lines of credit;
- Payday loans;
- Medical bills;
- Judgments from lawsuits, unless the underlying case was based on fraud;
- Obligations under leases and contracts.
There are also many types of debt that you cannot eliminate, at times because of public policy. For instance, you are barred from discharging amounts you owe for child support, alimony, or fines and fees related to a court case. You also cannot wipe out the judgment for a car accident case when your drunk driving caused death or injury to a victim.
Benefits of Addressing Debt Through Bankruptcy in California
One of the most favorable advantages for Chapter 7 and Chapter 13 is the automatic stay on creditor efforts to collect, which means the harassment, threats, and phone calls end. The automatic stay also ceases any debt collection lawsuits, wage garnishments, foreclosure proceedings, and repossession of your car. Secured loans do not go away, but actions by the bank could be halted while your case is pending.
The other benefits of bankruptcy will become evidence after your case is over, as you emerge debt-free. Even with secured debts and debts you cannot discharge, much of the financial burden has been lifted. You have more disposable income to pay your mortgage, monthly bills, utilities, and undischarged debts. Plus, you have gained significant knowledge about credit, getting into debt, and smart budgeting through the required credit counseling courses. You have tools that you may not have had access to before bankruptcy, helping you make wise fiscal choices.
Building Credit After Bankruptcy in California
Despite the benefits of Chapter 7 and Chapter 13, some people focus on the harm to their credit when considering bankruptcy. Your credit score will drop, and the case stays on your record for 10 years with Chapter 7 and 7 years with Chapter 13. However, this does not mean you should sit around for 7 to 10 years waiting for the removal of your case. You can be rebuilding your credit during this time, putting you in on excellent fiscal footing when the matter is no longer on your credit report. Some tips include:
- Look into options for a secured credit card or line of credit, where your responsible management of the loan and on-time payments are reported to the credit bureaus.
- Continue to maintain a solid track record of on-time, in-full payments on your mortgage.
- In time, you may receive credit card offers aimed at people who recently finalized bankruptcy. They have high-interest rates, but lessons from credit counseling tell you to not allow the balance to carry over anyway. A track record of payments will be reflected on your credit report.
Legal Help for a Smooth Process
This information is useful, but it should also convince you that retaining a California bankruptcy lawyer is critical. Initially, you need advice on whether Chapter 7 or Chapter 13 would be the right fit for your situation. Eligibility is a factor, but consider the risk that you could lose nonexempt assets. Once you decide on the option that suits your needs, your attorney will help with:
- Reviewing your financial documentation;
- Developing the proposed debt repayment plan for Chapter 13, with your input;
- Preparing the bankruptcy petition and schedules that are relevant to your case;
- Filing your petition, along with the filing fees of $338 for Chapter 7 and $313 for Chapter 13;
- Attending the creditor’s meeting;
- Identifying and applying all possible exemptions to protect your property from Chapter 7 liquidation;
- Attending the Chapter 13 confirmation hearing, in which the court approves your debt repayment plan; and,
- Helping with all details related to your bankruptcy discharge.
Set Up a Consultation with a California Bankruptcy Lawyer Today
It may take some time to file bankruptcy in CA, but the process is worth it when debt has taken over. Bankruptcy in California is a momentous decision that could change your life for the better and give you a fresh financial start. Therefore, when choosing Chapter 7 or Chapter 13 for your situation, it is important to retain skilled representation. Our team at Kostopoulos Bankruptcy Law is ready to advise you on bankruptcy options, and we will assist with all essential tasks. Please contact us right away to schedule a consultation at our offices in Oakland or Riverside, CA.
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