Debt can creep up on you before you realize it, as you find yourself unable to pay bills and falling behind on your mortgage or rent. It becomes a frustrating struggle when you see that your payments are going toward interest and late fees instead of the balance due. Doing the calculations, you may soon discover that your debt will take decades to pay off. It is wise to look into bankruptcy options if you are burdened with debt, but a big factor is how much it costs to file bankruptcy in CA. Every penny counts when you are trying to take control over your financial situation.
Fortunately, the costs to file bankruptcy are reasonable and worth it when you consider the benefits. With both Chapter 7 and Chapter 13 allow you to discharge qualifying debt. The bankruptcy laws aim to pay back your debt to creditors, but the truth is that you might pay nothing or a percentage of what you owe.
If you are reviewing your options for getting control over your debt, it is critical to retain legal representation despite the cost. There are challenges when assessing whether Chapter 7 or Chapter 13 is a better fit, and you will need guidance from a California bankruptcy attorney with the process. Some background can also help you understand how cost impacts your case.
Fees and Costs to File Bankruptcy in California
The US Bankruptcy Code sets the filing fees for Chapter 7 and Chapter 13 petitions, which are $338 and $313 respectively. Some debtors may qualify for a fee waiver, and you may be eligible to pay in installments as your case proceeds. Paying by installments allows you to get your case moving right away, putting the automatic stay on creditor activities into effect. Plus, there are fees for the required credit counseling and debt management courses, which court rules mandate to be less than $50.
Considering the importance of retaining legal counsel, you should be aware of the basic legal fees. Every lawyer handles cases differently, and the details about billing will be fully explained to you before you sign on with representation. Generally, you will pay based upon:
- Flat Fee Agreements: Your attorney quotes an amount for all work to be completed, having considered your circumstances and possible contingencies. When your case is expected to proceed without hassles, a flat fee may be appropriate.
- Hourly Fees: You pay for work based upon an hourly rate, and your bankruptcy lawyer provides detailed time entries showing all tasks. Challenging cases are more likely to be hourly.
With both types of fee arrangements, you will also be responsible for paying expenses. Examples include the filing fee if your lawyer advances it, costs to obtain documents, and mailing expenses.
How Chapter 7 Bankruptcy Works
Chapter 7 cases basically involve three issues:
- Eligibility: Your earnings have to be rather low to qualify for Chapter 7, since this remedy is only intended for individuals who truly need it. You must make less than the state median income level for California OR qualify via the Means Test. Your earnings can be higher under the Means Test, which takes your income and subtracts your mortgage, utilities, and other essential monthly expenses.
- Discharge: Chapter 7 discharges qualifying debt, which usually includes unsecured debt. Secured debt, such as your mortgage and auto loans, are not affected. The creditor can always sell the collateral used as a security interest on the loan.
- Liquidation: The bankruptcy trustee has the power to sell nonexempt assets to pay creditors. In practice, you will likely be allowed to keep your assets because the sale would be inconvenient or not profitable.
With these three issues, there is a lot about the case that a lawyer can predict. Knowing what effort and investment will be required, a flat fee for costs may be ideal.
Steps for Chapter 13 Bankruptcy
Many people do not qualify under the strict income requirements for Chapter 7, while some debtors do not want to lose their possessions in bankruptcy. You might opt for Chapter 13, in which the eligibility criteria is that you must have a steady income to pay a percentage of your debt to creditors. The bankruptcy trustee cannot liquidate assets for Chapter 13.
However, when you realize the steps for a Chapter 13 case, you can see why many bankruptcy attorneys charge an hourly rate. Much of the focus is on developing an appropriate debt repayment plan that you can afford, and which is also acceptable to creditors. They do not have the power to approve your plan, but they can object or make suggestions. These cases proceed as follows:
- File the Chapter 13 bankruptcy petition, schedules, and your proposed debt repayment plan;
- The automatic stay goes into effect and the bankruptcy trustee is appointed;
- You begin paying on the plan within 30 days;
- The creditor’s meeting is held, where creditors will ask questions about your petition and details of the debt repayment plan;
- You manage any objections, settle disputes with creditors, and modify your plan;
- The court will approve your debt repayment plan at a confirmation hearing; and,
- You continue paying under the plan’s terms for three to five years.
With so many variables and the possibility of significant time investment, lawyers protect their efforts by charging an hourly rate.
Bankruptcy Cases and the Automatic Stay
The automatic stay that is imposed in every bankruptcy case gives you immediate relief from debt, a benefit that you will sense right away when creditors stop calling. They are prohibited from engaging in all efforts to collect on a debt, including threatening lawsuits, filing a debt collection case, wage garnishments, and bank levies. Your lender cannot continue with the foreclosure process, though the automatic stay is only a temporary pause. A bank can actually request the court to lift the automatic stay to pursue foreclosure.
As far as benefits after your bankruptcy case is complete, easing the stress, anxiety, and depression of overwhelming debt is priceless. Specifically:
- You are no longer paying your monthly bills, yet watching them continue to increase because of late fees and interests.
- You eliminate qualifying debt entirely. Without the burden of these bills, more of your income can go toward staying current with your mortgage and paying off those debts you could not discharge.
- It is true that Chapter 7 remains a negative mark on your credit report for 10 years, and Chapter 13 will show up for 7 years. However, consider your current situation without bankruptcy and how long it would take you to pay up. It may be much more than 7 to 10 years, during which time your credit score nosedives.
- You can begin rebuilding your credit right away, and you have the helpful lessons from credit counseling courses to put a plan into effect. Make a budget you can afford. Consider a secured credit card or other line of credit that gets reported to the credit bureaus, showing your track record of on-time, in-full payments.
What Happens to Debt After Bankruptcy in California?
As mentioned, various types of unsecured debt can be discharged through bankruptcy. You can wipe out debts related to:
- Credit cards;
- Medical bills
- Lines of credit and personal loans;
- Past due utility bills;
- Amounts owed under a contract or lease; and,
- Judgments from debt collection and other lawsuits, except for cases based upon fraud.
Some unsecured debts cannot be discharged through either Chapter 7 or Chapter 13, mainly due to justice and fairness issues. You cannot eliminate amounts you owe for child support or alimony, or fees and fines due to violating the law. If someone was killed or injured in a car accident because of your drunk driving, you cannot discharge the judgment awarded by the jury.
There is some misinformation about student loans and tax debt, with many people believing it is impossible to eliminate these debts. It is possible, yet notoriously difficult to get a discharge for these debts. You must be able to show extreme hardship and other facts for student loan debt, and your history of filing and paying the IRS is important for tax debts.
Why Help from a Skilled California Bankruptcy Attorney is Critical
To realize why assistance is essential, it should be persuasive to know the roles of different players in a bankruptcy case. There is the bankruptcy judge and court officials, the bankruptcy trustee, and creditors. None of these parties represent you. They do not have an obligation to help you, and they will let you know. In fact, creditors will be represented by legal counsel working against your interests.
When you retain legal help, you level the playing field. Your bankruptcy attorney will manage the process in court and will handle all tasks that are necessary behind the scenes. The efforts of your lawyer ensure:
- You have proper evidence to show eligibility for Chapter 7;
- You can apply for appropriate exemptions and protect as many assets as possible from liquidation;
- You have assistance preparing the debt repayment plan for Chapter 13, to ensure it is an amount you can afford and stick with for three to five years; and,
- You will have an experienced advocate at your side for all court appearances.
Discuss Options with a California Bankruptcy Lawyer
Knowing how much it costs to file bankruptcy in California is important, but there are many other factors when you are considering Chapter 7 or Chapter 13. For more information about the benefits of these options, please contact Kostopoulos Bankruptcy Law. We can set up a consultation about offices in Oakland or Riverside, CA. A bankruptcy attorney can explain additional details and the steps in the process after reviewing your circumstances.
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