Many people have concerns about filing for bankruptcy in California, especially the impact on credit scores that they worry will follow them around for the rest of their lives. These fears may be justified, but it is important to consider them alongside the benefits for your financial future. With Chapter 7, you discharge your debt entirely as long as you qualify. Chapter 13 offers the option to repay debt at a fraction of what you would owe, according to a monthly plan that you can afford. With both types of bankruptcy, you enjoy the automatic stay that stops creditors from attempting to collect your debt.
Another concern some filers have is whether the court will be necessary. Understandably, you want to know what to expect with the process since you will be required to participate in some official proceedings. However, when you retain legal counsel you have full support for your case throughout all stages. Your California bankruptcy attorney will handle all tasks, including preparing you for court and instilling confidence. To better understand whether you have to go to court for bankruptcy, some background is useful.
How Chapter 7 Bankruptcy Works
Under Chapter 7 of the US Bankruptcy Code, you can discharge certain debts entirely if you are eligible under the strict legal criteria. You emerge from the process debt-free, though there is a caveat. The bankruptcy trustee can sell your assets to satisfy the amount you owe to creditors. There are limitations on what can be liquidated, and you can apply exemptions to protect some assets. The point of bankruptcy laws is to help you control debt, not turn you destitute. In most cases, you will not lose any assets, since the bankruptcy trustee cannot gain a profit by selling them.
The key with Chapter 7 is eligibility, and the focus is on your income. You automatically qualify if you make less than the state median income in earnings. In addition, if your income exceeds this amount, you could still be able to file Chapter 7 by passing the Means Test. This evaluation reviews your income minus important monthly expenditures.
Chapter 13 Bankruptcy Cases
This type of bankruptcy allows you to pay some of what you owe to creditors, and then discharge remaining debts at the conclusion of the process. At the core of Chapter 13 is a debt repayment plan that combines your debts into a single monthly payment that you can afford. Most filers end up paying a fraction of the total amount of the debt. The duration of the debt repayment plan is 3 to 5 years, so Chapter 13 does take longer to wrap up.
Chapter 13 is often the best option available to someone who does not qualify for bankruptcy discharge under Chapter 7 rules. The only eligibility criteria for Chapter 13 is that you must have an income to support your payments under the debt repayment plan. In addition, this type of bankruptcy does not involve liquidation so you will not face the possibility of your assets being sold. Those who want to protect their assets may opt for Chapter 13 even when they do qualify for Chapter 7.
Basic Bankruptcy Process
Though Chapter 7 and Chapter 13 are definitely different, many of the steps involved with your case will be the same. You will have assistance from your California bankruptcy lawyer for all crucial tasks, but you will want to know how going to court works into the proceedings. A typical case involves the following:
- Collect and organize all financial documents, which will be useful for exemptions in Chapter 7 and for your debt repayment plan in Chapter 13;
- Prepare and file the bankruptcy petition, along with schedules and attachments;
- Help you develop the proposed Chapter 13 debt repayment plan that must be filed with your petition or 14 days thereafter;
- Attend the meeting of creditors with you, the point during your case where you will need to go to court; and,
- Conclusion of the case, where you will receive an order for discharge.
Keep in mind that not all debts can be discharged through either Chapter 7 or Chapter 13. You will still owe for child support, alimony, and most types of tax debt.
Details on the Meeting of Creditors
Most of the tasks that your bankruptcy attorney will manage occur behind the scenes, so they do not involve going to court. The exception is the meeting of creditors that you will be required to attend. There are two objectives for this meeting depending on the type of bankruptcy you are filing:
- In Chapter 7, the focus is on your assets, exemptions, and the full picture of your debt. Creditors want to verify the information from your bankruptcy petition. They may be looking for wrongdoing like fraudulent transfers, but you will not run into these problems with help from your lawyer.
- In a Chapter 13 case, creditors are reviewing your debt repayment plan to ensure you can keep up with the payments that you proposed. If they do not have confidence in your ability to pay, you may need to go back and make adjustments to the plan. These are minor setbacks, as your attorney can usually make modifications that are acceptable to creditors.
Building Credit After Bankruptcy in California
It is true that your credit score will drop when you file for bankruptcy in California. The case appears on your report for 10 years after Chapter 7 and 7 years after Chapter 13. However, with your debt discharged and a clean slate, you can begin to build your credit through smart strategies. Your goal is to get on-time, in-full payments on accounts reported to the credit bureaus, so you can boost your rating. Some tips include:
- Always pay your cell phone, utilities, cable, internet, and other monthly bills in full by the due date.
- Consider obtaining a secured credit card, but keep an eye on interest rates.
- You might work out a personal loan through a lender, though it is critical to avoid payday loans for any reason.
- Do not overdraw your checking account.
Talk to a California Bankruptcy Lawyer About the Process
Though it is possible that you will have to go to court for bankruptcy, you can rest assured your case is in good hands when you retain legal representation. The proceedings may seem daunting, but you will be well-prepared to promote your interests. For more information on Chapter 7 and Chapter 13, please contact Kostopoulos Bankruptcy Law to set up a consultation with a member of our team. A California bankruptcy attorney can advise you after reviewing your case.
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