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Filing for bankruptcy is an important decision. Generally a person’s major interest in a Chapter 7 bankruptcy is to retain certain exempt property and discharge the remaining unsecured debts. A discharge releases the debtor from personal liability for discharged debts and prevents the creditors owed those debts from taking any action against the debtor, or his or her property, to collect payments.
In a Chapter 7 bankruptcy, a trustee is appointed by the court to liquidate certain assets to pay off as many of their debts as possible. A Chapter 7 bankruptcy does not require a repayment plan. Filing a Chapter 7 bankruptcy is an opportunity for an individual to get a fresh start and be discharged of credit card and other kinds of unsecured debt.
An automatic stay is issued once a debtor files for bankruptcy that immediately stops lawsuits filed by creditors, as well as any other actions that others might try, such as foreclosure, eviction, and the shutting off of utilities.
Since October 2005, Congress added new requirements to the bankruptcy process for individuals. One of these requirements is passing the means test. In California, the current median income is:
Single Earners: $43,107
A Family of Four: $70,172
The debtor's average income for the last six months is compared to their state's median income. If the debtor passes the means test (meaning that their income is equal to or less than this median), then they are allowed to file for Chapter 7 bankruptcy. If the debtor doesn't pass the means test, they may be asked to file a Chapter 13 or Chapter 11 bankruptcy. Individuals filing for Chapter 7 or Chapter 13 bankruptcy must take a credit counseling course within 180 days prior to filing for bankruptcy protection.
A Chapter 13 bankruptcy creates a payment plan that allows a person to retain their property, and pay back all or a portion of their debts over a period of time. Under this chapter, you will propose a payment plan wherein you make installment payments over a period of three to five years. Chapter 13 bankruptcy is also known as the wage earner's plan since it enables individuals with regular income to develop a plan for repaying at least a percentage of their debts. The repayment period depends on the your average income. Generally, payments under the plan are lower than what you would pay without the bankruptcy.
Contrary to what you may have heard, you do not need to be unemployed to file for bankruptcy. Particularly in the case of a Chapter 13 bankruptcy, you must have income to be eligible. Although there are certain debts which must be paid in full, unsecured debts are rarely fully paid. Most people who file for bankruptcy do so because circumstances which they cannot control have caused their debts to become unmanageable.
In addition to income, your unsecured debts must be less than $336,900.00 and secured debts less than $1,010,650.00. If you are eligible to file for bankruptcy under Chapter 13, like in a Chapter 7 bankruptcy, you must first attend a credit counseling course before filing the bankruptcy petition. Once the petition is filed, a trustee is appointed to administer your case. As in a Chapter 7 bankruptcy, when the Petition is filed, an automatic stay goes into effect, stopping collection efforts against you, your property, and in the case of a Chapter 13 bankruptcy, collection actions against third parties for your consumer debts. The court gives notice to all creditors that a bankruptcy has been filed, and somewhere between twenty and fifty days after the filing, the trustee will hold a meeting of creditors (known as a 341 hearing). At this meeting, the trustee and creditors will inquire about your financial affairs and your proposed plan for repayment. No later than forty-five days after the meeting of creditors, there will be a hearing before a Judge to confirm the proposed plan. If the plan is confirmed, the trustee will start distributing funds pursuant to the plan; if not confirmed then the plan is modified, or you may have the option of converting your bankruptcy to a Chapter 7.
Corporations and Partnerships must be represented by an attorney. However, an individual may represent themselves in Bankruptcy Court, but it can be difficult and risky. A bankruptcy must be filed and handled correctly. The laws are very technical and a single misstep could cause your case to be dismissed and greatly affect your rights. Bankruptcy has long term legal and financial consequences.
You must list all of you debts and your property on the proper schedules. If a debt is not listed, it is possible that debt will not be discharged. Further, if a judge believes that you are hiding or destroying property, destroying or falsifying records or lying, that judge could deny discharging any of your debts and possibly referring your case to the US Attorney’s office for criminal prosecution. Bankruptcy cases are randomly audited for accuracy, truthfulness and completeness.
If you represent yourself, you will be expected to follow the rules set down in the Bankruptcy Code, the Federal Rules of Bankruptcy Procedures, and the Local Rules of Court. These rules can be very complicated and must be read over very carefully.
Having an attorney help you with the bankruptcy process will ensure that you meet the specific eligibility requirements for filing a bankruptcy, that the Petition and relevant documents are correctly completed and timely filed. Most importantly, an attorney will assure accuracy and give you peace of mind.
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