Bankruptcy is not a first option if you are facing severe financial difficulties. Before you consider filing, make a list of your debts, amounts owed and monthly payments and see which accounts can be paid off first before concentrating on the others. You might try asking your creditors for a lower interest rate or a reduction in the principal owed and then determine if you are able to meet these payments and over what period of time.
You should also come up with a budget and stick to it. Reduce unnecessary or extravagant spending as well. All of this demands a certain degree of discipline, sacrifice and commonsense.
However, there are circumstances under which these measures are not enough and may compel you to seriously contemplate bankruptcy. If you plan to file in the Los Angeles area, consult a Los Angeles bankruptcy lawyer.
The following is a checklist for when you should consider filing for bankruptcy. A single fact on this list may not be enough but if several of these apply, then talk to a Los Angeles bankruptcy attorney:
- You are facing foreclosure
- Negotiating with your creditors is unsuccessful or has resulted in few material changes
- Your unsecured debt is substantial and at least $20,000
- Your liabilities far exceed the value of your assets
- Your car or other property is likely to be repossessed
- Collection lawsuits are pending against you
- You lost your job
- Judgments have been entered against you
- A wage garnishment notice has been sent to your employer
- Your bank account is being levied on
- You have significant medical expenses
- You have very little disposable income
- Can you pass the means test for filing Chapter 7?
- Can you use Chapter 13 to save your house from foreclosure?
Disposable income is a major factor in determining whether you qualify for Chapter 7 relief. List your monthly expenses and subtract it from your household income. Divide the amount by 60, which is the number of months allowed in a Chapter 13, and if it is a low amount or around $5000 to $6000, you probably qualify. You have to be below the median income for the state where you are filing or have disposable income that is less than 25% of your unsecured debt. If are above this, at least discuss your situation with your bankruptcy attorney who still might qualify you.
Any one of these factors could compel you to at least seek the advice of a bankruptcy attorney, but if more than one applies, then you may have reached the point where no other viable options exist.
Benefits of a Chapter 7
Chapter 7 is a liquidation whereby your unsecured debt is discharged with no further obligation on your part to pay. An unsecured debt includes credit cards, medical bills, personal lines of credit, personal loans or any other loan where no property is used as collateral to secure the loan.
If you pass the means test, you can file for Chapter 7 relief. An automatic stay goes into immediate effect on filing. All collection activity, including phone calls, correspondence, court cases, levies, garnishments must cease. A foreclosure action is also stayed though the lender will request relief from the stay to continue but this does give you time to find other housing or the funds to redeem the property if you can. Most if not all of the personal property is exempt in a Chapter 7 filing so you likely will retain all your property. Your Los Angeles bankruptcy attorney can discuss with you the exemptions that are available to you.
You must list all your debts and assets, income and payments and transfers made to creditors or insiders, if substantial, within several months of filing. If funds or property have been seized to satisfy an unsecured debt, most if not all of the funds and property can be retrieved.
Benefits of a Chapter 13
A Chapter 13 is a repayment of debts over a 3 or 5 year period, though usually for less than the obligations owed. It will also will generally leave unsecured debtors with little or no repayments. Chapter 13 is for individual consumers as well as small businesses who want to remain operational and is an option for those consumers who do not qualify for a Chapter 7, have too much non-exempt property to lose or who face home foreclosure. For instance, if you have a second home or residence, none of its equity is exempt in a Chapter 7. If foreclosure on your principal homestead is looming, you can make up the arrearages in the repayment plan but you need a steady and sufficient income source to continue making the monthly mortgage payments as well as meet repayment plan requirements.
If you have any questions about your bankruptcy checklist or bankruptcy in general, please contact DCDM Law – we are happy to help.