America is often referred to as the land of second chances. For individuals struggling to make ends meet due to a health crisis, divorce, job loss, or unexpected emergency, bankruptcy provides a chance to gain a more secure financial footing. If you’ve already attempted to negotiate with your creditors and still find yourself unable to meet your monthly obligations, filing for bankruptcy protection can temporarily stop collection actions, garnishments, and lawsuits to give you the breathing room you need to figure out your next steps.
Types of Debt That Can Be Discharged
Bankruptcy can eliminate all or most of the following debts:
- Medical bills
- Credit card charges
- Past-due utility bills
- Past-due rent and other money owed under lease agreements
- Collection agency accounts
- Personal loans from friends, family, and employers
- Dishonored checks
- Repossession deficiency balances
While bankruptcy is often an excellent way for individuals burdened by excessive debt to get a fresh start, not all forms of debt can be discharged in bankruptcy. The following debts are normally not dischargeable:
- Child support
- Spousal support
- Student loans (except in very limited circumstances)
- Most forms of tax debt
- Debt related to fraud
- Personal injury debt related to drunk driving
- Fines and penalties imposed as punishment, including traffic tickets and criminal restitution
- Recent debts incurred for luxury items
- Any debts not specifically listed on your bankruptcy filing
Additionally, it is important to note that bankruptcy can’t eliminate liens on property you can’t afford. For example, if you file for Chapter 7 bankruptcy, your mortgage debt can be eliminated. The mortgage company’s lien will remain, however, and they will be allowed to foreclose on the property once the automatic stay lifts.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also called a straight or liquidation bankruptcy, is what most people are thinking of when they mention filing for bankruptcy. In this process, the court cancels most or all of your unsecured debts—including medical bills, personal loans, and credit card debt. Typically, the process of filing a Chapter 7 bankruptcy takes four to six months to complete.
In a Chapter 7 bankruptcy, debtors typically keep most or all of their personal property—including clothing, household appliances, home furnishes, tools of the trade, and vehicles up to a certain value. If you are current on your mortgage and your equity falls below the exemption threshold, you may be able to keep your home.
Although Chapter 7 bankruptcy offers many advantages, the process is not available to everyone. If you filed for Chapter 7 bankruptcy discharge within the last eight years or a Chapter 13 case within the previous six years, you would not be eligible to file a second time. If your current monthly income exceeds the median income for a family of your size in the state of California and you have enough disposable income to repay a portion of your debt, you will only be allowed to file a Chapter 13 bankruptcy—even if you’ve never previously filed for bankruptcy protection.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy wipes out a portion of your eligible debt while creating a repayment plan with your creditors to cover the remaining balance. The repayment plan lasts for three to five years, depending on your disposable income and your total debt that must be repaid.
To qualify for a Chapter 13 bankruptcy filing, you must show proof of a steady income and be up to date on your tax filings. You are allowed to keep all of your property, including homes and vehicles, in a Chapter 13 bankruptcy if you can afford to do so.
Chapter 13 bankruptcy is most often the option selected by people with incomes that are too high to qualify for Chapter 7 bankruptcy, those who are behind on a mortgage but want to protect their family home, or those who need to prioritize non-dischargeable debts such as past-due child support. It is ideal for individuals with a stable financial history who’ve simply experienced a short-term setback and need additional time to repay the debt they’ve incurred.
If your financial situation changes while you are in the repayment period for a Chapter 13 bankruptcy and you are no longer able to meet your debt obligations, you can request a payment modification, convert to a Chapter 7 bankruptcy, or dismiss your Chapter 13 case.
Schedule a Consultation
The decision to file for bankruptcy protection isn’t easy to make, but a proactive approach can help you move forward with your finances and prepare for a brighter future. Our experienced bankruptcy attorney can evaluate your debts, answer any questions you may have, and guide you step-by-step through the filing process.
San Diego Legacy Law serves clients throughout San Diego, as well as those in La Jolla, Del Mar, Rancho Santa Fe, El Cajon, Poway, Spring Valley, Chula Vista, Santa Rosa, Petaluma, Novato, and Healdsburg. Contact us today to schedule a consultation.