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Which Bankruptcy Chapter is Right for Me?
Bankruptcy petitions may be filed under one of six chapters of the Bankruptcy Code.
The type of bankruptcy chapter that is right for you depends on your circumstance, which is why you must understand the benefits and the purpose associated with each filing. The following information may help you make this decision. Two major categories of bankruptcy discussed bellow are Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. Both of these Chapters allow you to come to terms with your debt and offer a solution to overcoming your financial woes.
CHAPTER 7 BANKRUPTCY
According to the U.S. Courts, Chapter 7 Bankruptcy, entitled liquidation does the following: contemplates an orderly, court-supervised procedure by which a trustee takes over the assets of the debtor’s estate, reduces them to cash, and makes distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors. In most chapter 7 cases, if the debtor is an individual, he or she receives a discharge that releases him or her from personal liability for certain dischargeable debts. The debtor normally receives a discharge just a few months after the petition is filed.
In many cases as long as the value doesn’t exceed certain limits set by the U.S. Bankruptcy Code, you may be able to keep some of your assets such as, your home, household furniture, and other possessions. Eligibility for Chapter 7 Bankruptcy is determined by a means test. If you pass, you qualify for Chapter 7 Bankruptcy. Please see means test section for more information.
CHAPTER 13 BANKRUPTCY
An alternative for Chapter 7 Bankruptcy is Chapter 13 Bankruptcy. It is designed for those experiencing financial distress with a regular source of income (you will be required to show proof). Those who qualify for Chapter 13 bankruptcy are unable to meet the means test requirements. According to the U.S. Courts, Chapter 13 bankruptcy consists of a reorganization of debts and provides the opportunity for the debtor to keep their property and many other assets while operating under a plan whereby they pay off their debts over a three to five year period. This Chapter does not afford you an immediate discharge of debts. The debtor usually completes the payment requirements set forth by the courts and only then receive a discharge. More debts are eliminated or discharged under Chapter 13 than Chapter 7 (U.S. Courts).
Once the Chapter 13 payment plan is in effect, the debtor is protected from creditors, lawsuits, and garnishments. However, a standardized payment plan does not exist, which is why it is highly recommended that you speak with an experienced bankruptcy attorney when preparing repayment plan documents.
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Inheritances, Life Insurance Benefits and Divorce Settlements
Any inheritance or life insurance benefits left to you by someone who dies before or within 180 days after you file for bankruptcy become property of the estate. However, if the benefactor passes away before you file bankruptcy, you may be able to find a way of preventing your inheritance from going to the trustee. In some states, you can renounce an inheritance before you actually receive it so that it goes to other heirs. This strategy, however, is very tricky and features many pitfalls. It’s definitely something to bring up with your Sacramento bankruptcy lawyer.
May times, divorce and bankruptcy go hand in hand. If you become entitled to a divorce property settlement within 180 days after your petition date, the property can be used to pay creditors. These rules apply to property divisions (where a divorce court splits assets and allocates debts) but not to alimony or support, which usually are exempt. Sometimes filing bankruptcy and then waiting 180 days before filing for divorce is a better strategy. This way, any property you are awarded in the divorce wont be swept into your bankruptcy and liquidated to pay creditors. And, of course, make sure that your divorce lawyer knows about your bankruptcy plans, and your Sacramento bankruptcy lawyer knows about your divorce.
Homesteads & Automobiles in a Bankruptcy Case
Special rules govern the way certain property—such as homes and automobiles—are treated in bankruptcy. Almost all states have some type of homestead exemption that protects some or all the equity in a debtor’s home. Additionally, the Bankruptcy Code provides each debtor with a homestead exemption of $18,450. The exemption is doubled for joint owners. This amount, as well as the amount for all the other exemptions specified in the Bankruptcy Code, is adjusted every three years by the government to reflect changes in the Consumer Price Index.
Most states allow debtors to exempt at least one motor vehicle, but the amount of the exemption is limited. The federal exemption scheme allows each debtor to claim $2,950 in a motor vehicle. Whenever the equity exceeds your total exemption, a Chapter 7 Bankruptcy trustee can sell the car and pay you the value of your exemption. In a Chapter 13, the trustee cant sell the car, but you’d have to pay the amount of nonexempt equity over the life of the bankruptcy plan. You also may be able to claim an exemption for your motor vehicle as a tool of the trade, call a Sacramento bankruptcy lawyer.
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Wiping Out Dischargeable Income Taxes In Bankruptcy
If you file a timely, non-fraudulent income tax return and haven’t engaged in tax evasion other than simply failing to pay the tax, your debt is dischargeable in a Chapter 7 or a chapter 13. That is only if the taxes are more than three years old and were assessed more than 240 days before bankruptcy. There are complications though. If you received an extension of time to file your return, the three-year period starts on the date that the extension expires. It doesn’t start on the date the return originally was due.
Besides extensions, there are other complications that can interrupt the three-year period, giving the IRS even more time to collect your taxes. For example, if you filed a bankruptcy case prior to your current bankruptcy, the time that the earlier case was open isn’t counted and 90 days are added to the three years. Also, any time that the IRS was prevented from collecting taxes because of a request for a due process hearing does not count and an additional 90 days is tacked on. Additionally, any amount of time during which a taxpayer assistance order is in effect doesn’t count toward the three years either.
If you neglected to file a return, filed it late, submitted a fraudulent return, or otherwise evaded taxes, you’ve really complicated things. But, depending on what you did and why you did it, a Sacramento bankruptcy lawyer may be able to help.
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Home Equity Loans In Bankruptcy
There is a huge difference between refinancing to get a better rate and taking a home-equity loan—which doesn’t reduce the amount of your mortgage debt. All you really do with a home-equity loan is un-buy your house and then buy it back again. Many companies say that borrowing against your home to pay off credit cards is the greatest thing because: interest on home mortgages is tax-deductible; making a single monthly payment is more convenient than numerous credit-card payments; the interest rate is lower; and your monthly payment will be lower than what you’re now paying on credit cards.
Although this may sound good, don’t forget that your home may be the most valuable and important asset that you have and you’re putting everything at risk with a home-equity loan. If paying credit card bills was a struggle, making payments on a home-equity loan probably wont be much easier. Worse, after your credit card bills are paid off, your credit card accounts will be available for more borrowing—the very thing that got you in trouble to begin with.
Whenever you do consider refinancing, be on the alert for hidden costs, such as broker’s fees, points, and penalties for prepaying your present mortgage. These fees can negate the benefits of using home equity to consolidate your debts. If bankruptcy is even remotely visible on your horizon, consult with a Citrus Heights bankruptcy attorney before taking out a second mortgage. You need to be clear about the ramifications of a second mortgage before taking that step. No competent attorney will try to push you into bankruptcy if that isn’t your best choice, or if you’re just not ready. But a good Sacramento bankruptcy lawyer needs to be able to give you a clear picture of the potential benefits and drawbacks of your unique situation.
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Lawsuits During Your Bankruptcy Case
There are several other types that can be declared nondischargeable, but this only by a bankruptcy court order.
In these cases, the creditor will have to file a lawsuit in your bankruptcy and produce evidence as to why the debt should not be discharged. If the creditor doesn’t file the lawsuit before the bar date (sixty days after Meeting of Creditors), the debt will be discharged with the other in your bankruptcy. The automatic stay does put a stop to regular lawsuits in progress as soon you file your bankruptcy petition, and the stay blocks any new suits during the time it is in force.
However, there are other kinds of legal actions, known as “adversary proceedings,” that are lawsuits in the bankruptcy court where your case is filed. These lawsuits can go on even after the automatic stay is in place if they are related to your bankruptcy case. Creditors can prevent certain kinds of debts from being discharged by initiating an adversary proceeding. These kinds of debts include the following:
- Debts incurred by fraud, under false pretenses, or through false financial statements.
- Debts due to willful or malicious injuries you can cause.
- Some kinds of marital debts.
Exemptions in Bankruptcy
The Bankruptcy Code contains a list of exemptions that varies for every state. Thirty-four states have opted out of the Bankruptcy Code exemption. If you live in one of the 16 states that recognize both state and federal exemptions, you can choose whichever set works best for you. However, applying the rules is difficult. You generally apply the law of the state of your permanent home for the two years before bankruptcy. If you haven’t lived in your present home state for two years, the applicable exemptions are those available in the state where you lived for 180 days immediately prior to that two-year period. Remember, you are not legally domiciled in a state just because you live there. Domicile is your permanent home, the place you intend to return to eventually. In addition, even if you’ve lived in a state more than two years, the maximum homestead exemption you could claim would be $125,000 if you acquired your homestead within 1,215 days of bankruptcy.
If you have fallen behind on your bills and are being harassed by creditors contact a bankruptcy lawyer at Conlong & Fong today. Call (916) 971-8880 to see if you qualify to file bankruptcy and get a new fresh start.
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Ignoring creditors is an option but it must be decided based on intelligent and conscious factors. If you live simply, have little income or property and plan on living that way indefinitely and don’t care about your credit rating, then ignoring creditors is a wise decision. You cant go to jail for failure to pay debts, other than support obligations and criminal fines. Furthermore, creditors can’t strip you of your basic and simple needs like clothes and food. Also, Social Security benefits, welfare, and unemployment are inaccessible so ignoring creditors is a definite option if you choose to live in the simplest form. If you own pretty much nothing and plan on owning nothing, than this is a wise path to take.
You can be sued but creditors recognize people’s apathy towards materialism and eventually give up. However, even though this strategy may make sense at the moment, it does have limitations. In the rare chance a long lost family member leaves you a bundle or you win the lottery, creditors may find out about it and will want to get a piece of that pie. Regardless, you’ll always have to be careful with bank accounts. When a judgment creditor finds out where you bank, it can snatch your money. You might consider depositing your money into someone else’s account but beware because a creditor may follow up on that and require that person to prove how much actually belongs to him or her. You may be forced to deal solely in cash or money orders. Before you decide to do nothing, you need to understand and accept the possible consequences.
Debt Collection Threats
The FDCPA—Fair Debt Collection Practices Act forbids debt collectors from employing any conduct that tends to harass, oppress, or abuse you. They cannot leave messages with a third person for you to return a call, contact you too frequently, imply the use of force against you, use foul language, or threaten to embarrass you. Additionally, it prohibits false, misleading, or unfair practices that creditors have traditionally used. The underlying threat that bill collector’s use is that you’ll be sued if you don’t pay. But this threat violates the FDCPA if the collector doesn’t actually intend on suing you. They go around this rule by using little key phrases such as saying they “can” sue, or is “authorized” to sue, or recommending that you settle the debt “out of court”. Some courts claim these threats to take action were disguised threats to sue, and therefore a direct violation of the rule.
If a debt collector violates the FDCPA, there is a remedy you can use. You can sue the debt collector and recover actual damages up to $1,000. It’s a long shot, but worth a try. The debt collector may still prevail by proving that he didn’t intend to violate the act and just made an honest mistake. If you choose to sue the debt collector, you must file suit within one year of the violation.