One of the most overlooked financial tools available to individuals including small business owners today is Chapter 13 of the Bankruptcy Code.  Unlike a Chapter 7 which can require liquidation of assets and has very strict eligibility requirements, a Chapter 13 has greater flexibility in eligibility and allows individuals to retain their assets while paying back something to their creditors from future income.  Some of the powers of a Chapter 13 Bankruptcy include:

1. Availability of Bankruptcy to High Income Debtors - A Chapter 13 allows individuals who would otherwise not be eligible for Chapter 7 bankruptcy to repay debts to the extent of their ability through a 3-5 year plan.  In most cases, Debtors repay between 5-10% of their unsecured debts.
2. Continuing Business Operation- Unlike a Chapter 7 where a trustee can close down a Debtor’s business, a Chapter 13 Debtor has the right to continue operation of the business and has the exclusive right to sell, lease or otherwise use the business assets, in the normal course of operation.
3. Chapter 13 Plan May Modify Secured Creditor Rights -  One of the great advantages of a Chapter 13 bankruptcy at this time is ability to strip a lien on your principal residence that does not attach to any equity.  Here is a common example:  Principal residence has current fair market value of $300,000.  The first mortgage has a balance of $400,000 and the second mortgage has a balance of $100,000.  Because the second mortgage does not attach to any equity in the property, the lien can be avoided or “stripped” in a Chapter 13 thereby removing the balance of $100,000 at the completion of the Chapter 13 case.  In addition, if you have other real property which is not your personal residence, you may reduce the secured claims to the current fair market value if you can pay the fair market value of the real property with the contract rate of interest over the terms of the Chapter 13 Plan which cannot exceed 5 years.  Where this makes most sense is on the small rental property.  On cars, the Debtor can reduce a loan balance to the fair market value except that a reduction is not allowed on cars used by the Debtor for his personal use if it was obtained within 910 days of the bankruptcy filing i.e. you need to have had the car loan for 910 days prior to bankruptcy filing. 
4. Curing a Default -  A Chapter 13 Plan can cure a default on a loan with no interest being paid in most cases.
5. Discharge greater than Chapter 7 -  A Chapter 13 discharge can encompass many other types of debts which cannot be discharge in a Chapter 7 including criminal matters and taxes.  However, the most frequently used provision is to eliminate debts to a spouse, former spouse or child incurred by the Debtor in the course of marriage dissolution or separation except to the extent those debts constitute “domestic support.”  What this means is that “hold harmless” provisions on real estate obligations and community property settlements obligations can be discharged.     

The above are just some of the advantages of a Chapter 13 bankruptcy case.   While it may not be as quick and easy as a Chapter 7, it may provide the debt relief which cannot be obtained with a debt consolidation or repayment plan.  If you are considering a default on your home or other debts, I urge you to seek legal counsel as soon as possible to fully understand the consequences of the decision and the options available.  I see people for a free 30 minute consultation at  my offices located in Walnut Creek, Antioch and Brentwood.

WE ARE DEBT RELIEF AGENCY AND HELP PEOPLE FILE FOR BANKRUPTCY. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UP IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION. © 2012 Joan Grimes

If you are drowning in debt, can’t sleep because you are so worried about your bills or can’t answer your phone because it is always bill collectors, a Chapter 7 bankruptcy may be the fresh start you need.

Most bankruptcy cases filed in the United States are Chapter 7 cases.  The purpose of a Chapter 7 is to provide the Debtor with a “fresh start” through a discharge of his or her debts and equitable distributing any available assets among credits.  In most cases there are no non exempt assets to be sold and thus most Debtors retain all of their assets and discharge their debts without any payments to creditors.  If you are having problems paying your debts as they become due and owing, here is what you need to know about Chapter 7.

1. Who is Eligible - A Chapter 7 bankruptcy may be filed by any person or entity who resides in or has a place of business or property in the United States, other than a railroad and certain financial institutions and insurance companies. 
2. No Debt Limit - Unlike a Chapter 13 case, there is no debt limits in a Chapter 7.
3. Exemptions - The Bankruptcy Code and California law allows Debtors to retain many assets in a bankruptcy including retirement accounts, personal injury and workers compensation awards and additional assets in the form of “wild card” exemptions.  For most individuals, all of their assets will be protected and none will be able to creditors.
4. Means Test - If the person filing a Chapter 7 is an individual consumer with a majority of his debts being consumer debt i.e. debts incurred by an individual primarily for personal, family or household purposes, the individual must disclose financial information using a “means test.”   The purpose of the test is to determine potential ability to pay creditors.  If the result of the means test demonstrates the debtor has the potential ability to pay a minimal amount, a presumption arises that the debtor’s bankruptcy filing is an “abuse” and the case is subject to dismissal or conversion to Chapter 11 or 13. 
5. Secured Debt - Secured debt payments such as a home loan or car loan can be used on the means test if the Debtors are making the payments.  However, there are recent bankruptcy cases in which the court has held that when a debtor is no longer paying on secured debts, they may not include said payments for purposes of calculating the means test. 

If you do not have sufficient income to pay your bills as they come due and owing, you should seek legal counsel before withdrawing any monies from a retirement account, savings account or defaulting on a home or car loan.  These are difficult times, but do not miss the help and protection provided by the Bankruptcy Code and California law by waiting too long.    

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.    © 2012 Joan Grimes

One of the most overlooked financial tools available to individuals with high income is Chapter 13 of the Bankruptcy Code.  Unlike a Chapter 7 which can require liquidation of assets and has very strict eligibility requirements, a Chapter 13 has greater flexibility in eligibility and allows individuals to retain their assets while paying back something to their creditors from future income.  Some of the powers of a Chapter 13 Bankruptcy include:

1. Availability of Bankruptcy to High Income Debtors - A Chapter 13 allows individuals who would otherwise not be eligible for Chapter 7 bankruptcy to repay debts to the extent of their ability through a 3-5 year plan.  In most cases, Debtors repay between 5-10% of their unsecured debts.
2. Continuing Business Operation - Unlike a Chapter 7 where a trustee can close down a Debtor’s business, a Chapter 13 Debtor has the right to continue operation of the business and has the exclusive right to sell, lease or otherwise use the business assets, in the normal course of operation.
3. Chapter 13 Plan May Modify Secured Creditor Rights - One of the great advantages of a Chapter 13 bankruptcy at this time is ability to strip a lien on your principal residence that does not attach to any equity.  Here is a common example:  Principal residence has current fair market value of $300,000.  The first mortgage has a balance of $400,000 and the second mortgage has a balance of $100,000.  Because the second mortgage does not attach to any equity in the property, the lien can be avoided or “stripped” in a Chapter 13 thereby removing the balance of $100,000 at the completion of the Chapter 13 case.  In addition, if you have other real property which is not your personal residence, you may reduce the secured claims to the current fair market value if you can pay the fair market value of the real property with the contract rate of interest over the terms of the Chapter 13 Plan which cannot exceed 5 years.  Where this makes most sense is on the small rental property.  On cars, the Debtor can reduce a loan balance to the fair market value except that a reduction is not allowed on cars used by the Debtor for his personal use if it was purchased within 910 days of the bankruptcy filing i.e. you need to have had the car loan for 910 days prior to bankruptcy filing. 
4. Curing a Default -  A Chapter 13 Plan can cure a default on a loan with no interest being paid in most cases.
5. Discharge greater than Chapter 7 - A Chapter 13 discharge can encompass many other types of debts which cannot be discharge in a Chapter 7 including criminal matters and taxes.  However, the most frequently used provision is to eliminate debts to a spouse, former spouse or child incurred by the Debtor in the course of marriage dissolution or separation except to the extent those debts constitute “domestic support obligation.”  What this means is that “hold harmless” provisions on real estate obligations and community property settlements obligations can be discharged.     

The above are just some of the advantages of a Chapter 13 bankruptcy case.   If you are a high income earner, a Chapter 13 may be the answer for you.  While it does have some limitations in the amount debt which may be included, there may be flexibility in classification depending on your particular situation.   If you struggling with debt even though you are making a good income, I urge you to seek legal counsel as soon as possible to fully understand the consequences of the decision and the options available.  I see people for a free 30 minute consultation at my offices located in Walnut Creek and Brentwood.

WE ARE DEBT RELIEF AGENCY AND HELP PEOPLE FILE FOR BANKRUPTCY. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UP IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.