In my last post, I looked at things from the creditor's point of view. That was because previously, I had discussed employees filing lawsuits against their employers. I wanted to show what could happen to employees if their employers decided to file for bankruptcy. I addressed the most simple scenario; for instance, I didn't discuss some of the steps available to employee-creditors if their employers filed for Chapter 11 business bankruptcy. Chapter 11 is very different from Chapters 7 and 13, and will usually be discussed separately. I will discuss Chapter 11 in a future post, but suffice it to say that employee-creditors can be involved in the Chapter 11 reorganization process.
What I wanted to stress was that the creditor is not always a mortgage lender or a credit card company: sometimes the creditor is you. However, you could just as easily be the debtor, especially if you are an employee who was demoted, wrongfully terminated, or otherwise denied wages. If that's the case, what can you do?
Figure Out How Much Debt You Owe. When you don't have a job and are struggling to pay your credit cards and mortgage, it can be tempting to choose bankruptcy as the first step. But bankruptcy is a serious decision, and if you have the time, you should definitely consider other options first. Those options include seeking a loan modification with your mortgage lender, which could lower your monthly payments and interest rate, and negotiating with the credit card companies. You might also consider selling certain property and using the money to pay down your debts.
If your debt is mostly credit card debt, and is fairly low -- such as $10,000 or $20,000 -- you might be able to wipe it away through a method other than bankruptcy.
If Bankruptcy, Which Type? If you have tried the above options and still can't manage your debts, you need to figure out what type of bankruptcy would be best. For that, you should consult a Bay Area bankruptcy attorney. Individual debtors usually file for Chapter 7 or Chapter 13.
Chapter 7 is the most common form of bankruptcy, and usually the fastest. With Chapter 7, the property you own before you file becomes "property of the estate," and the Chapter 7 trustee will determine which of your assets can be sold to pay off your creditors. Before you file, you state which property is "exempt" (off-limits) and "non-exempt" (can be used to pay creditors). To figure out which property to exempt, you would choose one set of California's exemptions, 703 or 704 -- whichever set best suits your needs. If the Chapter 7 trustee and the creditors do not object, then the non-exempt assets will be sold and the proceeds paid to your creditors.
Chapter 7 is a good option for those with a lot of credit card debt who are not attached to their property. But Chapter 7 does not get rid of your obligation to pay off most secured loans -- loans secured by the house, car, or other property as collateral. If you have defaulted on your mortgage payments and want to keep your home, you may want to file for Chapter 13. Whereas Chapter 7 is usually fast -- 3 to 6 months -- a Chapter 13 bankruptcy lasts from 3 to 5 years. During that time, you pay off your creditors a little each month through a court-approved payment plan.
Whether you file for Chapter 7 or 13 may depend solely on whether you pass the "means test": if your income is more than the median income for your state, you are required to file for Chapter 13. If your income is less than the median income, you could potentially file for Chapter 7 or Chapter 13. However, if your debts are above a certain limit ($1,149,525.00 for secured debts; $383,175.00 for unsecured debts), then you are not eligible for a Chapter 13 -- you must file a Chapter 7. In the case where you earn too much and have too much debt, you could file an individual Chapter 11.
Prepare Beforehand. Before the papers are filed, attend credit counseling. You must have a credit counseling certificate before you can file. You should also consider moving your checking account to a different bank, as your current bank might freeze your account after you file.
Attend the Creditors Meeting. Once you file for bankruptcy, you are obligated to appear at the 341 creditors meeting, which will be held no more than 40 days after you file. This meeting is very important to your case, so don't miss it. Your attorney will tell you what you need to bring.
Be Honest and Cooperative. Both before and during the bankruptcy, disclose everything, even if you are concerned it could hurt you. Your attorney will help you figure out how to deal with it. If you forgot something, bring it up as soon as possible. If you have a change in circumstances, bring it up as soon as possible. Follow whatever procedures the court or your payment plan has in place. If you do these things, your bankruptcy is more likely to be smooth.
These are just some of the things you should consider when filing for bankruptcy. For more information, contact a local bankruptcy attorney.
If you need a Contra Costa bankruptcy attorney or a Bay Area employment law attorney, contact the Wild Law Office today.
The above should not be construed as legal advice.
