Understanding the different paths to financial solvency
In many ways, Chapter 13 is a hidden gem in the bankruptcy code. Most laypeople don't know about it or don't understand it and assume that bankruptcy always means selling everything they own. Many of these people refuse to consider bankruptcy for this reason, remaining wholly unaware that there are options that allow them to resolve debt without liquidating their assets. While Chapter 13 may not be for everyone, you won't know until you discuss it with an experienced Woodland Hills & Oxnard bankruptcy attorney. Arranging a free consultation with the Law Offices of Michael H. Raichelson can give you the tools you need to start making smart decisions about confronting debt.
When you don't qualify for Chapter 7
For some people who still have monthly income, Chapter 13 may indeed be their only option. In order to qualify for Chapter 7 relief, a person must pass what is called the “means test” — a test designed to determine whether a person is incapable of paying their debts or is simply abusing the process. While the test is complicated, put simply, it has two parts:
- First, the court compares your average household income to that of similar households in your state. If yours is below average, you qualify. If not, you move on to step two.
- Second, the court looks at your average monthly disposable income — your income minus certain permitted expenses — over five years. If this income is more than $10,000 or 25 percent of your unsecured debt, you probably do not qualify for Chapter 7.
The means test can be a problem for people with high incomes who are struggling with even higher debts. Chapter 13 petitioners, however, are not subject to the means test, making it one of several viable alternatives for those who do not qualify for Chapter 7.
When the nature of your debt limits the benefits of Chapter 7
A big weakness of Chapter 7 bankruptcy is that it does not do much to resolve secured debt — mortgages and car loans for instance. While the automatic stay can temporarily stop foreclosure and repossession, once the stay is lifted, the debt often remains. While secured debt is never dischargeable, Chapter 13 does allow you to address this type of debt in your payment plan, making it frequently the better option for those trying to save their homes.
When you don't want to liquidate your property
One of the first things our Oxnard & Woodland Hills bankruptcy lawyer will tell you is that even Chapter 7 bankruptcy does not mean you have to sell all your property. There are generous exemptions and many people pass through Chapter 7 while liquidating few, if any, of their assets. If, however, you do have assets that would be subject to liquidation — often times a house or other real estate — Chapter 13 allows you to restructure debt without any need for liquidation. The tradeoff, of course, is that you actually have to repay all or most of your debt, albeit under a modified payment plan. If, however, you have the income capability to do this, it is a small price to pay to keep your home and other possessions.
Contact us to learn about your debt relief options
Bankruptcy is not a simple or automatic process. Doing it incorrectly can render less than optimal results or, worse, cause the court to dismiss your petition. If you are considering bankruptcy in Ventura or Los Angeles County, Raichelson Law, P.C. has the experience you need to do it correctly and receive the full scope of benefits the process provides. Call us today at 818-444-7770 or contact us online to learn how our attorneys can help you open a new chapter in your financial life. Our initial consultations are cost-free, worry-free and pressure-free.