In yesterday’s world where the stock market was solid and the unemployment rate was standard, bankruptcy had a negative stigma attached to it. Many people thought that hiring a bankruptcy attorney was a last resort in coping with financial difficulty. However, from the standpoint of today’s plummeting economy, where foreclosures are the norm and significant debt is the standard of living, many people in financial debt are now resorting to bankruptcy as a starting point. As the economy continues to tumble, attorneys report the number of bankruptcies filed in recent years increases almost twofold in many parts of California. Debtors’ fear of credit harm due to filing bankruptcy may be significantly outweighed by the benefits to their estate of filing bankruptcy.
Filing for bankruptcy provides numerous benefits to debtors depending on the type of bankruptcy filed. Some of the most crucial benefits include eliminating a second mortgage, a complete hold on any foreclosure proceeding or lawsuit, and discharging most or all debts. Bankruptcy is broken down into numerous sections with the most common ones for individuals being Chapter 7 and Chapter 13.
Chapter 7 is also known as liquidation. Under Chapter 7, a trustee is appointed to collect all the debtors’ applicable assets into a central trust estate, convert those assets into cash, and distribute the proceeds to the proper creditors. Those assets which are not applicable are considered exempt and are kept by the debtor. It will be the debtor’s bankruptcy attorney who will help classify certain estate assets as exempt. Individuals may be completely discharged from personal liability for dischargeable debt, which is established through application of a “Means Test,” which is a test used by courts and lawyers to determine bankruptcy qualification.
On the other hand, Chapter 13 is geared towards those debtors with a continuous source of income. Chapter 13 allows debtors or their attorney to propose a repayment plan to pay outstanding debt to creditors. Debtors benefit from the repayment plan by retaining valuable assets in their estate, such as their home.
Ascertaining whether a debtor should file for Chapter 7 or Chapter 13 depends on several factors including but not limited to a debtor’s income, the type of assets they own, the amount of debt incurred, and whether they qualify for one chapter over the other. However, since each debtor’s circumstance differs, achieving the best results in filing for bankruptcy will likely require advice from a qualified lawyer, who will protect your assets to the highest extent legally possible.
The information in this article is from Diana P. Zitser, a Los Angeles bankruptcy attorney, loan negotiator, and State Bar certified specialist in family law, divorce, child custody and spousal support. For estate planning, asset protection, including living trusts, she is closely affiliated with Attorney Michael Elson, the editor of this article, who is an estate attorney in Los Angeles and provides estate and asset protection planning, including LLCs, corporations, family limited partnerships, and various trust instruments.
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