The Role of Bankruptcy in Debt Relief Defense

While no one wishes to file for bankruptcy, you should know that the Bankruptcy code is a powerful tool to be used in debt relief negotiation.   Bankruptcy can be used as a main strategy or last resort.  Filing of a bankruptcy petition creates an immediate injunction (the “automatic stay”) effectively stopping all creditors from collecting from you pending resolution of the case.  Bankruptcy law, effectively employed, can be used to eliminate or "discharge debt," avoid liens on your property, and reorganize your debts.  The bankruptcy laws give you a fair shot at saving your home and a financial "fresh start.”

Chapter 7 Bankruptcy:

A “Chapter 7" bankruptcy filing is a “liquidation” of a debtor’s assets.  The cash obtained from the sale,  if any, is used to satisfy the claims of creditors based upon the priority of their respective claims.  The debtor is allowed to keep exempt property such as a certain amount of equity in a home, an auto of a certain value, a small amount of cash and other, nominal assets.

Your qualification depends upon your income, the nature of your debts and other factors.  If you qualify, then you obtain a “discharge” of your unsecured debt and a new start.  Not all debts are dis-chargeable, such as student loans.

Chapter 13 Bankruptcy

Chapter 13 is the “personal Chapter 11” bankruptcy statute that provide for a debtor’s  "reorganization."  In essence, you eliminate some of your debt and work out a plan to make payments on the balance over a period of time.  Chapter 13 bankruptcy is often referred to as "Individual Debt Adjustment" or a  "wage earner's plan" (even if you are self employed) because it requires the debtor to have regular income with which to make payments on the repayment plan.  During that time, creditors are restricted from pursuing collection actions, including contacting you, filing lawsuits and other actions.

An individual with regular income and eligible for a Chapter 13 filing may stay foreclosure proceedings, completely eliminate a second loan on their home, reduce and consolidate unsecured debt to an amount that can comfortably be paid off with their disposable income.

Bankruptcy law and cases can be complex, but what you need to know is that while it is rarely the first option, it is a powerful weapon that, when properly wielded, can greatly improve your chances of a satisfactory result and give you a new start in life.

Contact a California bankruptcy attorney at Johnson Majka, APLC for a free consultation.