One of the highest “worry factors” surrounding filing for Chapter 7 bankruptcy in California is wondering if you will pass the "means test" required of all consumers filing for bankruptcy protection. As a Sacramento Bankruptcy Attorney firm, it's one of the most common concerns we hear. Many individuals are surprised to hear that you are not required to be flat broke and penniless in order to pass the means test and qualify for Chapter 7 bankruptcy protection, however, knowing more about the qualifications will help you resolve some of the fears associated with the bankruptcy process.
Median Income in California
The Chapter 7 means test was instituted by Congress in order to make it more difficult for individuals to discharge their debts without paying back the majority of their creditors. The test is designed to ensure that those that do successfully file Chapter 7 bankruptcy can't pay back their debts. To begin, the means test average income over the previous 6 months before filing a Chapter 7 bankruptcy petition in California is compared with the median income of the state, considering your household size.
These numbers are constantly evolving, therefore, you should ask your Sacramento Bankruptcy Lawyer about what figures the US Bankruptcy Court in your district is using. If your income is less than the median income of California, then you automatically pass the means test and you aren't required to fill out the remaining information.
Chapter 7 Means Test
If your income is higher than the median income in your state, you may still qualify. The income calculation takes into account all payments from not only your wage or personal business income, but also income from investments. The means test works by considering monthly expenses such as mortgage or rent, car payments and insurance, food, electricity, internet, and cell phone bills, and deducting these from your average income over the 6 months prior to bankruptcy. Once your current monthly income is established and subtracted from your eligible expenses you are left with your disposable income, and the bankruptcy court will decide if you have enough money left over to pay back your creditors. If you do, then you may be required to convert your Chapter 7 to a Chapter 13 bankruptcy case.
If You Do Not Pass the Means Test
If you do not pass the means test in California, it's not the end of the world, but you will have a few decisions to make. Consult your bankruptcy attorney as to whether it is sensible to convert your bankruptcy case to a Chapter 13 bankruptcy. This alternative form of bankruptcy lasts longer and will require you to live on a fairly strict budget for up to 5 years in order to pay back your creditors, but should leave debt free at the conclusion. Additionally, if you do pass the means test, it may not be in your best interest to actually move forward with your Chapter 7 bankruptcy. Only a California bankruptcy attorney is qualified to give you advice on how to fill out your bankruptcy forms and whether you should move forward with filing or not.
Most things in life are "give and take", and Chapter 7 bankruptcy isn't much different. It's true that Chapter 7 bankruptcy can be an enormous lifeline to individuals who are suffering from crippling debt, but it does come at a certain cost. Making the decision to file for Chapter 7 bankruptcy can be very difficult with the sheer volume of options to weigh and factors to consider. With this in mind, let's take a look at the pros and cons of declaring Chapter 7 bankruptcy in an effort to help you make the decision.
Cons of Bankruptcy
Bankruptcy does show up on your credit, which is what gives individuals in debt some pause. A Chapter 7 bankruptcy is likely to remain on your credit report for up to 10 years. Additionally, you may have to give up some of your property to the Bankruptcy Trustee to sell in order to pay back your creditors. When you file bankruptcy, your credit card providers will also cancel your credit cards.
The timing of bankruptcy is important as well, due to the fact that when you file Chapter 7, you might not be eligible for another discharge for several years after a successful bankruptcy. If your bankruptcy has been dismissed, you might also have complications with respect to when you can refile again. Lastly, there are some debts which you may still be on the hook for after obtaining a discharge from Chapter 7 bankruptcy, which include mortgage liens, alimony, student loans, and child support.
Pros of Bankruptcy
For nearly every downside of Chapter 7 bankruptcy, there is an upside. For example, even though bankruptcy stays on your credit report for a considerable amount of time, using bankruptcy can eliminate your debt in as little as four or five months, making it the fastest means of debt relief available. Additionally, when filing Chapter 7 bankruptcy, you may be able to discharge your unsecured debt and keep all your property and belongings using exemptions at the same time.
Even though you'll lose them initially, you may be able to obtain a credit card after bankruptcy in as soon as a year, although you should expect higher interest rates. Also, by eliminating other types of debt, you will have more cash to devote to paying your mortgage and other priority debt such as alimony and child support.
Chapter 7 Bankruptcy Attorneys in California
The overall process of bankruptcy can be confusing and challenging but hiring an Sacramento Bankruptcy lawyer can help eliminate the confusion and keep your valuable assets if bankruptcy is the right choice for you. An experienced bankruptcy lawyer will also be able to explain how the Bankruptcy Code can help you obtain relief from debt.
Many individuals who are struggling with debt worry they will lose their home if they file for Chapter 7 bankruptcy. Consequently, we hear the "Can I keep my house in Chapter 7 bankruptcy" question quite often. Keeping your property in Chapter 7 bankruptcy depends on how far behind in your mortgage payments you are and how much equity you have in your home. For individuals filing Chapter 7 bankruptcy in Sacramento California, the state homestead exemptions provide for the generous protection of your home equity that can help you keep your house.
California Homestead Exemption
Keeping your house in a Chapter 7 Bankruptcy in California depends on how much equity you have in your home. The California Homestead Exemptions allow debtors filing for bankruptcy to protect up to $75,000 worth of equity for single filers, $100,000 for heads of households, and $175,000 for individuals that are disabled, over 65, or make less than $15,000 per year. Assuming this covers the amount of equity you have in the house, you should be able to keep it during the course of your Chapter 7 bankruptcy. The reasoning behind this is due to the fact that if selling your property wouldn't benefit your creditors, it's not worth the time and effort for the bankruptcy trustee to sell your home.
California Mortgage Payments
If you are currently behind on your payments, Chapter 7 bankruptcy can act as a buffer that can temporarily prevent foreclosure while you attempt to modify your loan with your mortgage lender, but it is not a permanent solution. Chapter 7 bankruptcy can be used as a strategic debt relief solution if you expect to fall behind on payments in the near future but are current at the moment. In other words, it's generally better to be current on your California mortgage payments before filing and throughout your Chapter 7 bankruptcy.
Chapter 13 Bankruptcy Alternative
For those who are behind on mortgage payments, filing for Chapter 7 bankruptcy isn't a comprehensive default cure. Consequently, if you are facing foreclosure due to falling behind on mortgage payments, Chapter 13 bankruptcy may be a better alternative as it will allow you to effectively lump your missed payments into your monthly Chapter 13 repayment plan and pay it back over a period of three to five years.
Sacramento Bankruptcy Attorney
Chapter 7 bankruptcy is an efficient means of eliminating unsecured debt such as medical debt and credit card debt, however, it may not be the best option for your unique debt situation. If you have questions concerning the best choice for you, contact your local Sacramento bankruptcy attorney to discover all your options.
Sometimes, paying to go broke doesn't seem like the most logical or straightforward answer to debt relief. In fact, requiring a fee to file bankruptcy, to some, seems like an oxymoron. Nevertheless, in order to discharge debts using Chapter 7 bankruptcy, there are filing and attorney fees that must be paid in order to escape your debt. Individuals that are struggling with debt who otherwise would be very interested in filing bankruptcy, feel that it is simply too far out of their reach to become a reality. If this describes you then read on, as we explain how to file chapter 7 with no money.
File Chapter 7 with No Money
If you think you are unable to afford Chapter 7, it could be that you haven't done enough research. Still, others put off filing Chapter 7 bankruptcy until all their money runs out and they truly can't raise enough money to cover the fees associated with bankruptcy. If you haven't spoken with a bankruptcy attorney, it's highly advisable that you do so. Many bankruptcy lawyers offer payment plans, which can help you get to the filing stage of the bankruptcy process so that you can obtain debt relief. If you have interviewed several California bankruptcy attorneys and still do not believe that you can pay for a Chapter 7, don't give up; there are several other options that may be able to assist you in your debt relief endeavor. If you can't afford a Chapter 7 bankruptcy attorney, a few other options to consider are:
Filing a Chapter 13 bankruptcy instead
Unlike Chapter 7 Bankruptcy, in a Chapter 13 filing, you can add your attorney fees to the bankruptcy estate and pay them back through your repayment plan. Chapter 13 bankruptcy differs drastically from Chapter 7 and might not be the right solution for all debtors. If you think Chapter 13 bankruptcy might be a better route for you to take, definitely get the assistance of a bankruptcy lawyer to help explain the differences between Chapter 7 and Chapter 13 and to make sure that you'll have enough money to fund a three-five year repayment plan.
Locate a pro bono bankruptcy attorney
Attorneys typically set aside a certain amount of time for pro bono or free work. In fact, the American Bar Association actually encourages attorneys to provide a certain amount of pro bono hours each year as a form of giving back to the community. As such, the American Bar Association keeps a pro bono directory for California. Additionally, you can get more information on finding a pro bono lawyer from your local chapter of the bar association as well as your state's. As the last word of advice on having a pro bono attorney file your bankruptcy, make sure to ask the attorney what their exposure is to bankruptcy law. When drowning in debt we know you can't be too picky, but bankruptcy law can be complex and you need an experienced lawyer to reach a successful debt relief conclusion.
Locate free legal clinic or Legal Aid
The nation's oldest form of public defense, Legal Aid, is designed to offer free legal assistance when finances and the cost of hiring someone would otherwise deter them from getting the debt relief they desperately need. Legal aid is available to individuals with annual household incomes below federal poverty guidelines, and so obtaining this type of legal help requires that you show a definite need.
Free legal clinics operate in the same fashion as legal aid, where bankruptcy attorneys volunteer their time and expertize to those unable to afford Chapter 7 bankruptcy. They may help with preparing bankruptcy petitions and schedules, attending 341 meeting of creditors, and advising on Chapter 7 bankruptcy matters. There are a number of free or low-cost legal service options for individuals living in Sacramento and the surrounding counties, such as the Volunteer Legal Services Program of Northern California.
Filing Chapter 7 Bankruptcy on Your Own
The decision to file chapter 7 bankruptcy on your own is a tough one, and the most ill-advised. Filing bankruptcy without the assistance of an attorney is referred to as "filing pro se", and according to the U.S. Bankruptcy Court figures, has a notoriously low rate of successful discharge. Nearly half of all cases of filing Chapter 7 bankruptcy without an attorney end up with a dismissal without debt relief. Even those individuals that have filed bankruptcy and wiped out their debt alone have said they would not recommend it.
Nevertheless, if you do decide to take on filing Chapter 7 bankruptcy on your own, you'll need the minimum of $335 for the Chapter 7 filing fee, as well as, the money needed to pay for your required credit counseling and debt education courses. These are both mandatory courses if you want to receive a discharge of debt from the Courts and usually cost $25-75 dollars. If you do decide to file Chapter 7 bankruptcy without a lawyer, you're in for a tremendous amount of research and learning, as you'll need to fill out a bankruptcy petition and corresponding bankruptcy schedules with 100% accuracy, plan for the tax consequences of filing, decide which exemptions you can qualify for, and discover the local bankruptcy law procedures in your district. For those seeking Sacramento bankruptcy assistance and information, you can visit the US Bankruptcy Court for the Eastern District of California.
The decision to file bankruptcy is not one to be made lightly, however, you should know by now that even if you are insolvent and can't afford bankruptcy, you can file Chapter 7 or Chapter 13 bankruptcy with nearly no money. However, because of all the options available to you, getting the assistance of a bankruptcy attorney is invaluable and worth more in the long run than the little money you save by going it alone. If you need help with debt relief immediately, contact your local bankruptcy lawyer. Sacramento bankruptcy attorneys typically offer a free consolation so you can discover your best debt relief solution and payment options to ascertain professional assistance.
Bankruptcy lawyers in Sacramento California are most commonly asked how an individual can qualify for Chapter 7 bankruptcy and what qualifications or standards need to be met in order to file. Determining who can file for bankruptcy can be complicated and so seeking out a Sacramento bankruptcy attorney can ensure that this step in the bankruptcy process goes well and that the correct type of bankruptcy is chosen.
Chapter 7 Bankruptcy Means Test
When filing for Bankruptcy in California, the means test is a calculator that determines when a debtor's income is low enough to file for Chapter 7 bankruptcy and was established to prevent high earners from filing this type of bankruptcy. What many individuals don't realize is that one can earn a significant monthly income and still qualified for Chapter 7 bankruptcy, especially if you have a large number of expenses.
California Chapter 7 Income Limits
A debtor must enter income and expense information onto the proper bankruptcy form when filing and this is used to determine if you qualify for Chapter 7 bankruptcy. If current monthly income is less than the set income limits, also called median income, for your household size in California, then you pass the means test and can file for Chapter 7 bankruptcy. Median family income by family size is constantly changing. As of 2016, the median income for 1 earner in California was $50,519. With a family size of 2 people, the amount increases to $66,458, 3 people: $70,732, and 4 people $81,740. Additional states for median family income can be found here.
If there is a doubt what should be included as income or who can be counted as a member of your household a Sacramento bankruptcy attorney can explain how the trustees and judges in your jurisdiction view members of households. For assistance in filing for Chapter 7 bankruptcy, contact a local Sacramento bankruptcy attorney to ensure a discharge of debt under the US Bankruptcy Code.
A Chapter 7 bankruptcy case is typically the quickest and simplest type of bankruptcy in Sacramento. After filing bankruptcy, you can typically expect to have your eligible debts discharged within four to six months. A few things that can slow down your Chapter 7 bankruptcy discharge are additional documentation requests from the trustee, if the bankruptcy trustee assigned to your case has to sell property in order to pay your creditors, or if you are in the process of a bankruptcy-related lawsuit.
Starting the Chapter 7 Bankruptcy Process
Overall, the Chapter 7 bankruptcy process is relatively straightforward. As with all bankruptcies, the first step is to complete a mandatory credit counseling course within 180 days of filing your case paperwork. Once you have completed this course, you will work with your bankruptcy attorney to complete your official bankruptcy forms that describe your assets, liabilities, and financial affairs. Once you have completed your paperwork and bankruptcy schedules, you will then mail your bankruptcy trustee your income tax returns and any other requested documents.
Finishing the Chapter 7 bankruptcy Process
Within 30 days of filing, you will be called on to make your court appearance called the 341 Meeting of the Creditors. These meeting typically last just a few minutes and will require you to answer any questions that the bankruptcy trustee has for you. If the bankruptcy trustee doesn’t ask for additional documentation, it’s safe to assume that you are well on your way to getting a bankruptcy discharge.
Within 60 days of the 341 Meeting of Creditors, you must complete a budget counseling course, which can be done online or on the phone. Once this is completed you mail a form to the U.S. bankruptcy courts informing them that you have completed the course and await your discharge papers. Assuming that you provided all necessary information and completed each step, you can expect a discharge of your debts through Chapter 7 bankruptcy within 90 days of the Creditor’s meeting.