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Redwood City California Bankruptcy Law Blog

The requirements to file for Chapter 13 bankruptcy

An individual in California can make as much money as he or she wants and still possibly be eligible to file for Chapter 13 bankruptcy. However, there are limits to how much debt a person can have at the time he or she files. An individual cannot have unsecured debts of more than $394,725 or secured debts of more than $1,184,200 and still qualify for a Chapter 13 filing.

While there are no income caps in order to file for Chapter 13 bankruptcy, a debtor must generally disclose all forms of income to the court. An individual will also need to show that he or she filed federal and state income taxes over the past four years. If an individual is allowed to seek such protection from creditors, debts will be repaid over a period of three or five years. During the repayment period, a debtor is allowed to keep significant assets like a house or vehicle.

Not everyone qualifies for Chapter 7

California residents who are struggling to keep up with their debts may benefit from filing for bankruptcy. However, it should be seen as a last resort for those who don't have any other options available. In the case of a short-term financial shortfall, it may be best to speak with a lender to work out alternate payment arrangements. This could make it possible to avoid a repossession or serious blemish on a credit report.

Those who do file for bankruptcy may have the option of filing for Chapter 7 bankruptcy. This is a liquidation bankruptcy that sees nonexempt assets sold to raise money to pay off creditors. However, Chapter 7 is only available to those who pass the means test. The means test is used to determine if an individual has the disposable income necessary to pay back some or all of an outstanding debt.

Young people face growing debt burden

Many young people in California and nationwide are dealing with a growing debt burden. According to statistics released by the New York Fed Consumer Credit Panel and Equifax, people between the ages of 18 and 29 owe $1.05 trillion in debt. This burden is comprised of a number of different types of obligations, particularly student loans. However, it also includes a substantial amount of credit card debt, auto loans and mortgage obligations. This marks an increase in the collective obligations of young Americans; the last time this demographic had over $1 trillion in debt was in 2007.

Of course, young people are not alone in bearing a significant burden of debt. Americans aged 30 to 39 have $2.9 trillion in debt while people between 40 and 49 are $3.4 trillion in debt. People aged 50 to 59 carry $3.2 trillion of debt, those who are 60 to 69 have a $2 trillion burden and those 70 and up owe $1 trillion.

Common questions you may have about the bankruptcy process

When you are no longer able to manage your debt and creditors are calling you at all hours about repayment, you may consider the benefits of bankruptcy. This is a process by which you can deal with certain types of debt once and for all, but you may be unsure about moving forward with such an important step. Filing for bankruptcy is a major decision, and it is beneficial to have all necessary information before moving forward. 

Filing for bankruptcy may not be your first choice. You probably never imagined you would be in a financial situation that has left you with no other ways to effectively manage your past-due balances and catch up. However, you may feel different about the bankruptcy process after you get the answers you need and understand how this choice can be beneficial for your individual situation.

Reasons to file for bankruptcy

A California resident who is struggling with debt might want to consider several options before filing for bankruptcy. In some cases, it's possible to negotiate a payment plan with creditors. A debtor could also consider credit counseling. Some credit counseling services might be able to negotiate with creditors and get them to agree to lower payments. Of course, dipping into savings is another way to eliminate debts.

However, there are also situations in which filing for bankruptcy might be the best solution. Filing for bankruptcy can help save a home that is in foreclosure or other assets. Even a person who only has a few assets may want to file for bankruptcy since all or most of the debts may be discharged.

The link between medical debt and bankruptcy

Some California residents may be a single medical emergency away from filing for bankruptcy. This is the takeaway from a study conducted by a professor at CUNY Hunter College in New York and several others. The study looked at 910 random bankruptcy filings between 2013 and 2016. Of those bankruptcy filings, 58.5 percent were related to medical expenses. Those who get sick may be vulnerable to losing their jobs, which may cut off access to an employer-based health plan.

The study was deemed to be one of the first of its kind to analyze the impact of medical bills after the passage of the Affordable Care Act in 2010. Prior to its passage, 65.5 percent of debtors said that medical expenses contributed to their bankruptcies. That number was 67.5 percent three years after it passed.

Circumstances dictate the appropriate type of bankruptcy

Many California residents struggle with debt for some years before it becomes too burdensome or simply impossible to continue on any longer. The reluctance to seek help is often the result of a perceived stigma of acquiring debt that is unmanageable, yet unforeseen circumstances, such as an emergency medical necessity, are in many cases the underlying cause. There are many reasons why bankruptcy is beneficial to permit a debtor to have a fresh start. An important first step is to determine if the debts are such that can be relieved through bankruptcy and which form may be appropriate.

Financial experts caution initially that certain types of debt are not dischargeable through bankruptcy. Child support, alimony, most taxes, and student loans under most circumstances fall into this category. If unsecured debt is from another source like credit card debt or medical bills, bankruptcy may provide a solution to the problem. The two main options for individuals are Chapter 7, which is commonly categorized as a liquidation, and Chapter 13, often referred to as reorganization.

Waiting period required before filing for bankruptcy again

High living expenses in California coupled with a crisis like a job loss or serious health problems sometimes send people into bankruptcy. Although bankruptcy is meant to give people a fresh financial start, the law generally recognizes that people might need to file for protection more than once. Debtors must observe waiting periods before filing again, and the type of their original bankruptcy action influences how long they must wait.

Chapter 7 represents a common form of consumer bankruptcy. When successful, it discharges some unsecured obligations, like medical bills and credit card debts. Eight years must pass before the filer can seek a second Chapter 7 bankruptcy. People encounter a shorter waiting period of only four years if they want to file a Chapter 13 case after a Chapter 7 action. In Chapter 13, the court restructures debts and places people on a manageable payment plan instead discharging debts outright.

Is your business in debt? This information might be helpful

How long ago was it when your business was nothing more than an idea in your own mind? Whether it was less than a year ago or several decades ago, you likely recall what it was like to have a dream and wonder if you'd ever be able to bring it to fruition. You did. You succeeded, and if you're like many California business owners, you probably had to overcome numerous challenges along the way.

If your current business financial status includes serious debt, you're definitely not alone in your struggle. The good news is that most financial crises are temporary. Business owners can often get things back on track by being proactive and implementing various strategies to secure debt relief and lay the groundwork for restored financial stability. It can help to talk to someone who has experience helping companies through these turbulent times.

Dealing with major medical bills

Many California residents struggle to pay their bills, especially if they are hit with an insurmountable sum of medical debt. In many cases, the people for whom medical bills loom large are those least able to handle the financial burden, including the poor and the elderly. Middle-class families may also struggle to make ends meet if their health insurance fails to cover significant medical bills. Patients may not think of medical debt as similar to credit card bills, but it can have a significant impact on a person's credit record and debt collectors can purchase the obligation. As a result, vulnerable people may be facing ongoing collection calls demanding payment for these expenses.

Some regulations now limit the speed at which medical bills can affect a patient's credit report. The major credit bureaus must wait 180 days before including medical items on a person's credit report in order to provide a greater time period to reach a resolution with the original provider. This can be especially critical if an insurance company has denied coverage and the patient is engaged in appeals with the insurer. In addition, if the insurer finally pays, the debt must be removed from the patient's credit report.