Asaph Abrams Attorney at law

San Diego Bankruptcy

bankruptcy attorney san diego

What is bankruptcy?

It depends on the bankruptcy chapter, but to offer it up in a tweet: bankruptcy either eliminates debt or provides for its full or partial repayment, with the intention of preserving all one’s assets. 

U.S. legislation consists in part of Codes broken into Titles, Chapters, sections, sub-sections, sub-sub-. . . well, you get the picture.  U.S Code, Title 11 is devoted to bankruptcy.  Some of its chapter numbers, like chapter 7 and chapter 13 encompass distinct types of bankruptcy.  These chapters balance the protection of the debtors who owe money with the interest of creditors to whom they owe.   For American consumers or business persons in debt, bankruptcy is designed to eliminate as many liabilities as possible, while preserving the maximum amount of property and resources.  That can be a tricky balancing act to perform on unfamiliar ground.  The vast majority of debtors retain legal counsel so as to best maneuver this field. 

So, what are these different “chapters,” anyway?

What is Chapter 7 bankruptcy?

By chapter 7, we refer to a petition to the Bankruptcy Court for debt relief under chapter 7 of the bankruptcy code.  Chapter 7 bankruptcy is called liquidation, because technically one’s property can be sold for repayment to creditors.  However that rarely occurs because bankruptcy exemption statutes protect most debtors’ assets from sale.   Unsecured credit card and medical bills can be abolished without limitation through chapter 7 bankruptcy.   Of course, indications of fraud, e.g. incurrence of debt without original intention to repay it, are bad news that can place limits on the relief you seek.  Bankruptcy is designed for the honest debtor who needs a second chance and who’s willing to play by the rules.  Bankruptcy is a privilege provided for by our government; it is not an absolute right.  The reason almost all bankruptcy petitioners seek legal counsel is because they can’t afford to lose that privilege.

Chapter 7 bankruptcy is generally available to those who earn below the state median gross income as it relates to household size. In California, the median income is $47,683 for a household of one, $61,539 for a household of two, $66,050 for three, $74,806 for four*.  To see if you qualify, we measure your average gross monthly income over the six-month period prior to the month in which you’d file your bankruptcy petition.  If that average is below the median, then you’re normally eligible to file a chapter 7 bankruptcy.  If your average monthly gross income over that prior six-month period was higher than the median, you may be able to file a chapter 7 bankruptcy.  If you earn above the median,  you carry the burden to demonstrate why you are unable to pay at least some of your debt back through a chapter 13 bankruptcy. The way that’s done is through the “means test.”  This is a calculation of what your disposable (left-over) income “should be” after deducting only certain allowable expenses from your monthly income.  You can still do a chapter 7 bankruptcy if your means test produces either a negative or a nominal balance that wouldn’t permit any meaningful repayment of debt.  Regardless of the means test results, we must also look at your actual income and expenses.  If you’re able to save money at the end of the month, then that remainder should presumably be used to pay back debt, rather than be kept or saved.

If most of your debt is from business, however, then you don’t have to go through the means test hoop.  There is also a rare exception for certain military service members.

A successful chapter 7 bankruptcy can fully cancel (discharge) a majority of one’s debt, without causing loss of property.  Unsecured debt like credit card and medical charges are fully eliminated in chapter 7 bankruptcy. There is theoretically no limit on the dollar amounts that can be extinguished.  Lawsuit judgments and older income tax assessments can be likewise forgiven. 

Secured debts, such as mortgages and car loans are likewise discharged through a chapter 7 bankruptcy. However, the lender retains its security interest and can repossess or foreclose if the loan is in default.  If your payments are current and your equity is not excessive, then you can keep such secured properties. 

Certain debts are considered priorities that cannot be discharged in bankruptcy due to public policy.  Current taxes and domestic support are examples of priority debts that may not be discharged.

Most household furniture, clothing and appliances are immune to liquidation in bankruptcy.    Retirement accounts and certain insurance avails are kept from being sold.  Secured properties like homes and vehicles are protected, subject to limits in equity.  For example, bankruptcy filers get to keep between $20,725 and $175,000* in home equity.   Equity in motor vehicles is exempt to $2,725 or $3,525.  If you are not protecting substantial home equity, you can keep up to another $22,075 of value in any property including vehicles.  The above exemptions apply to California law.  Exemptions vary based on factors such as the petitioner’s familial status, age and the types of properties that need protection.

*For each individual in excess of four, add $7,500.

What is Chapter 13?

Like chapter 7 bankruptcy, chapter 13 bankruptcy can completely wipe out unsecured debt  albeit with some form of payment involved.  Through a monthly payment plan, chapter 13 bankruptcy reduces, manages or cancels out debt, while preventing the loss of property.  Chapter 13 bankruptcy can catch you up when you’re late on your home or car loans and let you keep those properties.  This form of bankruptcy can reduce the principal debt on certain properties and can remove second mortgages. 

Chapter 13 bankruptcy is designed for higher earners that may not be eligible to file a chapter 7 bankruptcy.  However, there are other reasons to do a chapter 13 bankruptcy

A successful chapter 13 bankruptcy can help the petitioner catch up on car and mortgage payments that have fallen behind.  The principal debt on vehicles purchased over 910 days before your bankruptcy filing date can be reduced to current market value.  The principal on other goods can be similarly “crammed down” though bankruptcy if purchased more than a year before filing bankruptcy.

If your house is “upside down” and you have a second mortgage, then chapter 13 bankruptcy can be a powerful tool.  As long as you owe more on the primary mortgage than the house is worth, then the second mortgage can be eliminated through bankruptcy.

In a chapter 13 bankruptcy, “priority” debts like those on some taxes and on child support have to be paid in full.  However, other unsecured debt like credit cards are only payable to a limited extent.  Often, you may end up paying nothing on such debts.  So, how much do you have to pay in a chapter 13 bankruptcy plan?

In a chapter 13 bankruptcy, all “disposable” income must be paid on a monthly basis.  Chapter 13 bankruptcy is usually a 36- or 60-month commitment.  Generally defined, disposable income is simply what is left from your income after you deduct expenses.  However, in bankruptcy, disposable income is a term of art, since you must adhere to allowed expenses.   Your gross pay would be a starting point.  From there, you subtract only allowable paycheck deductions and only allowable living expenses that conform to IRS local standards.  However, you do get to deduct certain actual expenses, like payments on secured debts and some other justifiable costs of living.  But note that if your actual expenses are less than the standard allowances, you may end up paying the difference.

There is another consideration in setting the necessary payment amount for a chapter 13 bankruptcy.  The value of any nonexempt assets (that could be liquidated in a chapter 7 bankruptcy)  constitutes a threshold for payment in chapter 13 bankruptcy

Out of curiosity, are there other bankruptcy chapters in the Bankruptcy Code (Title 11)?

Yes.  Chapter 11 (of Title 11) is usually utilized by corporations seeking reorganization through bankruptcy, though it may be used by individuals as well. 

Other bankruptcy chapters are specific to certain entities and occupational groups.  Chapter 9 bankruptcy addresses reorganization of municipalities; chapter 12 bankruptcy applies to adjustment of debt by farmers and fishermen.  Chapter 15 bankruptcy addresses cases of an international nature.  The other chapters of Title 11 address general definitions and administration requirements

There is also a fictitious chapter 20 bankruptcy.  Colloquially coined, it implies the filing of a chapter 13 bankruptcy right after a chapter 7 bankruptcy, hence 7 + 13 = 20 (and they told me I wouldn’t have to do any math when I applied to law school).

General Bankruptcy Questions

San Diego bankruptcy attorney
San Diego bankruptcy attorney

To discuss your particular situation, please call (858) 344-0500 to schedule your free consultation.