The overwhelming majority of bankruptcy cases are filed under Chapter 7 of the Bankruptcy Code. The actual percentage of cases that are filed as Chapter 7 cases is around 95% in most jurisdictions, including San Diego. Chapter 7 gets right to the heart of bankruptcy relief for the average person. Let’s take a look at why that’s the case.
The filing of your Chapter 7 bankruptcy case creates an immediate “injunction” that the bankruptcy law calls the “automatic stay.” It is found in the law at Title 11, United States Code, Section 362(a). It stops all forms of creditor collection activity including foreclosures, lawsuits, phone calls and letters to collect debts, wage garnishments, auto repossessions and so on. Everything stops.
This automatic stay is designed to allow all or virtually all of the claims against you to be handled in one place: the Bankruptcy Court. It stops all creditors from trying to enforce their claims and instead to bring their claims to the Court you have chosen to be resolved. And in most cases, creditors’ claims are resolved when they Trustee reports that you have no available assets for payment—so claimants receive nothing and must move on to bothering other people.
There are some limited exceptions when the automatic stay may not apply and you can discuss these with your lawyer so that you know how a Chapter 7 bankruptcy filing will actually affect you. One limited example of a court proceeding outside of bankruptcy that might not be stopped is a child custody proceeding. But for the most part, your financial life will suddenly get simple and the stress will disappear because of the automatic stay.
The “fresh start” provided by a Chapter 7 bankruptcy case comes from the discharge of debts that you receive when your case is completed—generally 3 to 4 months after you file. The discharge is the essence of bankruptcy relief because it represents the forgiveness of debts in order that you can start a new financial life. And the law also provides a “discharge injunction” that acts as a Court order prohibiting creditors from ever seeking to collect a debt that was discharged in your case.
The Bankruptcy law allows an individual a discharge once every 8 years. It is not uncommon to see people with credit card debts equaling and exceeding their annual incomes—sometimes even having double or triple their income in credit card debts. There is just no realistic way such debts can be repaid. Others may have overwhelming medical bills or losses from a business that prevent them from having any kind of viable financial life. So the bankruptcy discharge allows people to move on and to re-establish new credit that can be reasonably and properly repaid.
What the bankruptcy law requires in return for the discharge is that you are open and honest about your property and your past financial dealings. The Bankruptcy law will not countenance dishonesty and there are serious consequences for those who try to lie or shortcut the system. But the good news is that the law, with some proper planning and analysis, allows most people who file Chapter 7 bankruptcy to keep all of their property.
There are a few exceptions to the bankruptcy discharge. When you speak with your attorney, you’ll find out if you have a debt that may not be discharged in bankruptcy. These may include certain student loans, some taxes and some debts incurred by fraud or bad acts. If any of these apply to you, then an expert bankruptcy lawyer will show you the best options for handling such debts and still gaining an important measure of relief from all of your other obligations.
In order to make the “fresh start” in Bankruptcy meaningful, the law is generous concerning the property that you are allowed to keep. The Bankruptcy law provides categories of property called “exemptions” that you may “claim” and then protect or keep for your own use and enjoyment. As you might expect, the law will protect generous amounts of personal property and furnishings as well as equity in your home. Equity in your vehicles may also be protected.
One key aspect of these exemptions is that they must be properly “claimed” in your Bankruptcy papers by you and your lawyer. If this is not done properly, you will face additional delays and you may even lose property that could have been saved if it was properly claimed as exempt. The laws and the rules that apply are very detailed and involve both Federal Bankruptcy law and the State laws for your current or recent home(s). An expert bankruptcy lawyer will understand the detailed rules that apply. An inexperienced lawyer or paralegal will likely make mistakes. Learn more about how exemptions work here.
A Chapter 7 bankruptcy filing in San Diego will stop your creditors in their tracks, get you a discharge of your debts and will also likely protect all of your property. To protect your property with proper planning, and to avoid critical mistakes that may cause you to lose the relief you deserve, talk to an experienced expert San Diego bankruptcy lawyer. Call us at 1-(800)-551-7922.