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Discharging Debts in Bankruptcy

A bankruptcy discharge is an order from the bankruptcy court that releases the debtor from liability for certain debts. After the discharge, the debtor is no longer legally required to pay any debts that are discharged.

The order also prohibits the creditors from attempting to collect any debts that have been discharged. This means the creditors have to permanently stop all legal action, telephone calls, letters, and other forms of contact with the debtor.

In most of Chapter 7 cases, all of the debtor’s assets are exempt. This is referred to as a “No-Asset” Chapter 7. At the end of these cases, the trustee files a report with the court stating that there were no assets to administer.

At the end of an “Asset” Chapter 7 case, the debtor will have non-exempt assets that the trustee will have to gather and sell. Once the trustee has a pool of funds, the court will welcome all creditors to file claims for what they contend the debtor owes. The trustee then mails checks to those creditors whose claims have been allowed by the court. Once all the non-exempt assets have been liquidated and all the claims have been filed, resolved and funds have been distributed, the trustee will file a report with the court. The court will then close the case.

A debtor who files a Chapter 7 case with non-exempt assets is expected to cooperate with the trustee’s efforts to find, liquidate and distribute non-exempt assets. If the trustee later discovers that the discharge was obtained by fraud, he/she can ask the court to revoke the discharge even after the closure of the case.

A closed Chapter 7 case can also be reopened to add forgotten debts. Debts that were not listed during the filing of the case are not discharged. The case can also be reopened to liquidate an asset that was not listed in your bankruptcy paperwork.

In Chapter 13 cases, assets are not liquidated. Instead, the debtor is required to make regular (usually monthly) payments to the trustee for three to five years based on a court-approved payment plan. The trustee then remits these payments to all the creditors who have filed proper claims with the court. The court will enter a discharge order and later close the case once the debtor has made all the payments according to the agreed payment plan.

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Seeking for Loan Modification as Alternative to Bankruptcy for California Homeowners

Loan Modification and Bankruptcy Options for California Homeowners

A common alternative to filing for bankruptcy in most states is a loan modification. This option comes in handy, especially when dealing with mortgage settlements. The process involves the modification of loan terms to enable you to alleviate your financial situation without having to lose your property. In such instances, the risk of foreclosure is always the most significant factor, as you could easily lose your home if not handled properly.

Complaints involving loan modification scams have been on the rise in the recent past among California property owners, especially following the 2016 housing crisis. Such cases arise due to the distress that customers usually have when threatened with foreclosure and the prospect of losing their property.

It is, however, possible to avoid such cases if one is armed with adequate information on the process of loan modification. A common question among California homeowners is if they should wait until they file for bankruptcy before seeking loan modification from creditors.

While you can wait until you file for bankruptcy before seeking a loan modification, it is usually advisable to initiate the process beforehand as it might help you avoid bankruptcy in the first place.

Similarly, it is crucial to understand what the process entails. The primary purpose of modifying a loan is to make it affordable to the borrower while at the same time preventing losses to the lender. As such, they may agree to change the plan, including lowering interest rates, extending the repayment period, deferring principal or forgiving some of the principal altogether.

A modification agreement will have to be entered with the lender to lend credence. Lenders in California often ask you to apply for the modification with proof of income as well as your credit reports to determine the number of debts you’d be able to service. A series of trial payments will be instituted after that to ascertain your eligibility for that plan. Finally, a decision will be arrived at depending on your success in the previous stages.

Eligibility for loan modification depends on a few factors. First, you would need to be spending at least 31% of your income on housing costs. Also, you’d qualify if you owe more than the value of the house, if in danger of default or otherwise not eligible for refinancing.

When looking for guidance on a loan modification for your mortgage, California authorities advice homeowners to identify reputable legal firms to avoid such cases as having been witnessed in the past where distressed property owners are swindled out of their cash in elaborate scams.

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Credit Card Settlement as Bankruptcy Alternative in California

Negotiating Debt with California Creditors as a Bankruptcy Alternative

One of the most prominent factors leading up to the filing of a bankruptcy claim by a debtor is credit card debt. Although a bankruptcy claim under Chapter 7 could let you get away with your credit card debt, it would have multiple and significant long term impacts on your credit scores. With negative credit scores, you would be disadvantaged as no creditor would be willing to lend you money. 

California creditors make a point of checking through your credit scores as a way to determine your creditworthiness. It is always thus advisable that you keep your credit scores within the acceptable level to be able to acquire loans in the future.

Due to the limitations that bankruptcy forces you over the future, however, you would opt to avoid filing for such claims unless it is the ultimate alternative left to save yourself from the actions of creditors against you.

One of the alternatives that bankruptcy attorneys in California would encourage you to explore beforehand is credit card settlement. Credit card settlement involves negotiations with your creditor regarding the arrangement of your debts to alleviate your financial situation. 

The negotiation process involves both your input and that of the company, with an agreement being reached depending on what you are bringing on the table.

More often than not, California creditors will be willing to come to the table with you if they can get a means to generate profit from the proceedings. Since a Chapter 7 bankruptcy will most likely deny them this privilege, it will be advantageous to them if they consider your offer instead.

Some of the critical issues you should consider, however, before proposing your negotiations include, whether they will be willing to receive a lump sum instead of dividend payments, a workout agreement where the company will lower your interest rate or reduce the monthly fees to allow you repay the amount owed, or if they are willing to take into consideration hardships you are going through at the moment if present.

One of the things you should ensure to do is to be persistent and precise with your details if you hope to win a negotiation with the credit company. Additionally, you would do better to get all the agreements in writing for future protection in case anything comes up.

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Do You Need an Attorney to File for Bankruptcy?

Although it is highly recommended to file for bankruptcy with the help of an attorney, filing for bankruptcy without an attorney is possible. This is termed as filing “pro se,” meaning that you represent yourself.

The importance of an attorney in a bankruptcy case depends on the complexity of the case. It is usually more feasible to file the simple Chapter 7 bankruptcy case by yourself.

Although a Chapter 7 case is usually straightforward, you are required you to gather financial documentation, fill out extensive paperwork, research bankruptcy and exemption laws, and follow the local rules and procedures. All these may

You can file for bankruptcy on your own if you have little or no assets, and you don’t have any priority debts.

Priority debts are paid first when money is available. These debts don’t go away in bankruptcy (non-dischargeable). Priority debts include;

  1. Child and spousal support.
  2. Retirement plan loans.
  3. Fines, penalties, and restitution imposed as punishment for violation the law including intoxicated driving fines.
  4. Money borrowed to offset non-dischargeable tax debt.
  5. Debts determined non-dischargeable in a previous case. Any creditor can file a non-dischargeability complaint.

However, if you own a business, have income above the median level of your state, or have a significant amount of assets, your case may complex requiring the need of an attorney. It is also advisable to hire an attorney to handle your bankruptcy if you have creditors who can make claims against you based on fraud.

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Debt Reorganization as an Alternative to Bankruptcy in California

Bankruptcy or Debt Reorganization: Dealing with Creditor issues in California

Considering the widespread, long-term ramifications of a bankruptcy claim, it is understandable why debtors would prefer exhausting other alternatives to reaching an agreement with their creditors before discussing this step. Debt reorganization is one of the alternative means of settling debt with creditors without having to file for bankruptcy.

Debt reorganization is popular with both individual and business debtors in California as a way to deal with creditors during dire financial situations.  The process involves negotiations with creditors with the help of a financial reorganization attorney out of court with new arrangements to repay existing debts.

A successful debt reorganization negotiation should allow you to regain liquidity and profitability if a business is involved. Most California creditors will often work out a deal that is mutually beneficial to both parties.

Some of the ways that they would use include interest rate reduction, increasing the repayment period, debt forgiveness, and suspending payments for a while.

On your part, however, you would be required to come up with a realistic debt restructuring plan that takes into consideration the budget forecasts as well as project cash flows in the near future. These will be useful in setting goals to be accomplished in the resettlement of your debts.

California creditors would rarely object to such a plan in considering debt restructuring as they would most likely receive less money with a bankruptcy claim in place.

Amongst the benefits of considering debt restructuring over bankruptcy is that it would allow you to avoid foreclosure for failing to repay your debts. It would also allow you to achieve discharge of debts and reduce monthly financial obligations by deferring payments, thereby alleviating your overall situation. Besides, debt restructuring is cost and time-saving, with no filing fees involved, fewer attorney fees and only a few months’ engagements as compared to a bankruptcy claim. In addition, since it is a voluntary process, it allows for increased flexibility and selective in-debt severability.

Considering the benefits of debt reorganization as an alternative to bankruptcy, it is easy to understand why more and more debtors in California are leaning more to this option. It is, however, good practice to involve your attorneys at all levels to get the best deal out of the negotiation process.

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Preparation for 341 Creditor Meetings in California

Questions to Anticipate in Preparation for 341 Meeting with California Creditors

Whether you file for bankruptcy under Chapter 13 or Chapter 7, you would be compelled to attend a series of meetings with your creditors facilitated by your trustee to chart the way forward regarding your debt resettlement and the court’s decision. These are christened the 341 meetings following its location in the Bankruptcy Code. At these meetings, the trustee is required by law to ascertain the accuracy of the information provided during the bankruptcy proceedings. As such, the sessions, commonly referred to as the creditors’ meetings, are usually done under oath.

341 meetings require adequate preparation from both the debtor and the creditor’s side due to the implications of its outcome. From these meetings, the trustee would establish what portion of your assets to sell to repay your creditors under Chapter 7. Alternatively, they would determine the feasibility of your repayment plan if you filed for Chapter 13 bankruptcy.

Most problems with 341 meetings in California arise due to the level of unpreparedness of the involved individuals during these sessions. Issues such as omissions or inaccurate information being presented during the meetings could easily be avoided with adequate preparation.

Bankruptcy attorneys will often offer guidance during the preparation, minimizing the chance of inaccuracies as well as informing you of ways to go about rectifying such issues when spotted early. Besides, they would also come in handy in helping you prepare for the questions and what to expect from the proceeding.

Some of the typical questions to prepare for in anticipation of the 341 meetings as relayed by seasoned lawyers in California include: matters to do with asset disclosure, the accuracy of the information on the bankruptcy papers, list of creditors, whether you have filed for bankruptcy before, as well as changes that have taken place since filing for bankruptcy.

The trustee will also probably be interested in personal issues such as alimony and child support, your tax returns history, aggregate payments to creditors and people who owe you money.

The accuracy of the information gathered during the meeting will significantly affect your dispensation of the bankruptcy recommendations. Most California bankruptcy attorneys will thus advise you to make adequate preparations before and during the period leading up to the meeting to avoid the pitfalls that may befall you as a result of unpreparedness.

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What is a Meeting of Creditors?

What is a 341(a) Meeting of Creditors

The meeting of creditors, also known as the 341 meeting, is a hearing that must be attended by all debtors in a bankruptcy case. The hearing is often held without the presence of a judge. However, a trustee is appointed to oversee the meetings in chapter 7, 12 and 13 bankruptcy cases. A representative of the US Trustee chairs the meeting in chapter 11 cases.

The purpose of this meeting is to permit the trustee to review the debtors’ petitions and schedule with the debtor. The debtor is required to disclose all information pertaining to the debtor’s conduct, property, liabilities, financial condition and any matter that may affect the administration of the case and the debtor’s right to discharge.

During this meeting, the creditors are given a chance to question the debtor anything pertinent to the administration of the case.

It is not compulsory for the creditors to attend the hearing, and they do not waive any rights if they fail to attend. The meeting generally takes about 5 to 10 minutes.

If a debtor fails to attend the meeting, the trustee may request for the dismissal of the case or may seek other relief against the debtor. If a bankruptcy case was filed jointly by spouses, both must attend the hearing.

In addition to identification documents, some of the most common documents you may have to bring to the hearing include your;

  1. Tax returns.
  2. Pay stubs.
  3. Bank statements.
  4. Retirement account statements.
  5. Profit and loss statements (if you are self-employed)
  6. Mortgage documents including deeds of trust and loan statements.
  7. Car registrations.
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Considering Alternatives to Bankruptcy in California: Debt Consolidation Plans

California Debt Consolidation as an Alternative to Bankruptcy

The decision to file for bankruptcy, notwithstanding the chapter it is filed under, is a significant step which requires considerable thought process before coming to a conclusion and taking action. As such, filing for bankruptcy should be considered only as a last resort, rather than the quickest solution in dealing with debts. With the help of a bankruptcy attorney, one could be guided to seek alternative ways of dealing with debts before filing for bankruptcy.

The availability of bankruptcy alternatives depends mainly on your employment and the assets that you have. Consolidation companies would most likely look at these factors when contacted regarding late repayment.

One of the most common alternatives to bankruptcy in California is debt consolidation. Debt consolidation involves the procurement of a new loan to finance the payoff of several others under your name.

California creditors often offer debt consolidation through two types of loan plans.

The first type of consolidation loan plan that the creditors would always offer is one that is not secured by your home. In such an instance, the company will simply loan you money to pay off the debts. All you need thus is to make one monthly payment to the consolidation company, and they will handle your creditors from there.

With the second option, the company will offer a consolidation plan involving home equity security. With this plan, you would need to take a second mortgage or a home equity line of credit with your home as the collateral to lower your credit costs and improve financial circumstances.

The problem with a debt consolidation plan that involves home equity is the risk of losing the property in case your current financial situation fails to improve. Many California debtors seeking debt consolidation through this plan have lost their properties after falling back on their payments to the consolidation company.

The situation is even worse when one is considering Chapter 7 bankruptcy as the alternative due to the ease of losing your home as a result of limited-equity exemptions. However, the option would suit you if you are considering a Chapter 13 bankruptcy as it allows you to restructure your debts when you have more equity than would be protected under Chapter 7.

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California Laws on Foreclosure and Bankruptcy

Foreclosure and Bankruptcy Claims in California

One of the scariest prospects when undergoing dire financial constraints is foreclosure. Foreclosure refers to the legal process whereby a lender, especially when it comes to mortgage, seeks to recover part of their loan balance by selling the asset used as collateral for the loan. The process, besides rendering one homeless most times, usually knocks down points in your credit score by a considerable margin. It is thus understandable why people panic at the thought of foreclosure on their assets.

A common question that people ask is whether a filing for bankruptcy would save you from foreclosure in this aspect.

In California, a foreclosure would typically take approximately 120 days to process. The length of time, however, varies depending on the type of foreclosure used by the lender to claim your property.

California laws allow for both judicial and non-judicial foreclosures on a property. The most common, however, is the non-judicial form, where the lender does not have to file for a lawsuit before proceeding with the acquisition and sale.

Fortunately, a bankruptcy claim could stop these plans either temporarily or permanently depending on the court’s assessment and the chapter you file under.

Ordinarily, a Chapter 7 bankruptcy will not protect you from foreclosure in California as it encompasses fewer options and has a lower limit to the value of properties that it could exempt. A Chapter 13, however, may be effective against a foreclosure given the multiple options it affords the debtor.

That notwithstanding, the automatic stay that the bankruptcy claim imposes on the creditor would effectively shield you from an immediate auction or foreclosure attempt by the creditor. Though the creditor may dispute the automatic stay through a court process, what it does is that it delays the action of the creditor at least for some time.

Thus filing for bankruptcy when under threat of foreclosure, even if it may not be successful, would buy you precious time allowing you to renegotiate payment times with the creditor and therefore avoiding the foreclosure and its impacts.