As one piles up debts, the might be the temptation to file for bankruptcy. The decision or feeling might leave one feeling hopeless or scared. There are however some options before one decides to declare that they are bankrupt. While filing for bankruptcy will allow one to start afresh, it should not be taken lightly. This is owing to the fact that it comes with some serious consequences. In consideration of filing for bankruptcy CA residents should know what is involved.
There is more than one type that one can opt for. Each of the types has its restrictions and outcomes that are different. Chapter 7 bankruptcy is also called liquidation. When one files for this, they will allow debtors to discharge most of their debts. It requires a debtor to liquidate or sell most assets so as to pay what they owe.
Another common one is called chapter 13. With this, one will be allowed to reorganize debts that they have and pay creditors over some time. The process could take as long as 5 years. Debtor assets do not get liquidated and should there be any additional debts owed after payments have been made, they are discharged. Not all things will be discharged though. Even when you apply for chapter 7, they are not forgiven all that they owed. There are debts which are not discharged.
Debts that cannot be discharged include student loans, child support, most taxes and real estate liens. In addition to that, it is possible for debtors to oppose discharge of debts that they are owed. If they file their opposition and win, you will still be owing the money. Income of an individual matters when they are filing that they are bankrupt.
While virtually every person is able to file for bankruptcy, issues of income will play a key role. For example, there are people that make lots of money that will imply they are not qualified for chapter 7. For people that file for chapter 13, the amount they earn as income will determine how the restructuring is done. In addition to that, filing is not done for free as one will need services of a qualified attorney. The fees charged by an attorney could be added to the bankruptcy filing. Chapter 13 fees are higher because its process is more protracted.
It is important to note that bankruptcy will destroy credit of an individual. The payment history of the person contributes to 35 percent of credit score. When one decided to declare that they are bankrupt, it will affect their ability to be given loans in future. During the period, getting credit cards or getting some jobs becomes very tough. The information about ones bankruptcy usually becomes a public record.
Filing that one is bankrupt will not cure the root problems. While it helps to restructure debt or discharge, it will not cure problems that one had in the first place. Filing that one is bankrupt could be because of some poor financial decisions, which might still be there.
There are different options you can opt for. Negotiation of debts with creditors is an option. Some people also prefer debt consolidation.
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