Q: I lost my job due to COVID -19 and the unemployment payments aren’t enough to cover my bills.  My credit card debts and medical bills are mounting up.  Can Bankruptcy help me?

A: The most common debts that debtors seek to discharged within bankruptcy are medical bills and credit card debt.  Virtually all medical bills and credit card debt can be forgiven by filing a Chapter 7 Bankruptcy.

In order to qualify for a Chapter 7 Bankruptcy you must disclose all of your gross monthly income from all sources and prove that after paying all of your reasonable and necessary monthly living expenses that you are unable to make a payment toward your unsecured creditors (credit cards, medical bills, collections, personal loans, etc.). If you can still afford to make a payment toward your unsecured creditors you may not qualify for a Chapter 7 and may be required to file a Chapter 13 Bankruptcy.

 

Q: What is the difference between a Chapter 7 and Chapter 13 Bankruptcy?

A: A Chapter 7 Bankruptcy is called the “Liquidation” Bankruptcy. In a Chapter 7 Bankruptcy you are only allowed to keep so much property that has value before the Chapter 7 Trustee can take and sell your assets to pay your creditors. In California you can own a substantial amount of assets before you are subjected to possible liquidation. In order to file a Chapter 7 Bankruptcy you must qualify based on your gross monthly income from all sources and prove that you are unable to make a payment towards your debt.

A Chapter 13 Bankruptcy is a reorganization Bankruptcy that requires a monthly payment toward your debt for a period of 60 months.  Many factors go into determining your Chapter 13 Plan Payment, such as disposable income, income taxes owed, value of assets, etc. In a chapter 13 Bankruptcy you are not subjected to liquidation so long as  your plan payment meets all requirements under the Bankruptcy Code.

 

Q: Why would someone who qualifies for a Chapter 7 Bankruptcy elect to file a Chapter 13 Bankruptcy?

A: A Chapter 13 Bankruptcy offers many tools that a Chapter 7 Bankruptcy does not offer for example:

  1. Allows a home owner that is behind on their mortgage payment the ability to get current on their mortgage and save their home from foreclosure.
  2. Allows a person to keep all of their property that they may have lost in a Chapter 7 Bankruptcy.
  3. You can pay back priority debt that would not be discharged in a Chapter 7 Bankruptcy. For example, back taxes, child support and or spousal support arrears.
  4. Remove a second mortgage or deed of trust from a home (if it meets certain qualifications)

In order to determine if you qualify for a Chapter 7 or Chapter 13 Bankruptcy, please seek the advice of a qualified bankruptcy attorney.

 

Calvin Stead

 

 

Cal Stead is a Partner in the Bakersfield office of Borton Petrini, LLP.

 

 

 

 

 

Jessica Dorn is a Partner in the Modesto office of Borton Petrini, LLP.

 

 

 

Bankruptcy and Creditors’ Rights

Legal Disclaimer: Please be informed that legislation and laws are rapidly developing in response to the COVID-19 pandemic.  Therefore, the legal analysis that is being provided is based on the analysis of the current legislation and current agency guidance, as it stands at this moment.  Additional legislation and/or changes to current legislation may impact the information being given herein.  This article is designed for general information only. The information presented should not be construed to be formal legal advice, nor the formation of a lawyer/client relationship.