The Bankruptcy Code is a federal law which provides debtors with a federal right to a fresh financial start. Different Chapters of the Bankruptcy Code provide different remedies to different debtors. Consumer debtors generally obtain their fresh financial start from either Chapter 7 or Chapter 13 of the Bankruptcy Code.

Chapter7 - Liquidation
Discharges debts after liquidation of non-exempt assets, except that most assets (including personal items and real estate) can usually be sheltered from such liquidation and so retained by debtors.

Chapter 13 - Reorganization
Stays debts from collection upon court approved repayment plan, except that wages or other income source is required as is payment to creditors for five (5) years in most cases.

Chapter 7 Bankruptcy proceedings would immediately stay (stop) creditor harassment and then ultimately discharge (cancel) creditor claims, thus providing debtors with a fresh financial start. However, this relief does not generally extend to the following special debts:

Most taxes

Child Support & Spousal Support

Most Student Loans

Court fines and Criminal Restitution including (DUI)

Fraudulent Charges

Chapter 13 Bankruptcy (Reorganization) would require debtors to repay creditors when unsecured debts total less than $250,000.00 and secured debts total less than $750,000.00, and when sufficient income exists to support such repayment. Further, this relief generally does extend to the above referenced special debts.

Again, debtors can generally keep most if not all of their assets even when filing Chapter 7 Bankruptcy (liquidation) proceedings. The property which debtors can keep is defined by specific Exemption Lists in the California Code of Civil Procedure.

Future credit may or may not suffer with the filing of Chapter 7 Bankruptcy proceedings. Indeed, it is not unusual for creditors to approach debtors immediately after the filing of Chapter 7 Bankruptcy proceedings to offer new credit. These offers of new credit are based on the principle that debtors have resolved their financial difficulties, that they have no more debts, and that they cannot file again for six (6) years. In any case, the decision to file or not to file Chapter 7 Bankruptcy proceedings needs to rest on debtors' existing financial condition, not on debtors' future credit expectations. In other words, debtors need to file Chapter 7 Bankruptcy proceedings when they have no other choice.

Finally, Congress recently passed a new Bankruptcy Law (BAPCPA) which took effect in October, 2005. This Bankruptcy code now limits Chapter 7 Bankruptcy relief to the 50% of households that earn less than the median income. This Bankruptcy code also requires debtors to "jump through a number of additional hoops," which virtually require representation.




   
   

The Law Offices of Russ Rasmussen
5252 Balboa, Suite 704 · San Diego, CA  92117
858.569.0206 · Fax 858.569.0209
russ@russrasmussen.com