Whether or not to declare or file bankruptcy in California, or any other State,  is a very important decision to make.

The first step should always be to have a comprehensive consultation with a bankruptcy attorney who can analyze your specific facts and go over your options.

What Debt Problems Do You Have?

You owe debts.

Probably to many different entities and people.

Perhaps it’s credit cards, taxes, student loans, medical bills, money owed after a repossession or foreclosure, or maybe you breached a contract or inadvertently caused personal injury to someone.

What Happens If You Don’t Do Anything?

If you default on your payments (i.e. stop paying them), your creditors have the right to try to collect from you in accordance with your state’s laws.

The procedures for doing this depends on the type of debt.

Most laws require the creditor to first file a lawsuit and then obtain a court judgment.  However some, such as IRS debts and federal student loans, do not have to go through such a judicial process.

In California, once a judgment is obtained (or the equivalent procedure), the creditors can:

  • 1.  Put liens against assets you own;
  • 2.  Seize your bank accounts on a given date;
  • 3.  garnish your wages (up to 25% of your net pay)
  • 4.  Force the sale of your assets (this is rare for an unsecured creditor).

If your debt is secured (such as a mortgage or vehicle loan), they are able to foreclose or repossess their collateral in addition to undertaking the above actions if there is still money owed after the sale.

None of these are too pleasant.

Bankruptcy vs.  Credit Counseling and Debt Consolidation

There can be advantages to doing debt negotiations and consolidations, and there are many companies out there who offer those services.

If you can work out a payment plan that works for you, then great, but here are a few important points to consider and keep in mind:

  1. Be sure you know exactly how long and how much your payments will be;
  2. Be sure there is a guarantee that if you make all the payments, your obligations will be completed;
  3. How much is the company you’re hiring taking for its compensation?
  4. How much will you be paying in total vs. how much you would have to pay in a bankruptcy (this obviously first requires a consultation with a bankruptcy attorney)

Doing the above, however, may still not be your best option.

See my article on Bankruptcy and Non-Bankruptcy Debt Solutions for more information.

What Can Bankruptcy Do For You?

  • Relieve the legal obligation to pay on most debts (All Chapters)
  • Allow you to rebuild your credit,  usually more quickly than if no bankruptcy is filed (All Chapters, but particularly Chapter 7)
  • Enable you to catch up on past due secured debts, such as mortgages and vehicle payments over time. (Chapter 13 or Chapter 11)
  • Stop all collection actions against you (such as garnishments, foreclosures and levies). (All Chapters)
  • Avoid tax consequences for forgiven debt. (All Chapters)
  • Remove judgment liens against your property (All Chapters)
  • Remove junior mortgage liens. (Chapter 13 and 11)
  • And much more

Not all the above can be accomplished in every case.  It requires an experienced attorney to determine what you are eligible for and what can be accomplished in your case as well as assessing whether declaring a bankruptcy case would be in your personal (or businesses’) best interest.

Are You a Good Candidate For Bankruptcy?

Below are a few questions which might give an indication bankruptcy is an option for you to consider.

If you answer yes to any of the following,  you should have a consultation with a qualified bankruptcy attorney in your area.

Having a consultation does not obligate you to do anything; it will merely give you the information needed to help you decide what the benefits and costs of filing would be in your situation.

  • Do you have credit card or other debts on which you can only afford to make minimum monthly payments or less?
  • Do you have more debt than you can afford to pay off in 5 years, after factoring in interest accrual and your projected budget?
  • If you own a home, is the current value of your property less than is owed to your first mortgage?
  • Are you behind on your mortgage payments?
  • Do you owe tax debts?
  • Is someone suing you or threatening to sue you for a debt you cannot afford to repay?
  • Do you need to stop any creditor from taking collection actions against you?

The Risk of Waiting to File Bankruptcy

The point of the above is to encourage you to gather as much information as possible to enable you to make an informed decision about your problems.

Most people wait far too long before looking into bankruptcy as an option and, as a result of those delays, frequently leave themselves in situations where bankruptcy relief is no longer available to them, or at least much more costly.

A few related articles:

Ignore Bills At Your Own Peril

Loan Modifications and Stopping Foreclosure Sales

Curing Financial Cancer And Waiting Too Long To File Bankruptcy