What Is Bankruptcy?

Bankruptcy is one of your constitutional rights that you exercise by filing a legal proceeding to eliminate all of your debts and start with a clean slate.  Most people file for relief under either Chapter 7 or Chapter 13, and chances are your lawyer will recommend that you file under one of these chapters.  The substantive law and procedure are set forth in the Federal statutes. Title 11 of the United States Code sets forth the substantive law.  The Federal Rules of Bankruptcy Procedure, as well as local court rules, set forth the procedural rules to be followed when filing bankruptcy in San Diego.

Chapter 7 and Chapter 13 Bankruptcy in San Diego

For most people in San Diego, you will file under one of two chapters: 7 or 13.  The chapters refer to the chapters under Title 11 of the United States Code.  In total, there are six filing chapters, but the other four chapters are mainly used for: (i) businesses, mainly large corporations (Chapter 11), (ii) farmers (Chapter 12), (iii) municipalities (Chapter 9), and (iv) cross-border cases (Chapter 15).  So unless you are a large corporation, farmer, municipality, or your are filing a cross-border case, your attorney will recommend that you file under Chapter 7 or Chapter 13.  Chapter 7 is mainly used to eliminate credit card debt, medical bills, judgments, and other types of unsecured debts.  Chapter 13 is a reorganization proceeding in which you repay some or all of your debts through a repayment plan, and is typically by your lawyer in order to stop foreclosure of your home or to erase a second mortgage or home equity loan.

Why Do People File Bankruptcy?

Many people who are unfamiliar with the bankruptcy process view it simply as a legal proceeding that you file if you have been hard on your luck and need to get out of debt.  While getting out of debt may be a common reason that your lawyer may recommend that you file, there are many other reasons to file.  Bankruptcy can help you do much more than just get out of debt San Diego.  It also offers powerful protections against harassing creditors and debt collectors.  Bankruptcy also offers important benefits that can really help you build a better financial future for your family.

Stop Home Foreclosure

Once of the most powerful bankruptcy protections is the ability to stop a home foreclosure.  The filing of a case under Title 11 case instantly imposes an automatic stay that stops creditors from taking legal actions against you or your assets.  The filing of a case can stop foreclosure of your home, even on the day before a foreclosure sale date.   You may be behind on your mortgage payments and cannot catch up before the sale date.  If you are facing a foreclosure, your attorney may recommend that you file for Chapter 13 protection, so that you can have some breathing room and pay back your missed mortgage payments over time.  Like most other laws, there are exceptions in which a Chapter 13 case may not be able to stop foreclosure of your house.  Exceptions are rare.  Be sure to discuss your situation with an experienced lawyer to make sure that your filing will stop your home foreclosure.

Erase Second Mortgage

One of the biggest benefits of bankruptcy is the ability to completely wipe out your 2nd mortgage or home equity loan.  There is no other proceeding that gives you an absolute right to do this, over the objection of your lender.  Under certain circumstances, your lawyer will be able to erase a 2nd mortgage or home equity loan, and actually remove the lien that encumbers your home, without paying any money whatsoever to your 2nd mortgage lender.  Unlike loan modification and debt settlement, which are entirely dependent upon the whim of your lender, with bankruptcy you can eliminate a 2nd mortgage or home equity loan over the objection of your lender.  If you qualify to wipe out your 2nd mortgage or home equity loan, your lender has no say in the matter.  You get to do it.

Increase Credit Score

Another benefit that most people are unaware of is that bankruptcy can improve your credit score, often dramatically.  Where your credit score ends up a year or two down the road has a lot to do with where your credit score is today.  In most cases, if you experiencing a temporary financial hardship or setback, your credit score will be less than perfect and therefore filing and obtaining a discharge may actually give your credit score a significant boost.  At our firm, the experience of the majority of our clients is that filing and obtaining a discharge actually does increase credit score within one or two years after filing and obtaining a discharge.

Stop a Lawsuit

If you have been sued, bankruptcy can offer you powerful legal protection from the party who is suing you.  Unless the lawsuit involves allegations of fraud, bankruptcy will put the lawsuit to an end.  If the lawsuit involves allegations of fraud, the party who is suing you may continue the lawsuit through an adversary proceeding or by obtaining relief from the automatic stay.  Typically, as long as there are no allegations of fraud, the filing of a bankruptcy will stop a lawsuit.  Once you receive a discharge of your debts, the underlying debt upon which the lawsuit was based is eliminated.  Therefore, the lawsuit and claim of your creditor goes away forever.

Avoid Wage Garnishment

If your wages have been garnished, the filing of a bankruptcy will stop the garnishment of your wages.  Similar to stopping of a lawsuit, unless there are allegations of fraud, filing bankruptcy in San Diego will permanently stop wage garnishment.  Once you receive a discharge of your debts, the underlying debt upon with the judgment and wage garnishment were based will be eliminated.  Therefore, the wage garnishment will be stopped for good.

Your Legal Right

So what is bankruptcy?  First and foremost, it is your constitutional right.  It is also your Federal right: the entire Title 11 of the United States Code (Federal law) is devoted to setting forth your Federal right.  There is an entire set of Federal statutes and rules devoted to and setting forth the rules and procedures for exercising your constitutional right to seek this type of debt relief.  Bankruptcy offers you many important protections from creditors and harassing debt collectors, and has important benefits that you can only obtain through a clearly defined legal process.  For many people who need San Diego debt relief, it is a practical and responsible way to get back on the road to secure financial future.  It is your legal right to help you protect yourself and your family.