One of the main reasons that people consider filing bankruptcy is to either reduce their debt or simply get out of debt. If this describes how you’re thinking at this point, you may be wondering just how much debt relief you could obtain under your circumstances.There’s no way to be absolutely certain how much debt can be reduced or eliminated when your case is filed without first meeting with an experienced lawyer and discussing your situation in detail. There are many factors, such as income, type of debt, and assets, among other things, that play a part in the process and your available options and remedies. There are three basic categories of debt in any bankruptcy estate: secured claims, unsecured priority claims, and unsecured non-priority claims.
Secured claims are ones that have a piece of property attached to it, for example a home loan or a car loan. Should you default on your payments, the property is then “secured” by the creditor to help the creditor recoup some or all of its losses. Unsecured priority claims are claims that are not secured but nonetheless must be paid. These claims include taxes, dependent support, employee withholding taxes, and other similar types of claims. Unsecured non-priority claims are ones that are not secured or classified as a priority, and these are among the last to be paid. Some claims, whether secured, priority unsecured, or nonpriority unsecured, are not discharged (eliminated) and must be paid after your case is completed. The most common of these are student loans, and debts incurred through fraud that are determined to be nondischargeable by the Court.
In a Chapter 7 proceeding, your assets typically are not affected. This is because an attorney is not likely to file bankruptcy for you if your assets would be subject to liquidation. However, in some cases you need to file for relief because of excessive debt and if you have too many assets you may be willing to let the trustee liquidated some of your assets to the extent that your assets exceed what you are allowed to keep according to your exemptions. In such a case, assets are liquidated in order to pay off your creditors. Secured creditors are paid first, followed by unsecured priority lenders. Creditors continue to be paid until there is no money left in the estate, at which time the debts are discharged. Your San Diego bankruptcy lawyer will talk to you about your specific situation and determine if filing for Chapter 7 relief is the right option for you.
In a Chapter 13 proceeding, your lawyer will propose a repayment plan, and if it is proposed perfectly, the trustee will concede and give their stamp of approval to. Once the trustee consents to your plan, the Court will confirm it absent any objections by creditors. In order to determine the length of your repayment plan, your attorney will apply the Means Test and corresponding disposable income test, which involves analyzing your income to see if you make more or less than the median family household income in your state, among other things. Generally, though this is not always the case, if you are below the median you will have a 3 year repayment plan and if you are able median you will have a 5 year repayment plan. Even if you qualify for a 3 year plan, if you have a less than 100% plan (you propose to pay back less than all of your creditors) the court may want you to devote your disposable income to your plan for 5 years, resulting in a 5 year repayment plan.
Both Chapter 7 and Chapter 13 can help you get rid of your debts and get a fresh start. Chapter 7 does this more quickly. Chapter 13 achieves the same result in most cases, but you must first complete your Chapter 13 repayment plan.