My favorite holiday is here again: the weekend when Daylight Saving Time returns and, suddenly, the sun is up an extra hour every evening.
What? It’s NOT a holiday? Well, as far as I’m concerned it is. After the dreariness of winter’s long nights (peaking on December 5th, when the sun sets the earliest by our clocks, though if you use a sundial it’s December 21st), the gradual increase in the day’s length isn’t fast enough for me. I truly celebrate the day when, as if by magic, it’s still light out an hour later than it was the day before.
This “holiday” is so cheerful that even its mnemonic device is optimistic! “Spring Forward — Don’t Fall Back.” Who could disagree with THAT?
Sometimes, alas, you reach a point in your life when it seems like Fall Back, Fall Back — even in brightest sunshine. For example, maybe illness, unemployment, an underwater mortgage, or something else has led you to run up debts you’re never going to be able to pay off. Interest keeps accruing, collectors keep calling, monthly bills keep arriving.
If so, don’t despair; the law allows you to Spring Forward again and force the debt collectors to Fall Back while you receive a fresh start:
Yes, the word sounds a little scary, and yes the benefits of bankruptcy are partly offset by the requirement to give full disclosure of one’s financial position (and perhaps by a period of bad credit). But other than that, it couldn’t be better; and even though there are some debts that don’t go away (some student loans, some income taxes, unpaid spousal and child support, to name a few), getting rid of all the rest makes it much easier to finally pay everything off.
What are some of the other benefits?
- The great anxiety of seemingly insurmountable debt no longer haunts the debtor; she can get on with her life and start saving for the future.
- Creditors can’t sue the debtor.
- Most unsecured debt will vanish.
- The debtor can begin building up a good credit rating again.
- In a few years it is almost as if the bad times never happened at all.
For most people, bankruptcy takes one of two forms: Chapter 7 or Chapter 13. Chances are, if someone has few assets and not much income, Chapter 7 will be the appropriate route; for those who can count on a good future income and/or own valuable assets, Chapter 13 is more likely. For the most part, it’s up to the debtor, but Chapter 7 is unavailable to those who have too much income (which varies depending on the case), and Chapter 13 is off-limits for those who have too much debt (more than $360,000 unsecured or $1,080,000 secured debt).
Chapter 7 allows people to rid themselves of all debt, except a few categories such as those mentioned above. Debtors agree to liquidate almost all their assets, but in California they’re allowed to choose $23,000 of assets to keep — even if that’s all they have. In some cases, debtors can use gifts from friends and family to keep more than $23,000-worth by “paying” (in effect) for the surplus. They’re protected in the meantime by the automatic “stay” until the discharge is entered, so creditors can’t bother them. These provisions help debtors hold onto their car and remain in their home while they look for less expensive alternatives.
Chapter 13 provides protection from creditors as long as the debtor sticks to a payment plan during a period ranging from three to five years. Debtors are excused from almost all unsecured debt (that means credit cards, for one thing). However, they are obliged to settle up with creditors who hold secured debt (usually, that’s the debt for a house or car). Like Chapter 7, Chapter 13 in California allows debtors to keep $23,000 of their property while liquidating the rest. However, they don’t have to liquidate everything: in effect they’re allowed to “buy” their property from the estate. If, say, the debtor’s two cars together are worth more than $23,000, the Chapter 13 plan can provide that unsecured creditors will be paid what they would otherwise have received in a Chapter 7 liquidation.
If this is the season for you to Spring Forward after too long Falling Back, regain this weekend’s missing hour by spending it in an initial consultation with the Mlnarik Law Group. We’ll be there to help you let a lot more sunshine into your life.
- Jim Erickson, Associate Attorney