Chapter 13 bankruptcy can be complicated and confusing. But it doesn’t have to be. There are many benefits to Chapter 13 Bankruptcy that are not always immediately obvious. Do you know what these benefits are?

Chapter 13 bankruptcy is considered a “reorganization.” This is is different than Chapter 7 bankruptcy which is typically called a “liquidation.” Under Chapter 7, most of a debtor’s unsecured debts are eliminated in just a few months. While Chapter 13 does allow for debts to be discharged, this is not the main goal. The main goal is to reorganize.

Unlike a fast Chapter 7 bankruptcy, Chapter 13 will last anywhere from three to five years. During that time, a debtor is under the protection of the bankruptcy court. The debtor can not be sued for pre-petition debts, and collection activity from those pre-petition debts must stop. This is great because it provides a long period of “breathing room” for the debtor to figure out their financial situation.

During the life of the Chapter 13 case, the debtor will make monthly payments to the Bankruptcy Trustee. The Trustee then distributes funds to creditors according to the Chapter 13 plan. The Chapter 13 plan is proposed by the debtor and his or her attorney. If the math makes sense and creditors do not object, the Court will enforce the debtor’s payment plan.

Depending on the Chapter 13 plan, some percentage of a person’s debt will be paid during the bankruptcy. It might be 1% or it might be 100% — or anywhere in between.

Calculating a Chapter 13 plan is very complicated. Most people contemplating Chapter 13 want to know what their plan would be. I have some basic guidelines that allow me to “ballpark” a plan payment. But really dialing in the plan requires the completion of all of a debtor’s bankruptcy paperwork. A lot of work indeed!

Because Chapter 13 is intended to allow a debtor to reorganize, it can do things such as pay delinquent IRS taxes without the constant threat of enforcement by the IRS. It can also allow a person to make up an arrearage on a house or other secured loan (such as car loans). A debtor can not do these things in a Chapter 7 case.

Chapter 13 is also great for debtors that can not qualify for Chapter 7. The typical reasons a person will not qualify for Chapter 7 are because their income is too high or because they have too much assets. Most of my clients do not run into asset problems when trying to qualify for Chapter 7. However, when it does come up, it is usually because of equity in a debtor’s home.

This is just a brief overview of Chapter 13. There are many more benefits — some quite complicated — that I intend to discuss in the future. Stay tuned!

If you have any questions about Chapter 13 Bankruptcy in Sacramento, please call my office. I can be reached at (916) 333-2222.

Spousal waivers in California bankruptcy cases are not an issue when both spouses file bankruptcy together. However, bad things can happen when one spouse files bankruptcy on their own without first having the non-filing spouse sign the waiver.

As I covered back in January, California law requires that the non-filing spouse sign a spousal waiver if the filing spouse elects to use California’s 703 bankruptcy exemptions. The waiver is there to prevent two spouses from filing separate bankruptcy cases and electing two use California’s 703 and 704 exemptions at the same time.

Occasionally, a person will want to file bankruptcy when they are separated, but not yet divorced. A debtor in this situation must be careful. There can be grave consequences in a Chapter 7 Bankruptcy if the debtor can not obtain their spouse’s signature on the spousal waiver.

A majority of my bankruptcy clients elect to use California’s 703 exemptions because of the “wildcard exemption.” The wildcard exemption can be used to protect any asset in a bankruptcy, including cash in bank accounts and impending tax refunds.

The problem that can arise with spousal waivers is this: a debtor files a Chapter 7 bankruptcy using California’s 703 exemptions. The debtor files the case without first obtaining the signed spousal waiver. After filing the case, the debtor is unable to get the non-filing spouse to sign the spousal waiver.

The non-filing spouse may object to the waiver for any number of reasons, including that they just don’t want to get along with their spouse.

Without a valid spousal waiver signed and submitted to the Court, the Bankruptcy Trustee can object to the debtor’s use of the California 703 exemptions. This would force the debtor to switch to California’s 704 exemptions. As an example, if the debtor was attempting to exempt a $5,000 tax refund, being forced to use the California 704 exemptions would result in the debtor losing the tax refund.

Before filing a Chapter 7 Bankruptcy with only one spouse, it is critical to obtain the non-filing spouse’s signature on the spousal waiver. This can prevent the loss of assets to the Bankruptcy Trustee. As a bankruptcy attorney, I will not rely on a promise from one spouse that they will sign. I will not file the case without first obtaining the signature.

If you have any questions about Spousal Waivers in Chapter 7 Bankruptcy cases in Sacramento, please contact my office. I can be reached at (916) 333-2222.

\Welcome to Tax Season! With it comes special precautions for people filing Chapter 7 Bankruptcy. You must take special care to protect your tax refund.

All of a debtor’s assets, as they existed on the date of filing, belong to a debtor’s Bankruptcy Estate upon the filing of Chapter 7 Bankruptcy. This includes a debtor’s physical assets such as cars and iPhones. Also included are intangible assets such as the right to sue other people and accounts receivable.

The contents of the Bankruptcy Estate are important because the Chapter 7 Bankruptcy Trustee legally can take assets from the estate. These assets are then sold and the proceeds are used to repay a portion of a debtor’s debts.

It is my goal as a Chapter 7 Attorney to protect a debtor’s assets to the maximum extent provided by law. In California, this is done by using exemptions found in the California Code of Civil Procedure.

A Bankruptcy Attorney must take care to accurately exempt a debtor’s tax refund. Without an exemption, the Chapter 7 Trustee may demand that the refund be turned over to the Trustee.

Using California’s 703 exemptions, a debtor would likely be able to exempt the refund using whatever is left over from the “wildcard” exemption. If a debtor must use the 704 exemptions, protecting the tax refund is much more difficult. This is because there is not a wildcard exemption available.

All of this assumes that a debtor has not already received their tax refund. If a debtor has already received the refund, and can not protect it using the 703 exemptions, then the debtor may consider waiting to file Chapter 7 Bankruptcy. A debtor would wait to file until such time that the refund has been exhausted.

There is nothing wrong with using the tax refund on household purposes such as buying groceries, gas, clothes for the kids, or other reasonable purchases.

If a debtor’s tax refund is very large,  there could be a question of whether the money was spent solely on household purchases. In this situation, a debtor would be well advised to keep careful records of how the money was used.

Tax refunds are very important. A debtor filing Chapter 7 Bankruptcy should consult with a Bankruptcy Attorney if they have a tax refund pending.

Please contact my office should you have any questions about tax refunds and Chapter 7 Bankruptcy in Sacramento. My office phone number is (916) 333-2222.