Articles Posted in Chapter 7 Bankruptcy

Over the past three years, a series of impactful events have significantly influenced the housing market. In response to the economic challenges posed by the COVID-19 pandemic, the Federal Reserve injected unprecedented amounts of money into circulation. This infusion of funds gave more individuals cash in hand to make down payments on homes. 

Why Did California Home Prices Rise So Fast? 

Simultaneously, the widespread adoption of WFH (work from home or remote work) reshaped living preferences, prompting a shift from urban to suburban and rural areas. People realized that if they didn’t need to consider commuting, they saw their relationship with work differently and could make lifestyle choices accordingly. Those who made a home purchase in 2020 or 2021 likely secured favorable fixed-interest rates, while those with adjustable rates may find themselves facing financial challenges. With interest rates at historic lows during the 2020-2021 period, the National Association of Realtors (NAR) highlighted in a report that the qualifying income for a median-priced home in America was approximately $50,000. Fast forward to 2023, and this figure has surged to around $107,000. This means that prospective homebuyers, who would have met the criteria for a home loan just a few years ago, now need significantly higher incomes to afford a similar property. This makes the number of possible home buyers shrink immensely over just a few years, not because they don’t want to buy a home but because they are no longer able to qualify for the mortgages. There are even stories floating around online that people who no longer qualify for the mortgage they already have, are being forced to refinance under the new interest rates simply because they no longer qualify based on the current conditions. That means theoretically people who had a 3.5% fixed mortgage could be forced into a 7.5% mortgage simply because they don’t make enough money after inflation. America has a habit of charging people more money when they can’t afford their current situation. 

How it started 

When Covid-19 hit America it was a black swan event that nobody could have predicted the series of financial turmoil it would cause for many Americans. Several major factors contributed to the reasons why Americans decided to buy new cars. Huge stimuluses were provided giving millions of Americans cash in hand as they pivoted from working in offices to working at home. With overflowing bank accounts and the fact that nobody could travel, eat out or do anything, many people decided to go out and finance new cars. Supply chains were also virtually shut down making car production and delivery difficult resulting in people fighting over what inventory was available. Many people are now asking how to give a car back and we are going to explore the options available to you. 

What dealerships did 

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How to File for Bankruptcy and Keep Your Car

If you’re contemplating bankruptcy and worried about keeping your car or truck, the solution isn’t straightforward, but there are strategies available to help you keep it. If you bought a brand-new or even a used vehicle over the last few years and you paid a premium for it, the vehicle may be underwater. There were many buyers during covid and people were offering over value on many hard-to-find vehicles when both manufacturers and dealers were unable to keep up with demand. This in turn pushed many Americans to agree to buy the car or truck that they wanted sometimes for thousands of dollars over the median price. Now that demand has slowed a bit there are many car owners who have vehicles in which they owe far more than the vehicle is worth. 

Can I file for bankruptcy? 

California Student Loan Debt Options 

For people in debt right now, things just got a lot worse. Notices have gone out to student debtors across the US that the moratorium has expired and can’t be extended thanks to the debt ceiling agreement. Payments have resumed since October 2023 and there are many unlucky people that simply can’t pay another bill right now. If you are considering your California student loan debt options, there is a lot to untangle. This article will focus on how you can (or can try) to discharge your student loans through bankruptcy, however there are some other good options I have listed below the article that you may want to consider if bankruptcy is not a consideration or of interest to you.

 How do you start the process? 

If you are a resident of the state of California you can take advantage of the state’s generous exemption laws to protect your property and other assets but it is important to understand the limitations of these laws and how they apply to your specific situation. When filing a Chapter 7 bankruptcy it is important to note that the majority of Chapter 7 bankruptcies are no-asset cases where the trustee does not make any attempt to sell your personal property. With that said, if you own a home or have other expensive assets you want to protect you will want to understand all of the rights you have under California law and apply them when possible. California has created bankruptcy laws in order to protect people and their property allowing them to become debt free and get their finances back on track. Exemptions enable you to retain specific assets following bankruptcy. It’s essential to choose the set of exemptions that aligns with your particular requirements. You cannot blend exemptions from both sets; rather, you must exclusively utilize exemptions from one set or the other. For married filers, both spouses must utilize the same set of exemptions without the option to double their exemptions.

Homestead Exemption:

Most states in the United States offer homestead exemptions to safeguard one’s primary residence in the event of bankruptcy. Unlike some other states, California does not permit the utilization of Federal exemption laws in a California bankruptcy proceeding. Instead, California offers two distinct exemption schemes as specified in Section 703 and Section 704 of the California Code of Civil Procedure. When deciding whether you should be Using California’s 703 vs. 704 Exemptions you need to understand the difference between and what best applies to your situation.  While it is possible to negotiate with your mortgage lender to bring your delinquent mortgage up to date in Chapter 7, it’s crucial to recognize that the lender is not obligated to cooperate, and a significant number choose not to. To safeguard your home from potential loss in Chapter 7, it is advisable to ensure that your mortgage payments are up-to-date, that you can shield all equity through a homestead exemption, and that you are capable of maintaining your mortgage payments even after the bankruptcy process.

California has had some decent growth in property values lately with the lowering of interest rates, investors buying homes, and some people trying to get into a hot market before interest rates go up. This has been somewhat a good thing for housing prices. If you are considering filing bankruptcy for other debt related issues you may want to jump in before the market continues to rise. I have had two clients in the last month who have come to me from Cathedral city and haven’t paid there mortgage in over a year. One wanted to file a chapter 7 as he was divorced, the ex-wife was living in the house and he just had too much debt to manage. Amazingly he didn’t realize that his house was an asset. Last year the house was probably worth 150 and his not was about 160. Since he had no intention of saving his house and couldn’t pay the arrears with a now split family I decided to recommend a realtor to him before we filed. He was able to put 20k in his pocket within a month and we have delayed the filing of the bk for him. Once the money is out of escrow and in his account I can file using the 703 exemptions and protect the money with the wild card. So without the bankruptcy and a good lawyer spotting the value in the house he could of either lost the house and let the bank capitalize on that or we could have just filed the bankruptcy quickly and the trustee might have sold the house and paid the 20k to unsecured creditors. Having someone on your side with your interests and not a person who is just trying to file a million cases allows these kinds of insights to manifest into truly starting over with a fresh start.

My other client is in the same boat but wants to try to save the house as the mortgage is reasonable and renting would be just as expensive. We will pay back her arrears through a chapter 13 and if when she decides we can sell the house with court approval during the process. This might allow her to capitalize even more if the housing prices start to go up.

The other thing an experienced bankruptcy lawyer will look out for and make motions should he need to is that when you file a case your house might be worth what you owe and you use the 703 exemptions with the wild card to protect cash, cars, toys etc. You feel that is the better route since the property doesn’t really have equity. The thing is the trustee could keep the case open and even though you get a discharge he doesn’t file the no asset report and the case is not closed. If in 6 months the property has gained 5 % and its got 20k in equity the trustee could make a motion to sell and meanwhile you and bankruptcy attorney were asleep at the wheel thinking you got the discharge case closed. If a no asset report is not filed at the time of a discharge I will make a motion to the court to abandon assets. You don’t want the trustee buying the benefit of time and potentially selling one of your assets. In this market its something you have to be aware of.

If you are struggling with Debt and on the fence about filing bankruptcy and you own a home, now might be the time to really consider the window. In California an individual gets an exemption of 75k or 100k for a married couple. Once you get above that equity your home becomes an asset that is too much to protect in chapter 7. Therefore the trustee would liquidate the home and give you the check for 75 or 100k and pay your creditors the remaining proceeds. That means unsecured creditors collect in a chapter 7 which is unusual but as prices go up the more that scenario becomes a reality. The cost of sale is taken into consideration as well. Usually a fair number for cost of sale analysis is 8-10% with 8% being more common. The reason for this is brokers, escrow and other costs that go into the sale of a house. I’ll do an example with numbers to make it more clear. If you are married you get an exemption of $100k dollars. So lets say you owe the bank 200k as a note against your house. Lets say the house is worth 325. As I mentioned the the exemption is 100k and the cost of sale would be 24k at 8% Under this analysis the trustee would not be enticed to sell your house. The trustees job is to sell assets that are non-exempt to pay unsecured creditors aka credit cards medical bills etc. If they pay realtors and costs 24k that does nothing for them and then they owe the bank 200k on the note and the debtors would get a check for there exemption at 100k since they are entitled to that as a priority before unsecured creditors get paid. I would assume 340k would be the price that would entice them but it doesn’t stop them from strong arming you to pay 15k to not sell it. Therefore since housing prices are going up at least temporarily, if you have equity in a home now might be a good time to get a bankruptcy analysis. I am a riverside country bankruptcy attorney specializing in bankruptcy. I live in Palm Springs and work in Palm Desert but serve all Riverside country and surrounding areas. Feel free to call to speak with an attorney about your debt and home matters as they apply to bankruptcy.

Tax refunds for many chapter 7 clients become the tool that allow them to straighten out there financial affairs. For more and more people straightening out their affairs means discharging unsecured debts and wiping out minimum monthly fees that can strangle a budget. Getting the lump sum money in February or March for those that file early allow them to pay what most bankruptcy attorneys will charge to file a chapter 7. Over the years I have had more and more people who are on payment plans tell me that once they get there tax refund they will finally be able to pay the fees and service fees associated with a bankruptcy. The costs of filing bankruptcy with the court is $306 and most attorneys who use sophisticated software download there credit reports from the 3 bureaus to capture all creditors and get the updated bankruptcy addresses where notices need to be sent. That fee is typically $30 for an individual or $50 for a joint filing(Aka husband and wife). Along with those two fees there are two required credit counseling classes which charge at least $15 and $15 for each although some charge up to $50. As a qualified bankruptcy attorney in Riverside County filing 20 cases a month typically I will direct you to the cheapest and best sites to do the classes. So at a minimum there are $400 dollars in outgoing costs to various vendors to file. I typically charge $1100-$1500 depending on the complexity of a chapter 7 case. Things that make cases more complex are the income that people make if significantly higher than median, analyzing profit and losses for self employed people. Typically though, the type of consumer who is using there tax refund to file are wage earners who are employed and get a w2 and make less than the median income which is 48k for an individual 60k for a couple with each child adding about 6k to the equation. For those people its typically a simple case and I can potentially do it for $1400 which includes all the filing fees and costs that I mentioned above. If you are going to be receiving a refund and are struggling with debt issues, talk with a qualified bankruptcy attorney. I have been practicing law for 10 years and the last 5 have been solely focused on bankruptcy cases with chapter 7 and chapter 13 cases for individuals and businesses. I know all the trustees in Riverside and know what to look for and how to put together a case to sail through the process a smoothly as possible. Wishing you the best in 2013.

Chris Hewitt

Raymond Lee sues a lot of people in southern california and in Riverside county where I typically practice. Most cases in my jurisdiction are heard in Indio and are often brought by American Express who sends a lot of there accounts to Zwicker and Associates. You have many options in how to deal with the law suit that you have recently been served but first thing you need to do is speak with a competent lawyer to examine those options. When you have been sued you have 30 days to answer or you could face a default judgment which essentially says you agree to everything and allow them to collect against you through a judgement. Remember a judgment is good for 10-20 years with a renewal and collects 10% interest plus when they win they tack on attorney fees, costs for bringing the suit etc so now is not the time to put your head in the sand. Many times I negotiate these cases down to 50% of what you owe. Sometimes we have to answer the law suit, other times I call them directly and work on a settlement prior to answering to save money. If they won’t come to the right number then we answer to make them realize they are going to have to work and expend money to get potential money. This often brings them back to the negotiating table quicker. Another option that I have and they realize is that I file chapter 7 or chapter 13 bankruptcy cases which either means they get paid nothing or what you can afford over either three or five years. All of a sudden a settlement sounds good to them. Raymond Lee is located in Pasadena so sending someone out to fight this case with someone that fights them every step on the way in Indio is not cheap. This is done for clients that might not be perfectly situated to file a current bankruptcy. Sometimes filing a bankruptcy case is all about timing depending on where you income is or certain financial things that you have done too recently to filing a bankruptcy case which necessitate waiting. Filing an answer to buy time in these types of cases is critical. Also, sometimes bankruptcy isn’t necessary depending on how old other debt that you have is, if you are about to meet the statute of limitations on your other debt and make above the median income, filing a 13 might not make sense so answering and negotiating becomes advantageous. If you have debt and have been served and wonder your options, call a knowledgeable riverside county bankruptcy attorney who looks at things from all angles before sending you down a one road solution.

Frequently Asked Questions: Debt Consolidation in California
How does debt consolidation affect credit scores?

Initially, it might cause a slight dip due to credit inquiries. However, consistent payments can improve your credit score over time.

What is the difference between debt consolidation and debt settlement?

Debt consolidation involves taking a new loan to pay off debts, while debt settlement is negotiating to pay less than you owe. Settlement can negatively impact your credit score.

What are secured vs. unsecured debt consolidation loans?

Secured loans require collateral (like a house or car), usually with lower interest rates. Unsecured loans don't require collateral but typically have higher rates.

Is debt consolidation right for me?

It depends on your total debt, interest rates, credit score, and payment capability. It's suitable if you can pay off your debt within five years and secure a lower interest rate than your current debts.

Should I consider long-term financial planning?

Yes, debt consolidation should be part of a broader financial strategy including budgeting, cutting expenses, and building an emergency fund.

How do Chapter 7 and Chapter 13 bankruptcies in California differ?

Chapter 7 involves liquidating assets to pay off debts, while Chapter 13 allows debt restructuring over a set period, usually three to five years.

Can my spouse's bank account be garnished for my debt?

Bankruptcy laws offer protections against such actions, but specifics depend on individual cases and state laws.

How can I learn more about my options?

Consulting a California bankruptcy attorney can provide clarity. Firms like The Law Offices of Christopher Hewitt offer free consultations to explore debt relief paths.

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