Filing chapter 7 bankruptcy before house prices rise further

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.

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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