Bankruptcy is one of the best ways to deal with your debts in California. The process helps you pay out what you can to your creditors and eliminates some of your obligations, giving you a clean slate to rebuild your financial future. However, bankruptcy doesn’t cure all your debt problems; there are some payments you must make regardless of your circumstances.
Debts bankruptcy can clear in California
There are two bankruptcy types that let you clear your debts in California, i.e., Chapter 7 and Chapter 13 bankruptcy. When you file for either type, the court will issue an order called “an automatic stay,” which will stop creditor calls, wage garnishments and lawsuits – most of them at least. This will give you the breathing room to sort out your finances.
With Chapter 7 bankruptcy, you can discharge unsecured debts such as medical bills, credit cards and personal loans. In certain cases, you can also clear secured debt like car loans and mortgages.
Chapter 13 bankruptcy lets you reorganize your financial situation by setting up a repayment plan lasting from three to five years. The court will discharge any remaining balance on the debt after the payment term ends. This type of bankruptcy is beneficial for those individuals who have assets they would prefer to keep (homes, cars) or may not qualify for Chapter 7 due to too much disposable income.
Debts bankruptcy can’t eliminate
There are some debts that the bankruptcy courts consider non-dischargeable, i.e., critical to the functioning of society and, therefore, not subject to the bankruptcy process. These would include student loans, court fines, taxes and criminal restitution.
Bankruptcy also doesn’t prevent a secured creditor from foreclosing or repossessing collateral. If you can’t continue to make payments for a secured loan, the creditor may move ahead with foreclosure or repossession, regardless of your bankruptcy filing.
If you find yourself struggling with debt in California, it’s important to understand all your available options and how they might impact you in the long run. Even though bankruptcy is helpful sometimes, it may tank your credit score or impede your chances of getting other loans. You can consider other options like debt reorganization, debt consolidation and credit counseling when struggling with your finances.