If you are a California resident in a financial bind, you may be considering bankruptcy and wondering how to discharge debt. With a few exceptions, Chapter 7 bankruptcy allows you to discharge your unsecured debt and get a fresh start on your financial life. When you receive a Chapter 7 bankruptcy discharge of debt, you are no longer legally obligated to pay any of the discharged debt. In other words, all of the unsecured debt is completely wiped out.
To some, discharge of debt sounds too good to be true. When the debtor speaks to a bankruptcy attorney about how to discharge debt in a Chapter 7 bankruptcy, it seems like a miracle: they can finally gain control of finances. There aren’t more worries about paying debts, and the debtor can begin rebuilding credit.
Although a debt discharge provides tremendous benefit and relief, there is a complex legal process involved. Discharging debt is not as simple as filling out a few forms. If you wish to discharge debt and file a bankruptcy petition, several events are triggered: a bankruptcy case is opened; a case number, judge and trustee are assigned; a slew of requirements must be met; and potential consequences must be thoroughly evaluated. Non-compliance with all requirements or improperly evaluating the effect of filing may prevent a successful discharge of debt. Because of the complexity involved, it’s always wise to speak with an experienced bankruptcy attorney before embarking on this journey to ensure you have the best chance of a successful discharge of debt.
1. Identify and categorize all assets, income, expenses and debt/liabilities. Be thorough and include everything. The more complete this list, the easier it will be for your bankruptcy attorney to properly handle the case.
2. Determine whether you qualify for Chapter 7 bankruptcy, Chapter 13 bankruptcy and/or Chapter 11 bankruptcy, and determine which type of bankruptcy is best for your situation. Your bankruptcy attorney will be able to help you in this area. (Note: The remainder of this article discusses the steps for discharging debt in a Chapter 7 bankruptcy case only.)
3. Ascertain whether you have any exposed assets. Exposed assets are those that can be liquidated by the trustee. In many cases, most or all assets are covered by exemptions, but a qualified bankruptcy attorney can help you to determine whether there is any risk of exposure and to reduce or eliminate exposure through pre-bankruptcy exemption planning. This step is crucial because there is no voluntary dismissal of Chapter 7 cases; and if you file a case without properly analyzing and applying the available exemptions, your property can be taken and sold.
4. Identify non-dischargeable or potentially non-dischargeable debts. A bankruptcy attorney will help you:
a. To determine which of your debts will be discharged in bankruptcy; and
b. To evaluate the risk that a creditor will bring an lawsuit seeking a particular debt be held non-dischargeable.
5. Determine if your tax debt is dischargeable or will soon become dischargeable. Although some tax debt is dischargeable debt, very specific and tricky rules apply. If you file a case just a day too early, you may lose the ability to discharge your tax debt. Speak with your bankruptcy attorney about your tax debt to determine if and when it can be discharged.
6. Review transfers/payments you made pre-bankruptcy. The Trustee assigned to your case has the power to undo/recover certain pre-petition transfers, including but not limited to “preferential transfers” and “fraudulent transfers.” Specific time frames apply so it is important be aware of them in determining when to file your case. If you file at an ill-advised time, the recipient of your payment or transfer may be subject to a lawsuit.
7. Take the required pre-petition credit counseling course online and file the required certificate of completion with the bankruptcy court.
8. Complete and file the bankruptcy petition and schedules with the court. Always speak with a bankruptcy attorney before filing. A knowledgeable bankruptcy attorney will be able to help in many ways.
9. Send the trustee assigned to your case the documents required by the bankruptcy rules.
10. Attend the 341 meeting of creditors where the trustee (and sometimes the United States Trustee and any creditors who wish to appear) will question you about your bankruptcy schedules and financial situation.
11. Send the trustee any additional documents and information requested and attend any continued 341 meeting of creditors. Usually, a skilled bankruptcy attorney will have provided the trustee with all the necessary information prior to the first 341 meeting and there will be no need for additional appearances.
12. Consider reaffirmation of any secured debts. If you drive a vehicle that is leased or financed you will likely receive a Reaffirmation Agreement from the lender requesting that you reaffirm the debt in order to keep the vehicle. Reaffirming the debt means that you will be personally liable despite obtaining a bankruptcy discharge. An attorney can help evaluate whether reaffirmation is in your best interest, and in some cases can help you negotiate better repayment terms.
13. Complete the post-petition financial management course online and file the mandatory court form certifying completion with the bankruptcy court.
14. Discharge your debt! You will typically get notice of your discharge from the bankruptcy court within six months of filing. You are no longer obligated to pay the debts that were discharged. They will now be listed as 0 balance or completely removed from your credit report. You can begin rebuilding your credit right away.
Although navigating the system can seem intimidating, with the help of an experienced attorney, the rewards of obtaining a discharge of debt can be tremendous. Think about how well you’ll be able to sleep knowing you have a clean financial slate. If you’re ready to discharge debt, call Royzman Law Firm at 310.954.8503 or contact us online to schedule a free consultation.
Please note that the materials appearing on this blog are provided for informational use only, and are in no way intended to constitute legal advice or the opinions of this law firm or any of its attorneys. The law is constantly changing, and the materials appearing on this blog are not guaranteed to be correct, complete, or up-to-date. You should not act or rely upon any information appearing on this blog without consulting a qualified attorney for individual advice regarding your own unique situation. Transmission of information through this blog or this website does not create any attorney-client relationship between you and Royzman Law Firm, Inc. or Natella Royzman, Esq.