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Bankruptcy and Bankruptcy Alternatives-Which One is Right for You?

Posted on April 10th, 2009 in Bankruptcy

Determining whether to file bankruptcy can be confusing considering the many advertisements and solicitations you may see on television or hear on the radio or receive in the mail. Many companies are offering home Mortgage Loan Litigations or debt settlements. Sometimes these companies are dishonest and prey on the woes on consumers hit hard by this recession. Some companies are legitimate and really do provide a service. The question then becomes, what strategy is best to get out of debt? A bankruptcy? A Mortgage Loan Litigation? A debt settlement?

 

Bankruptcy

Bankruptcy can be broken up into two categories for the typical consumer debtor. Chapter 7 bankruptcy which is a liquidation bankruptcy and a chapter 13 bankruptcy which is a reorganization bankruptcy. Both types of bankruptcy’s have advantages and disadvantages of their own.

 

Chapter 7 Bankruptcy

In a typical chapter 7 bankruptcy, a consumer can typically wipe out all of their credit card debt. However, in order to do so, the bankruptcy trustee will require the consumer to liquidate anything that is an asset that is not exempt under California law. Thus for most home owners who have equity (over the homestead exemption allotment) in their home and who want to keep their home, filing a chapter 7 bankruptcy is not in their best interest because the bankruptcy trustee will force the sale of the home to pay off the credit cards. On the other hand, if a homeowner has no equity in the home (meaning their mortgages equal or exceed the fair market value of the home) then filing a chapter 7 bankruptcy may be the best thing to do.

 

A bankruptcy trustee will not force a sale of something that is not an asset. So if the mortgage loans secured on a home were reaffirmed in a chapter 7, than the consumer could get rid of all of their credit card debt and keep their home. The major caveat to being able to file a chapter 7 bankruptcy however is that you must financial qualify through means testing enacted in the Bankruptcy Abuse Consumer Protection Act of 2005. This is a discussion to be had later.

 

Mohamad F. Haffar is a San Diego bankruptcy attorney and San Diego bankruptcy attorney and advises clients on whether or not they should file Chapter 7 bankruptcy, Chapter 13 bankruptcy or whether they should seek bankruptcy alternatives such as a debt settlement or a home Mortgage Loan Litigation.

 

 

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