Today's Topic:

This is the first in a weekly series of emails about the ins and outs of bankruptcy. I hope we’ll get to know each other over the coming weeks.

My name is Martha Warriner Jarrett and I’ve been practicing bankruptcy law in California for over 45 years. I’ve represented hundreds of individuals, lots of businesses (big and small), and even a creditor or two, so I’ve seen all kinds of problems relating to money and personal finance and I’ve counseled lots of people who can’t pay their bills and see no other way out. I’m a strong advocate for the bankruptcy system and I’d like to help you navigate the process so you can get a fresh start.

I live in Santa Barbara, CA, and I have a rescue pup named Woody. He’s a Jack Russell/Dachsund mix, and I may bore you with pictures of him from time to time. I’d love to know who you are so please send me an email and introduce yourself. Also, please let me know why you’re considering bankruptcy.

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For most individuals, there are two kinds of bankruptcy: chapter 7 and chapter 13. The first decision you will need to make is which one is right for you. That’s where we’ll start our journey.

Chapter 7 is a liquidation proceeding. If you qualify, chapter 7 liquidates your non-exempt assets (most chapter 7 debtors do not have any so you can keep everything you own) and uses them to pay creditors on a pro rata basis.

There are income and expense limitations you must meet to be eligible for a chapter 7 (the subject of the next newsletter). If you are eligible for a chapter 7, that’s usually what I recommend. Not only does it wipe out your unsecured debt (other than taxes, student loans and a few others), but it’s quick and easy (and less expensive).

Chapter 13 is a reorganization plan for individual debtors that are not eligible for chapter 7. A chapter 13 plan provides for partial repayment of debts over a 3-to-5-year period. If you are behind on your house or car payments, it allows you to bring those payments up to date over the course of the plan. It has very strict rules (and a tight budget) that must be followed to receive a chapter 13 discharge. It’s difficult to navigate by yourself so I recommend hiring an attorney if you’re going to file a chapter 13.

Tip for the week: Before you file for bankruptcy, you must take a credit counseling course. This requirement can be a nuisance, but at least it’s easy (you can take it online) and doesn’t cost much. I recommend that you wait until just before you are ready to file before you take the course because it’s only good for six months. You can find a list of providers on your local Bankruptcy Court website (www.uscourts.gov).

Next week we’re going to tackle the “means test.” You must pass this test to file a chapter 7 (don’t worry, it’s nothing you need to study for). I’ll help you gather the information you need for the test.

In the meantime, if you’d like more information about bankruptcy, you can visit my website: http://www.bankruptcysage.com, or email me at [email protected]

Martha Warriner Jarrett