THE constitution of the United States of America allows bankruptcy for its citizens and residents to enable them to become productive again if they are saddled with accumulated debts.
The Supreme Court calls Chapter 7 bankruptcy a “fresh start.” You may have a good income, but paying off your debts could eat up all of your disposable income. In this case, you’re being compared to Sisyphus, the character in Greek mythology who is doomed to roll a boulder to the top of a mountain, only to have the boulder roll back down each time he reaches the top. . The over-indebted debtor is the same as Sisyphus because, regardless of his income, he pays his required minimum payments each month, finds himself with no disposable income each month, only to have to pay the same amount to his creditors next month and forever, leaving nothing to the debtor himself in savings. The debtor becomes a running hamster inside the wheel. It’s not going anywhere.
Are you a modern-day Sisyphus?
The myth of Sisyphus prompted French philosopher and Nobel Prize winner Albert Camus to say that an eternity of futile work is a hideous punishment. But over-indebted debtors, in reality, are the Sisyphus of modern times.
“Get into debt”
To get out of the debt cycle, or in bankruptcy slang, the Chapter 7 “bust out” allows debtors to petition the court to grant debt relief by “discharging” the debt by court order. court. The release order prohibits the creditor from collecting the debt, effectively erasing it.
But which debts are discharged and which debts are not discharged?
The bankruptcy code states that a debt is dischargeable, unless it is excluded from discharge. Article 523 of the bankruptcy code contains a list of debts that are not discharged. In general, most debts are discharged. For example, credit card balances up to any amount, medical bills, unpaid rent, payday loans, any type of unsecured or secured loans or lines of credit, bank loans, utility bills, auto loans, and even residential mortgages are discharged to Chapter 7. Even hundreds of millions of debt collection court orders are wiped out.
What types of debts are unpaid? Child support, alimony, student loans (unless the 3-prong hardship test is proven in adversarial proceedings), HOA for the house you live in (not HOA for your rental property which is dischargeable), damages caused by intentional torts (deliberate intent to cause damage to person or property is proven, income taxes due when discharge conditions are not met (income taxes are dischargeable if specific discharge conditions are met.)
Therefore, if you have too much credit card debt – for example, you owe $40,000 in credit cards, an unpaid rent judgment of $200,000, owe Pechanga Casino $1 million, owe $2 million dollars in a civil lawsuit, say for breach of contract – a Chapter 7 discharge will erase all your debts. But if you owe $300,000 in student loans, unless you can prove hardship according to the three-pronged test in adversarial proceedings, you’re stuck with student loans until you die, unless uncle Biden only gives you a way out.
* * *
Disclaimer: None of the above is considered legal advice to anyone. There is absolutely no attorney-client relationship established by reading this article.
* * *
Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented over five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 20274 Carrey Road, Walnut, CA 91789 or 1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.