Tarzana is an affluent Los Angeles neighborhood named after “Tarzan,” from author Edgar Burroughs’ books. Originally occupied by Spanish settlers and missionaries, it measures only 8.79 square miles, sloping up into the Santa Monica Mountains, and has among the lowest population densities of any Los Angeles neighborhood. Tarzana has been used as a location in the television shows Six Feet Under and The Bad Girls Club. Real estate is desirable in Tarzana, and there are more owners than renters. Many residents are young professionals with children and household incomes of $110,000 on average. Despite these statistics, it is still possible for Tarzana residents to carry significant debt due to student loans, medical expenses, or credit cards, and to have trouble making mortgage or other payments. If you are feeling overwhelmed by debt, an experienced Tarzana bankruptcy attorney can assess your finances and advise you as to whether bankruptcy may be the right path for you.
How Does Chapter 13 Work?
The two kinds of bankruptcy most individuals file are Chapter 7 and Chapter 13. Some people who live in Tarzana may not be able to qualify for Chapter 7 bankruptcy if they have excess income and/or assets. To file Chapter 7, you must take a means test, which requires you to have an income that is less than the median income for your household size. If you do not pass the means test, Chapter 13 bankruptcy may be the right fit for you. This option requires you to develop a repayment plan outlining reasonable monthly payments you will make to a trustee, and to get the plan approved by the bankruptcy court.
Your repayment plan will only be approved if it represents what is known as “your best effort,” and addresses all administrative claims and priority debts. Sometimes, however, this payment can be as low as $120/month. Priority debts include back alimony, child support, tax debts, and wages or salaries you owe employees. If you want to keep your house, you must also fully pay off any defaults on your mortgage. Similarly, to keep your car, your will need to pay off any defaults on your auto loan.
The amount of unsecured debt (i.e. debt that is not secured by property that a lender can repossess) you will have to repay under Chapter 13 varies from person to person. It is also possible to file for Chapter 13 and not be required to repay any portion of your unsecured debt. You can elect one of two systems of “exemption” to keep certain property from being included in the total amount you have to repay creditors. This plus the amount of disposable income you have each month to allocate to debt repayment and the length of the plan (3-5 years) will determine the percentage of your unsecured debts that must be repaid. In contrast, filers of Chapter 7 bankruptcy must sell their nonexempt items in order to repay creditors.
Under Chapter 13, there are a number of tools that can help you if you have multiple mortgages or excessive car payments. For example, you can ask the court to strip any junior mortgages if your first mortgage fully secures your house. After the recession, many people now have houses that are worth less than what they were worth when they were purchased. Lien stripping takes into account the likelihood that people have junior mortgages that are not secured by the true value of their property.
Similarly, your car or a second house may have dropped in value since the purchase date. If that’s so, you may be able to use what’s called a “cramdown.” With this tool, only the true value of the property is secured and owed to the lender. This portion may be crammed down, while the remainder is eliminated as unsecured debt.
Bankruptcy is a big decision with many complex aspects, but it can represent a true opportunity to start over financially. Contact the careful, experienced, and trustworthy Tarzana bankruptcy lawyer Devin Sawdayi at 310-475-9399 or via our online form for confidential guidance in filing for bankruptcy.
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