What Are Your Debt Relief Options in California?

Californians struggling under the burden of outstanding debts need to know that there are several different methods and debt relief programs available to them.

The first among your options for debt relief is to continue making payments to creditors monthly. Chances are, if you’re reading this, you probably cannot afford to continue making your minimum payments each month and are looking for other options, though.

A debt settlement (or debt negotiation) allows you to negotiate your principal balance downward. As you will end up owing less, debt settlement is generally considered a faster and less expensive debt relief option.

A debt management program (DMP) or credit counseling allows debtors to make a single monthly payment to a credit counseling agency. This agency then distributes your payments to all your creditors on your behalf. In ideal situations, going with a debt management program could result in lower interest rates, allowing the debtor to pay off their debts more quickly.

Debt consolidation loans allow the debtor to take out a low-interest loan and use that capital to pay off their unsecured debts. This form of debt relief often results in lower interest rates and a smaller single-month payment.

And finally, those in debt may consider filing for bankruptcy in California. A formal declaration of bankruptcy halts future debt collector calls, wipes out certain debts, and provides debtors with a clean slate.

What Are the Differences Between Secured and Unsecured Debts?

Before continuing with a discussion of what types of debts qualify for the various debt relief programs and bankruptcies in California, it is important to understand the two main types of debt: secured debt and unsecured debt.

A pledge of collateral, a mortgage, or another type of lien backs up a secured debt. The secured creditor has the right to repossess, seize, hold, or sell certain properties, such as a home or car, to satisfy the debt that’s owed.

An unsecured debt, on the other hand, refers to any debt that is not collateralized by a mortgage or other type of lien and specific property belonging to the debtor. Unsecured debts include credit card debts, personal loans, utility bills, and medical expenses.

What is a Debt Settlement and How Does it Work?

Everyone has an obligation to repay their debts, but sometimes this is made more difficult by unforeseen changes in circumstances, such as job loss, personal injury, or illness. Any of these unfortunate circumstances could result in a borrower finding themselves up to their neck in debt. One option to help a borrower get out of debt is a debt settlement.

Debt settlements involve negotiating with your creditors and lenders so that you may repay less than the original amount you owe.

Types of debt that qualify for debt settlement relief include the following:

  • Cash advance loans.
  • Credit card bills.
  • Medical bills.
  • Payday loans.
  • Private student loans.
  • Retail cards.
  • Signature loans.

Once the debt settlement payment is processed, the remaining balance will be wiped out. In order to get the most satisfactory deal, it is recommended that a debtor have as much money on hand as possible so that they may make a large lump sum payment.

What Debts Can and Cannot Be Included in a California Debt Settlement?

The following types of debts cannot be included in a debt settlement:

  • Certain hospital bills.
  • Credit Union debts.
  • Federal student loans.
  • Home mortgages.
  • Secured debts.

To ensure that you have a firm understanding of what types of debts can and cannot be included in your debt settlement relief, don’t hesitate to get in touch with our law firm.

Can You Obtain Debt Relief by Filing for Bankruptcy?

If your debt is so out of control and insurmountable, you may find that there is no way out from under it without filing for bankruptcy. There are two major types of bankruptcy in California:

Chapter 7 and Chapter 13. In Chapter 7 bankruptcy, your income must be less than the California median income. If you make more than the California median income, you must consider filing Chapter 13 bankruptcy instead.

With Chapter 7 bankruptcy, it is possible to have your debts erased. However, certain non-exempt assets may be vulnerable to being seized in order to pay off your debts.

In Chapter 13 bankruptcy, the debtor creates a repayment plan that allows them to keep their assets in exchange for making payments in a timely manner to repay their debts.

What Debt is Dischargeable in Chapter 7 Bankruptcies Filed in California?

Both secured and unsecured debt can potentially be discharged in Chapter 7 bankruptcies in California. However, there are certain exceptions.

Dischargeable debt in a Chapter 7 bankruptcy includes:

  • Credit card debt.
  • Many legal judgments.
  • Most medical bills.
  • Payday loans.
  • Personal loans.
  • Utility bills.

Non-dischargeable debt in Chapter 7 bankruptcy includes:

  • Alimony (also known as spousal maintenance or spousal support).
  • Child support.
  • Debt incurred from fraud.
  • Money obtained in anticipation of the bankruptcy filing.
  • Most taxes.
  • Student loans.

What Debts Are Dischargeable in Chapter 13 Bankruptcies?

Both secured and unsecured debts can be discharged in California’s Chapter 13 bankruptcies. However, there are exceptions.

The following debts can be discharged in a Chapter 13 bankruptcy in California:

  • Certain limited tax obligations.
  • Certain penalties and fines owed to the government.
  • Credit card debt.
  • Medical costs not fully covered by health insurance.
  • Unsecured personal loans.

The following debts cannot be discharged in a Chapter 13 bankruptcy:

  • Alimony.
  • Certain judgment debts.
  • Child support.
  • Criminal penalties.
  • DUI penalties.

What Are the Dischargeable and Non-Dischargeable Debts in Chapter 11 Bankruptcies?

Businesses typically file for Chapter 11 bankruptcy. Like Chapters 7 and 13, Chapter 11 bankruptcy has specific debt that is considered dischargeable and nondischargeable.

Dischargeable debt includes:

  • Back rent.
  • Business debts.
  • Business loans.
  • Credit card debt.
  • Medical bills.
  • Personal loans.

Non-dischargeable debt includes:

  • Alimony and child support.
  • Certain judgment debts.
  • Educational benefit overpayments.
  • Guaranteed education loans.
  • Some consumer debts owed to a single creditor.
  • Some tax debts.

What Are Different Financial Assistance Programs in California?

In addition to considering bankruptcy, at that settlement, a debt management program, or debt consolidation loans, there are several financial assistance programs available to those in need of a little extra help.

These include:

  • California Homebuyer’s Down Payment Assistance Program.
  • Cal-Learn.
  • CalWORKS.
  • Cash Aid.
  • Healthy Families.
  • Homeowner Assistance Program.
  • Water Bill Help.

Contact Us to Schedule an In-Depth Case Evaluation

There are several options and debt relief programs for borrowers in need of assistance. However, not every debt is dischargeable for every type of debt relief program or bankruptcy. Those with outstanding debts in need of financial or legal assistance are encouraged to get in contact with lawyers experienced in these practice areas.

Our law firm has years of experience in debt relief, and we would be proud to assist you in your aim to get out from under your outstanding debts and breathe a little easier again. To learn more about our legal services, please get in touch with our California law offices to schedule your initial consultation today. You may reach our legal team at (714) 701-6356.