Judge files for bankruptcy in Los Angeles

Financial turmoil does not just affect individuals without jobs. Especially in this economy, people of all walks of life are struggling with debt and looking for relief. For example, a federal judge recently filed for Chapter 7 bankruptcy in Los Angeles.

He and his wife had assets of $833,000 but their debts were more than that, at $895,000. Like other individuals who face bankruptcy, his income dropped significantly in the last few years – from $270,000 to $170,000.

The social stigma of bankruptcy is fading as more people discover that Chapter 7 and Chapter 13 bankruptcy can lead to debt relief and a financially secure future.

Through Chapter 7 bankruptcy, a bankruptcy trustee liquidates a debtor’s nonexempt assets in order to pay back creditors. However, there is a wide range of property that is exempt from bankruptcy, which means many debtors will not lose their most significant property (such as a home). Furthermore, once the bankruptcy is complete, the debtor can move forward relatively debt-free. Certain debts, such as student loan debt, will remain, but others will be discharged.

Some people do not qualify for Chapter 7 bankruptcy. Generally, your income must be less than the state’s median income to qualify. The bankruptcy judge, as well as other higher-income-earning individuals, can still qualify for Chapter 7 bankruptcy if they meet the Chapter 7 “means test,” a complicated calculation that takes into account monthly income, expenses and unsecured debt.

If a debtor does not qualify for Chapter 7 bankruptcy, he or she may still file for Chapter 13 bankruptcy. This form of bankruptcy allows a debtor to repay creditors over an extended period of time (three or five years) through a Chapter 13 reorganization plan.

Source: Mercury News, “Federal judge in Los Angeles files for Chapter 7 bankruptcy,” Associated Press, Apr. 26, 2012.

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