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What is a Default in California?
When someone opens a credit card or takes out a loan, they agree to contractual terms that outline a payment schedule. If someone misses a payment, then the account could go into default. Not all defaults are based on monetary requirements. For example, mortgage agreements typically require the mortgagee to carry homeowners’ insurance. Failing to comply with other provisions in a contract could also constitute a default.
Under most circumstances, one miss payment will lead to an account becoming delinquent. It could take several months of missed payments for a lender to consider a delinquent account in default. However, the number of payments you could miss is not defined in any California law. It is controlled by your loan documents or contract.
Defaulting on a credit account or loan could have various negative repercussions. A credit card company could cancel your account. Additionally, if you are more than sixty days behind in your payments, the card issuer could apply penalties to your balance. Defaulting on installment loan payments often gives your lender the right to require immediate full payment of the loan balance.
Secured loans present other potential problems. For instance, if you default on a car loan, your vehicle could be repossessed. It is important to remember that when it comes to car payments, one missed or late payment could constitute a default. Missing mortgage payments often result in costly foreclosure proceedings.
Even if you are not in default, you could still incur penalties. For example, a payment that is one or two days late is considered delinquent by some lenders. When a payment is late, an additional fee might be charged or you could lose a promotional interest rate. However, most creditors have a built-in grace period under their contractual terms.
If you are thirty or more days late, your creditor could report your delinquency or default to the three credit bureaus. Late payments could impact your credit score for seven years. If you are in danger of falling into default, missing payments, or are regularly late, you should speak with our experienced Sacramento bankruptcy attorneys. Late and missed payments result in a spiraling descent into bad credit and financial stress.
Bankruptcy in California
Borrowers who are in default or otherwise overwhelmed with debt might have the option to file for bankruptcy. Filing for bankruptcy is not a choice that someone should take lightly. Our Huntington Beach bankruptcy attorneys offer free consultations to discuss your particular situation and the advantages and disadvantages of filing for bankruptcy.
There are two common chapters of bankruptcy available in California: Chapter 7 and Chapter 13. The procedure and consequences will depend on the chapter of bankruptcy. In many cases, your income, assets, and type of debt will dictate what chapter you file.
Chapter 7, or liquidation bankruptcy, is often the quickest way to discharge many types of unsecured debts and loans. Unsecured debt includes medical bills, credit card balances, unsecured personal loans, some utility bills, and other debt.
Some types of debts, including certain taxes, alimony, child support, and criminal restitution, are not dischargeable. Individuals across the country and in California are defaulting on their student loans. Unfortunately, student loans are extremely difficult to eliminate through bankruptcy. Nonetheless, you should still talk with one of our Sacramento Chapter 7 bankruptcy lawyers if you are struggling with student loan payments.
When you file Chapter 7, a court-appointed trustee will review your property to determine if some of it could be sold to pay your creditors. While this sounds frightening, there are exemptions under California law that allow you to protect most, if not all, of your possessions. People with too much income or property they want to keep should consider Chapter 13.
A debtor is permitted to reorganize their debt in a Chapter 13 bankruptcy. You are able to keep your property while you enter a payment plan to satisfy your creditors. Depending on your circumstance, the payment plan lasts three to five years. While this does not sound as attractive as Chapter 7, in most cases, you will be paying considerably less than the total balances you owe and less than what your creditors would typically agree to the outside of bankruptcy. Chapter 13 is much more complex than Chapter 7, so you should have one of our knowledgeable California Chapter 13 bankruptcy lawyers handling your case.
As with defaulting on an account, filing for bankruptcy will appear on your credit report and initially lower your credit score. More specifically, Chapter will stay on your credit report for ten years, while Chapter 13 will appear for seven years. The critical thing to remember is that the negative impact is only an initial consequence. Once you have a discharge, you are in a position to start rebuilding your credit. When you default, the only consequences are negative.
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