Renata Klein will no Don’t be rich, he declares in the second episode of the second season of the hit HBO show, “Big Little Lies.” Played by actress Laura Dern, Renata’s financial crises have become some of the most memorable pop culture moments of the summer. But the show also highlights the stakes in personal bankruptcy proceedings.
After her husband, Gordon, is arrested for securities fraud, the Kleins must come to terms with the loss of their seemingly perfect lives. Thanks to Gordon’s actions, the family’s $ 20 million Monterey mansion, Tesla, and even Renata’s wedding ring are fair game in bankruptcy proceedings, John C. Colwell, a bankruptcy attorney with San Diego-based and president of the National Association of Consumer Bankruptcy Attorneys, tells CNBC Make It.
How Personal Bankruptcy Works
There are two main types of Personal bankruptcy: Chapter 7 and Chapter 13. Colwell says that Chapter 7 is almost always the preferable option of the two and is more popular across the country. Not only is it faster, usually done and finished in about four months, he says, but it is also less expensive. In the end, the taxpayer will no longer have to pay off certain debts that he has accumulated.
In Chapter 7, the debtor must list all of your assets and debts for the trustee to review. Colwell says the asset forms are complete – the debtor has to include your home and car, of course, but also clothing, jewelry, furniture, and even pets. “When in doubt, tell me,” says Colwell.
That’s where Renata got into trouble with the trustee: On her asset form, she didn’t list the family’s Tesla or wedding ring, which are probably worth more than California law allows bankruptcy filers to be exempt from being. sold. For example, California allows debtors to exempt up to $ 100,000 in home equity. Anything above that amount can be sold and used to pay off debt, and the Kleins’ $ 20 million home is well above that threshold.
A debtor’s assets are used to pay off some of the estate’s debts, of which there are three main types: secured (home, car), unsecured (credit card debt, medical debt, payroll loans, student loans), and priority (alimony). Unsecured debt, in addition to student loan debt, is generally written off in Chapter 7 proceedings, which is why taxpayers have the opportunity to “start over.” The debtor still has to pay the senior debts and the secured debts that are not settled with the assets of the estate.
Chapter 13 is more complicated and less common: It involves creating a payment plan for the taxpayer’s debts, Colwell says.
Although Renata’s difficult financial situation is not necessarily comprehensive (securities fraud is not the same as not being able to pay overwhelming medical debt), Colwell says the stigma of bankruptcy has diminished in her decades in the field, and she encourages Anyone who needs financial help to at least seek a free consultation with a local bankruptcy attorney, which can be found by searching the NACBA website.
“I know it’s the last place they want to be,” says Colwell. “If people can come in and get information and not be afraid, that’s really important in my opinion.”
Like this story? Subscribe to CNBC Make It on YouTube!
Do not miss: Here’s what it costs to travel to 7 popular ‘Game of Thrones’ destinations