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Bankruptcy / Debts Questions and Answers
What is Chapter 7 Bankruptcy?
How do I know if I qualify for and should file a Chapter 7 Bankruptcy?
What protections and advantages does a Chapter 7 bankruptcy provide to me?
Can I discharge court-ordered child support or spousal support obligations?
For what reasons would I decide not to file a Chapter 7 bankruptcy?
Can I keep my car after filing for bankruptcy?
Will I lose my house if I file for bankruptcy?
Do I need an attorney if I decide to file for bankruptcy?
What type of documents will I need to provide to my attorney to get my bankruptcy started?
What is the ‘Means Test’ and why is it relevant in a Chapter 7 bankruptcy?
What do I need to know about the credit counseling course requirements?
What is the creditor meeting and do I need to appear at it?
How long does a Chapter 7 bankruptcy take to complete?
Is there life after bankruptcy?
Can my personal property be taken to pay a debt or judgment, and could a bankruptcy stop the repossession?
Can my real property be levied against and sold to pay off a debt or judgment, and could a bankruptcy stop the levying or sale process?
Are there any limits to how much a creditor can harass me?
Can a creditor force me to pay my spouse’s debt even if my spouse incurred the debt, and will a bankruptcy shield me from that obligation?
What is Chapter 7 Bankruptcy?
A chapter 7 Bankruptcy is also known as ‘consumer,’ ‘ordinary’, or ‘straight’ bankruptcy and is the most widely used type of bankruptcy by consumers. Chapter 7 allows for liquidation proceedings, or the selling of all non-exempt assets by the trustee and distribution of those liquidated assets to the debtor’s creditors. Most debtors filing a Chapter 7 bankruptcy have mostly exempt assets (assets protected from being sold by the trustee) and as such there is usually never any liquidation. Besides this, the Chapter 7 bankruptcy also discharges (extinguishes) certain secured and unsecured debts. There are two types of Chapter 7 bankruptcies, ‘voluntary’ and ‘involuntary’. A voluntary bankruptcy is filed by the debtor’s attorney voluntarily and is the most widely filed type of bankruptcy. On few occasions, a creditor may force a debtor into a Chapter 7 involuntary bankruptcy.
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How do I know if I qualify for and should file a Chapter 7 Bankruptcy?
Your bankruptcy attorney is truly in the best position to determine whether you qualify for a bankruptcy, and whether you should file for bankruptcy. Prior to the federal bankruptcy laws changing in October, 2005, it was relatively simple for almost anyone with exempt assets to file a bankruptcy. There was no requirement to prove income by documentation other than your petition, or to take any counseling courses, or to deal with any means testing requirements. Today, by contrast, the new laws require that anyone seeking a straight-type bankruptcy must first take a pre-filing credit counseling course, and then qualify under what is called a ‘Means Test’ where you must show that your income is below the median income in your state. If your income is higher than your state’s median income, then other complex calculations are used to determine whether you will qualify for the Chapter 7 bankruptcy. Additionally, even if you qualify under the Means Test, certain assets you have may not be exempt or my have too much equity which in turn could cause you to lose those assets in the liquidation process. Further, you will only be allowed to file a bankruptcy once every 8 years. It is always advisable to check with your bankruptcy attorney because the attorney should be equipped with the means and knowledge to advise whether or not you can or should file for a Chapter 7 consumer bankruptcy.
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What protections and advantages does a Chapter 7 bankruptcy provide to me?
The purpose behind a bankruptcy for a creditor is to give the creditor a ‘fresh start’ from his or her debts and immediate protection from creditors. Upon the filing of the voluntary petition at the bankruptcy court, the ‘Automatic Stay’ rules immediately kick in. This means that your creditors are automatically stopped from harassing you, telephoning you, sending you letters, or contacting you in any way in order to try to collect on any debts you are petitioning the court to discharge. The stay also stops wage garnishments before or after the orders are attached to your paychecks. However, court-ordered garnishments for child support or spousal support (also termed ‘alimony’ in California) cannot be stayed upon by the bankruptcy filing. Creditors are additionally stopped from repossessing your car, and you can relinquish an unwanted, encumbered car and not be responsible for the debt owed on it or any losses incurred by the lender for repossessing or selling the repossessed car. That rule would also apply to all other secured personal property items that may be voluntarily or involuntarily repossessed by the creditor. In addition to this, the bankruptcy filing also can protect you from ongoing lawsuits and any lawsuits about to be filed against you. Further, the automatic stay will temporarily prevent and stop any foreclosure proceeding and public sale against your house. Any creditors who violate the automatic stay rules may be liable for certain costs and attorney fees incurred by the debtor who motions the court for those violations. Also, the court could order sanctions against the creditor for violating the automatic stay.
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Can I discharge court-ordered child support or spousal support obligations?>
No. Neither court-ordered child support nor spousal support obligations can be discharged in a bankruptcy proceeding because both the children and the spouse whom the support payments benefit would be disadvantaged from the discharge of those obligations.
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For what reasons would I decide not to file a Chapter 7 bankruptcy?
Bankruptcy is not for everyone and is sometimes the last of options for many. However, for those who do file for bankruptcy they simply have decided that there is no other choice for them. Most people feel guilty about their choice to discharge their debts this way because of the negative stigmatism, any indifference other people may have, the feelings of financial inadequacy that may exist, etc. However, bankruptcy is still a recourse that is available and legal. One reason to avoid a bankruptcy is if you own luxury items that you are not willing to part with (such as an expensive car, expensive jewelry, expensive clothing, etc.) and that have little debt or total equity, and the exemption value of each item is exceeded by the item’s equity value. Luxury items can be easily sold by the trustee to pay off creditor debts. Another reason to avoid bankruptcy would be that you are seeking to discharge certain debts that are not dischargeable such as alimony obligations, government student loans, priority tax debts, and other certain debts. Individuals are unable to pick and choose what debts they wish to discharge because all outstanding debts must be listed within the debtor’s bankruptcy petition. A third reason to avoid filing bankruptcy is if you want to hide assets from the court. Be very careful here because intentionally failing to disclose assets that the court would otherwise want to know about is bankruptcy fraud and any such fraud would be investigated by the F.B.I. Bankruptcy may not be the right choice for you if you know that you will be coming into a lot of money as a result of an inheritance, lottery winning, lawsuit settlement or judgment, insurance policy payout, pension, etc. If you own any property (real or personal) jointly with another person and only you are filing the bankruptcy, the filing may legally impact the legal interests of that joint tenant or tenant in common. Our office will be able to advise you if bankruptcy is the right choice for you.
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Can I keep my car after filing for bankruptcy?
The bankruptcy law will allow you to keep your car if the amount of equity in the vehicle does not exceed the vehicle’s exemption amount. It is not the goal of the bankruptcy court to take your car away from you, but if you own a 2008 Lamborghini which is paid off, the court will liquidate the vehicle. In most situations you will be able to sign a ‘reaffirmation agreement’ with the financing company to keep your car. Some debtors simply want to relinquish their ‘upside-down’ vehicles (new or old) when the debt liability exceeds the value of the vehicle. This can be done in the bankruptcy. Your attorney will work with the lender. If the lender repossesses the vehicle either voluntarily or involuntarily and incurs a financial loss as a result because they cannot sell the vehicle for more than what is owed on it, the lender can usually sue the debtor for the loss, but a Chapter 7 bankruptcy protects the debtor here from that lawsuit or any ensuing judgment. If you decide to keep your car during the bankruptcy proceedings, it is always advisable to keep making your monthly payments at all times because otherwise all outstanding payments for the vehicle will be immediately due and payable when you receive your notice of final discharge of all your other debts.
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Will I lose my house if I file for bankruptcy?
While it is true that a bankruptcy will stop a foreclosure proceeding against your house or even a public sale of the house, you can still keep your house if the equity amount is at or less than the exemption amount that you qualify for. For example, if you are a single person under the age of 55, you are entitled to a $50,000 equity exemption in your residence. In other words, the equity in your residence cannot exceed $50,000. The equity is determined by subtracting all mortgages against the value of a recent fair market appraisal. In some circumstances, it is more wise to surrender the residence in a bankruptcy proceeding if the equity is far less than the exemption amount, the monthly mortgage payments are high, and sales of homes in the real estate market are poor since the total amount you would pay monthly before the residence is even sold, plus closing costs, realtor fees, etc., may not even reach a break-even point for you. Your bankruptcy attorney is best able to advise you in these circumstances.
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Do I need an attorney if I decide to file for bankruptcy?
It is always advisable for any debtor seeking bankruptcy to retain an attorney for purposes of advising the debtor, preparing the voluntary petition, and representing the debtor at the creditor meeting. A good bankruptcy attorney will do more than just that such as attaining the debtor’s credit report, negotiating with creditors, assisting the debtor in completing and filing the pre-filing and pre-discharge filings, advising the debtor in what is in his or her best interest, and seeking to protect the debtor’s interests in any proceedings in the bankruptcy court. There are too many complexities involved for average debtor to avoid pitfalls, conversions to Chapter 13 cases, and many other problems that could occur without the assistance of an experienced bankruptcy attorney.
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What type of documents will I need to provide to my attorney to get my bankruptcy started?
If you have decided that you are ready to proceed forward with your bankruptcy, you will need to disclose all of your known assets and debts to your attorney. Your attorney will not agree to hide assets or fail to disclose assets to the court. Our Bankruptcy Questionnaire form is easy to understand and complete. Simply fill in all applicable assets and debts and submit the form back to our office. If you don’t know all of your debts, then our office at no charge to you will order your credit report for you. You may want to bring in all current credit card and statements you may have. Additionally, you will need the last 60 days of paycheck stubs and your last year’s tax filings. You should always cooperate with your attorney by providing all documents he or she requests, returning all phone calls to you, and by listening to what your answer says. Remember, you will be most successful in your bankruptcy by cooperating with your attorney.
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What is the ‘Means Test’ and why is it relevant in a Chapter 7 bankruptcy?
In the ‘Means Test’ you would be required to show your income by showing the trustee copies of your paycheck stubs for the last 60 days prior to filing the voluntary petition and usually your last year’s tax statements. The means test is broken into two parts. The first part compares your annual income to the median family income in your state. If your income is below your state average median family income for a family the same size of yours, then no presumption of abuse occurs. If however your income exceeds the median average, then a presumption of abuse is present and the trustee could file a motion to dismiss the Chapter 7 bankruptcy. The debtor’s current monthly income is calculated using the last six months’ average income, less certain allowed expenses reflecting the basic needs of the debtor. Even if your income exceeds your state median income, you may still qualify for the bankruptcy because there may be special circumstances that justify additional expenses or adjustments of current monthly income for which you would have no reasonable alternative.
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What do I need to know about the credit counseling course requirements?
Under the news bankruptcy laws, you would be required to take two counseling courses from any one of several certified counseling agencies approved by the bankruptcy court. For a minimal fee paid to the agency, the first is a pre-filing credit counseling course that is done either on-line, in a classroom, or by phone. After the completion of the short course, a certificate is issued that will be attached to the voluntary petition prior to your filing. The course must be taken within 180 days of the filing of the petition for bankruptcy. At the time your attorney files your petition, the court will schedule a creditor meeting about thirty to forty-five days later. Within another forty-five days after the creditor meeting, you will be required to take a short pre-discharge financial management counseling course where another certificate will be issued at the close of the course and which must be filed before the close of the forty-five days. Both the pre-filing and pre-discharge certificates must be timely filed or otherwise your bankruptcy will be dismissed. Our office provides one-on-one assistance in preparing our clients for and taking the courses.
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What is the creditor meeting and do I need to appear at it?
The creditor meeting is scheduled by the bankruptcy court within 30 to 45 days upon the filing of the voluntary petition. The purpose of the creditor meeting is to allow your creditors the opportunity to appear at and question you regarding anything contained within your petition, and they have the right to question you, and advise the trustee of anything relevant to your assets, debts, and filing. However, statistically, rarely will a creditor appear at the creditor meeting unless a substantial abuse is present or there is any potential nondisclosure of assets or income by you that the creditor is aware of. Remember, the creditor does not want you to file bankruptcy. They want you to continue making your payments on your debt. Despite this, the creditor is usually on the losing end of this and will seek to minimize their losses because in most circumstances the debt owed to the creditor is dischargeable, and it costs the creditor to send an attorney or agent to the creditor meeting. You will be required to attend the creditor meeting. Failure to do so will result in the dismissal of your bankruptcy by the trustee. Beside you and your attorney, the trustee, his or her assistant, and other bankruptcy petitioners will be present. In all surrounding southern California bankruptcy courts, the meetings occur in large rooms, not court rooms. Each debtor’s individual meeting is recorded. The trustee will start the meeting by advising all of the debtors of certain rights they have prior to them testifying at the meeting. You will need to bring your Drivers License, Identification Card or other acceptable form of identification along with your Social Security card or other approved document containing your Social Security number. The trustee calls one debtor after another and each debtor’s individual session is usually no longer than 5 to 10 minutes. Finally, the trustee may request that you or your attorney complete one of the trustee’s own forms and you will required to read a short bankruptcy pamphlet. After your session is over, you will be required to take your pre-discharge filing requirement and submit to the court the certificate from the course. Any creditors who seek to challenge the discharge of a debt, they will have two months to file any motions or objections to your bankruptcy petition, and if none are filed, the bankruptcy court will thereafter approve your petition and issue you a notice of discharge of your debts. Your bankruptcy will then be over.
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How long does a Chapter 7 bankruptcy take to complete?
A Chapter 7 bankruptcy is a relatively short process which takes just a few months from the filing of the petition to the final discharge of the debts. One of the reasons that the process is not faster is because your creditors are given an opportunity to prepare for and appear or have their attorneys or agents appear at the creditor meeting (aka the 341(a) Creditor Meeting) in order to question you about your bankruptcy, although only rarely do the creditors appear at the meetings. The creditors also have two months after your creditor meeting to file any objections to the bankruptcy. If no objections or motions are filed by your creditors or trustee within the required time period, your bankruptcy petition will be approved and your debts will ultimately be discharged.
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Is there life after bankruptcy?
Yes. There is a misconception about bankruptcy that many have as a result of commercials by credit card companies and the stigma that bankruptcy is a bad thing. Most post-bankruptcy debtors however find that their lives are much better and happier after bankruptcy because they were able to discharge their debts. In some circumstances, bankruptcy may work to eventually improve a person’s credit score because after several years the debts and bankruptcy will drop off the debtors’ credit reports. And, with the assistance of a good attorney the debtor will be provided with the information they need to get back on their financial feet to improve their credit scores and start increasing their wealth. Many credit card companies offer credit cards to individuals who have recently completed their bankruptcies. Although the interest rates are usually high at first, the point is that the debtors have an opportunity to prove their financial responsibility by systematically paying off those items purchased each month and continuing this practice until their FICO scores have dramatically improved. The effect is that the debtors will see their credit scores start climbing even with the bankruptcy showing on their reports. As a result, a debtor can purchase a house or a car within a short period of time after the discharge of the bankruptcy debts. Although not every case is the same, and individual results may differ for each person due to each person’s credit score, and assets and other debts owned, the positive effects will still be felt by each debtor.
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Can my personal property be taken to pay a debt or judgment, and could a bankruptcy stop the repossession?
The answers to both these questions are yes. A bankruptcy filing will stop the repossession of personal property items that you own by the creditor in order to pay off debts. Where a debtor does not file a bankruptcy and does not negotiate with the creditor, the creditor has every right to repossess personal property items that are secured by the debt, such as a car. A creditor does not have to get court approval to repossess a secured asset to pay off the debt. Alternatively, the creditor must go to court and win a lawsuit against you before taking any personal property to pay off a debt or judgment. The same rules apply if you fail to pay your monthly payments on your secured assets, such as a car. The creditors will usually make demands that you bring the monthly payments current. Failure to do so could result in the creditor repossessing the secured asset even without your knowledge! The car must, however, be on public property when it is repossessed. And as earlier stated above, even if the car is repossessed, you could still wind up owing the lender money.
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Can my real property be levied against and sold to pay off a debt or judgment, and could a bankruptcy stop the levying or sale process?
The answers to both these questions are again yes. A bankruptcy filing will likewise stop any levying of any judgment against your house before the levy is recorded, and a bankruptcy will absolutely stop the forced sale of your house against your will. If a creditor or party to a lawsuit wins a judgment against you through any sort of civil litigation or alternative dispute resolution, the creditor can file an abstract of judgment or other lien application with the clerk of the court without petitioning the court for approval of the levy request. There is really no need to seek court approval on certain liens because if the creditor was able to attain a judgment on the debt and even attorney fees, seeking the lien is a relatively easy process. Afterwards the lien is then recorded against your real property. Any attempts thereafter to sell, refinance or borrow against the residence will be thwarted because the lien would be a priority debt that must be satisfied through escrow before you are able to complete the sale or other encumbrance. Even worse, once the levy is filed, it is too late to remove it by bankruptcy although the bankruptcy will stop the forced sale before the public auction date occurs. The creditor will need to seek court approval at a hearing before the court allows the creditor to sell your house.
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Are there any limits to how much a creditor can harass me?
Yes. Creditors are not given an open door to do whatever they wish to collect the debts against you. Creditors will sometimes hire collection agency companies to try to collect payments for past due bills. However, the creditors or their collection agencies cannot, by law, repeatedly call you on the telephone in a harassing way. It is also against the law for them to threaten you with harm or contact you at work if you have told them not to. If you ask them in writing to stop contacting you, they must leave you alone. At that point, they can only contact you to inform you that they are filing a lawsuit. You want to be sure to keep copies of all correspondences between yourselves and them. The filing of a bankruptcy places an automatic stop on any of their collection procedures through what we call the ‘automatic stay’ as discussed earlier. If you do not use the resource of a bankruptcy to protect you, and you have advised the collection company not to contact you any further, they can have the recourse of suing you. Even if you are then served with a lawsuit from the creditor, the bankruptcy will additionally stop the lawsuit and any further collection or service steps taken by the creditor. Any abuses by your creditors of the debt collection laws prior to you filing your bankruptcy should be immediately reported to the Department of Consumer Affairs, Federal Trade Commission and Attorney General Office, but you should first consult with your attorney. You should refer to our link page of this site for immediate linking to those government websites.
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Can a creditor force me to pay my spouse’s debt even if my spouse incurred the debt, and will a bankruptcy shield me from that obligation?
Again, the answers to both questions are yes. During your marriage or domesticated partnership, if your spouse or partner incurs what is called a community property debt, you may be jointly responsible for that debt. For example, if your spouse uses a credit card (even if the card is in your spouse’s name only) during marriage before separation and purchases necessities of living (such as food, clothing, health care, children’s needs, etc.) and the creditor is knocking down your door for the payment of the debt, you will be jointly responsible to pay that debt, meaning that the creditor can go only after you and not your spouse. You will normally not be liable for any debts your spouse incurred post separation. Likewise, if you co-signed a contract or loan agreement for someone under 18 (or for anyone else, for that matter), you would be responsible for the debt. This means you have promised to make the payments if the other person fails to live up to the agreement. If that other person files for Chapter 7 protection, the creditor can still go after you for the debt. That other person’s bankruptcy only relieves the debt for that person, but not for you. The same can even be said when one spouse files for bankruptcy. The other spouse is still liable for a joint community debt.
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