Bankruptcy

Bankruptcy

 

Bankruptcy Overview

Federal bankruptcy law helps individuals get a handle on their debt by allowing them to request a complete liquidation under Chapter 7 of the Bankruptcy Code and/or a repayment plan under Chapter 13.

CHAPTER 7

 

Bankruptcy under Chapter 7 of the Bankruptcy Code is often referred to as “liquidation bankruptcy” or a "straight bankruptcy.” Under Chapter 7, a Bankruptcy Court can relieve a debtor of the responsibility to pay most of his or her debts but still allow the debtor to keep much of his or her property.

A debtor begins the bankruptcy process by filing a petition with his local bankruptcy court. Once the petition is filed, an “automatic stay” goes into effect and the creditors are prohibited from making any attempt to collect their debt, including attempting foreclosure and repossession. Along with the petition, or shortly thereafter, the debtor files various written “schedules” and “statements” to inform the Court of his outstanding debts, his current income and expenses, any existing contracts, any current or potential lawsuits, and any recent asset transfers. Upon receipt of the Petition, the Court appoints a Bankruptcy Trustee to handle the debtor’s case. The Trustee determines what assets, if any, it can collect from the debtor to sell to pay off the creditors. The Trustee can only collect certain assets, known as “non-exempt” assets, from the debtor. The debtor can keep his “exempt” assets if he chooses (and wants to continue to pay for as debts on those assets are not discharged). California law generally exempts a debtor’s home, furniture, furnishings, motor vehicles, and additional personal property up to a certain dollar amount. Most debtors only have “exempt” property. Once the Trustee sells the debtor’s “non-exempt” property, if any, and distributes the proceeds to the creditors, the Bankruptcy Court discharges the debtor’s remaining debt (other than alimony and child support, student loans, most tax obligations, and debts resulting from fraudulent or malicious acts) and concludes the bankruptcy proceeding.

CHAPTER 7 Frequently Asked Questions:
 

Am I still able to file bankruptcy after the law change?
Yes. The new bankruptcy law changed the rules which include certain pre-filing requirements, but the law did not eliminate your right to Chapter 7 Bankruptcy protection if you qualify.

Who can file a Chapter 7 Bankruptcy in California?
A person's residence and domicile, for bankruptcy purposes, is the place where he or she has lived for the majority of 180 days preceding the bankruptcy filing. For example, a person could file bankruptcy in a California bankruptcy court 91 days after moving to California from a residence in another state. If you file bankruptcy in California, however, you can only claim California's asset exemptions if you have resided in California for the previous two (2) years. A Chapter 7 Bankruptcy filing will be determined from where you have resided or have been domiciled within one of the three Bankruptcy Court Districts in the State of California for the majority of 180 days preceding the Chapter 7 bankruptcy filing. The California Bankruptcy Court Districts include the Nothtern, Central & Southern Divisions.

What will a Chapter 7 Bankruptcy do for me?
The greatest benefit a Chapter 7 Bankruptcy is often a fresh financial start which can relieve the financial burdens of stress and restore peace of mind. Once the Chapter 7 Bankruptcy Petition is filed, the collections calls and bills stop. Any lawsuit, collection action, repossession or garnishment pending against you is stopped in its tracks. Once the discharge is entered, you should have a real fresh financial start in a very real sense. No lawsuits, zero balances on all your credit cards, no more medical bills, no payday or personal loans, and no calls from bill collectors.

Do I need to take a credit counseling course before filing a Chapter 7 Bankruptcy?
The new bankruptcy law requires all debtors to fulfill two basic education requirements. Firstly is a credit counseling course prior to bankruptcy filing. And secondly a financial management course before obtaining a bankruptcy discharge. All Chapter 7 debtors (with the exception of businesses) are required to take the courses on their own. All bankruptcy education courses are available in person, by phone, or over the internet and are approved for the California Bankruptcy Court District in which you are filing. 

How often can a Chapter 7 bankruptcy be filed?
A debtor can receive a Chapter 7 discharge once every eight years. Under certain circumstances, a Chapter 7 can be followed by a Chapter 13.

Are both my spouse and I required to file Chapter 7 bankruptcy?
No. In many cases when both the husband and wife have a lot of debt it makes sense and obviously saves money for them to both file. It is not however a requirement under the law.

Will my bankruptcy affect my spouse's credit?
Generally not. When one spouse files for bankruptcy, as long as none of the debts scheduled by you are joint debts with your spouse, your spouse's credit is generally not affected.

Will I risk loosing my job if I file Chapter 7 bankruptcy?
No. It is a violation of Federal Law for an employer to discriminate against an existing employee because they filed for bankruptcy.

Can I File Bankruptcy if I am in the middle of a Divorce?
Yes. However there are a certain things to take into consideration as a Bankruptcy filing can delay the finalization of your divorce. California State Court Judges and other State Court Judges aren’t supposed to make a final ruling in a divorce case while your bankruptcy case is pending in Federal Court. Although this has happened before it is unusually rare. If you do not want to further delay the final hearing in your divorce wait until the final decree. If you must file during a divorce then a Motion to Lift Stay is the usual course but contact us to determine your particular circumstances. Also in a bankruptcy filing you have to list your future ex-spouse’s information ( both property and income) in your bankruptcy schedules, even though he or she is not filing bankruptcy with you.

Can I eliminate income taxes in a Chapter 7 bankruptcy?
Generally you can eliminate income taxes more than 3 years old. Under the law...there are 3 or 4 qualifications that have to be met, but, once these are met these type of income taxes can usually be discharged. Tax debts are generally dischargeable only if you file bankruptcy more than three years after you file a truthful and timely tax return. If your return was filed late, the taxes are generally dischargeable only if you file bankruptcy more than two years after filing a truthful tax return. There are exceptions to these rules and it is important for you to contact us to determine if your taxes are dischargeable.

How long will bankruptcy stay on my credit record?
10 years. No one can legally remove a bankruptcy notation from a credit record if 10 years have not yet elapsed. You should be suspect of anyone who claims that bankruptcy notations less than 10 years old can be legally removed, especially if they want to charge a fee to do this.

Do I still need to make my car and house payments in Chapter 7 bankruptcy?
It depends if you want to keep your car or house. In a Chapter 7 Bankruptcy, you will generally want to stay current with any secured debt for property you would like to keep such as your house or car. As such you must continue to make your regular house or car payments after the filing. If you have chosen to keep your house or car and do not make regular payments or fall behind on payments then the secured creditors can repossess or foreclose on the property. As long as the property is insured and you remain current on payments the law allows you to keep the property.

Can I retain any of my credit cards after I file Chapter 7?
After the Chapter 7 discharge if you have elected to keep a particular credit card through a reaffirmation agreement and that particular credit card company has also agreed in writing via the reaffirmation agreement to allow you to do so then you may be able to use that particular card. Keep in mind that It is up to each particular creditor, not you, as to whether they offer a reaffirmation agreement or not.

Will my immigration Status Be Affected By filing Chapter 7 Bankruptcy?
No. Many people worry unnecessarily that they will somehow jeopardize their immigration status if they file for bankruptcy. This is incorrect. Immigration status is not affected in any way by filing for bankruptcy.

Can I still use my credit cards if I file a Chapter 7 Bankruptcy?
You should stop using your credit cards immediately and not incur any additional debt once you know you are going to file for Chapter 7 Bankruptcy. Immediately after filing you cannot use the credit cards or incur any such debt. After the Chapter 7 discharge if you have elected to keep a particular credit card through a reaffirmation agreement and that particular credit card company has also agreed in writing via the reaffirmation agreement to allow you to do so then you may be able to use that particular card.

Can I repay debts owed to relatives before filing Chapter 7 Bankruptcy so that I do not have to list them on my bankruptcy petition?
No. Payments made to relatives within 12 months (one year) before filing bankruptcy are considered “preferences”. The trustee may have the right to pursue the relative to recover the preference, and then divide the money equally among all creditors. You could then be charged with bankruptcy fraud.

What’s the difference between a secured debt and an unsecured debt?
A secured debt is one where the creditor takes personal or real property as collateral. A creditor whose debt is secured has a right to take property to satisfy a debt in default. A secured debt (like a mortgage on a house or a car loan) gives the creditor the right to take back the security (car, house, furniture, etc..) if you fail to make your timely payments.

A debt is unsecured if you have simply promised to pay a creditor a sum of money at a particular time, and you have not put up any real or personal property as collateral. An unsecured debt (like a credit card, medical bill, utility bill, rent, etc..) does not give the creditor the right to repossess any property you have. All the creditor can do is to sue you for the money it is owed.

After I file can creditors still harass me for payment of debts?
Not legally. The moment you file for bankruptcy protection, the Bankruptcy Court issues an order which is a stay against your creditors actions to collect or attempt to collect debts you may owe. By law they must leave you alone. That means no more phone calls, no more collection letters, no more lawsuits, no repossessions, no foreclosures. The Court’s Order or "automatic stay" is issued pursuant to 11 United States Code, Section 362. The automatic stay prohibits any and all collections actions. After you file for bankruptcy, a creditor is not even allowed to talk to you. All creditors must stop any and all collection attempts they have already initiated. The automatic stay is very powerful law and if a creditor violates the automatic stay, you have the right to bring action against the creditor before the Court for Contempt of Court, as well as to be compensated accordingly. Once you file for bankruptcy, all creditors are required by law to leave you alone or face the legal consequences which include fines and potential criminal penalties for willful violations.

Can I choose which debts and property to include in my Chapter 7 bankruptcy?
No. When you file Chapter 7 bankruptcy the law requires you to list all your property and all your debts. Many people want to leave out a certain debts because it is their intent to keep paying on them. Others want to leave out certain property for fear that it will be taken and sold for the benefit of creditors. One of the most fundamental tenants of the Bankruptcy Code is to be forthright and list all of your debts and all of your property. All debts owing as of the time of a filing of a Chapter 7 bankruptcy petition must be listed on the schedules; no creditor can be left off. This applies to debts owed to friends and relatives. When a person signs a bankruptcy petition, he or she is certifying under penalty of perjury that all their assets (property) and all their liabilities (debts) are listed on the petition. And, when it comes time for the meeting of creditors, you will be asked under oath if all assets (property) and liabilities (debts) have been listed.

What if I forget to list a creditor?
Even after filing you may add a creditor post-petition within the time parameters to do so and there are usually additional fees associated with doing so.

Will a Chapter 7 bankruptcy discharge or eliminate all my debts?
A Chapter 7 discharge does not eliminate child support & spousal maintenance (alimony),student loans(unless repayment would likely cause undue hardship), it does not eliminate debts resulting from DUI or DWI; nor debts not dischargeable in a previous bankruptcy because of fraud, certain federal, state, and local taxes, restitution, fines, or penalties. Also debts not listed or omitted from the petition can remain in force after discharge.

Can I get rid of student loans in Chapter 7 Bankruptcy?
Generally Not. Student loans can only be discharged if Repayment would cause undue hardship which is extremely difficult to show and highly unusual for a Bankruptcy Court to grant.

Do I have to file my income taxes while in Bankruptcy?
Yes.

I co-signed for another person, do I have to include that debt in Chapter 7?
All debts you owe must be listed on the schedules.

I am listed on a bank account that's not mine; do I have to list it as an asset?
Generally yes, but you should contact us attorney for specifics as each situation is unique.

How long does the Chapter 7 bankruptcy process take?
A Chapter 7 bankruptcy typically takes 3-4 months from the time the petition is filed.

If I own a vehicle outright. Can I sign it over to a relative and then file bankruptcy so that the bankruptcy trustee does not take it?
No. The transfer would be considered fraudulent, and the trustee would likely take the car. You could then be charged with bankruptcy fraud.

What is a section 341(a) meeting of creditors?
Section 341(a) of the Bankruptcy Code requires every debtor to personally attend a meeting of creditors and to submit to an examination under oath. The United States Trustee, their designee, or a Chapter 7 Bankruptcy Trustee, presides at the meeting. Creditors may ask questions of the debtor under oath, and may elect a trustee other then the one assigned, or conduct such other business as may be appropriate. Although creditors are not required to attend the meeting this is usually the only opportunity creditors will have to directly examine the debtor while under oath without seeking further permission of the court. In most Chapter 7 consumer bankruptcy cases the creditors rarely if ever appear.

What will happen at the meeting of creditors?
At the meeting of creditors, the trustee will ask a series of questions almost identical to those on the schedules and statement of financial affairs. The trustee is generally attempting to find non-exempt assets or determine whether the income and expenses you have attested to under penalty of perjury are correct. Also that you qualify for Chapter 7 Bankruptcy and have complied with the requirements under the Bankruptcy Code. In virtually every case, these issues will have long since been addressed with you by your attorney. Creditors are permitted to attend these meetings and ask questions if they wish, but in most Chapter 7 consumer bankruptcy cases the creditors rarely if ever appear.

Will an attorney be present with me at the meeting of creditors?
Yes. Our Bankruptcy Attorneys will always be there to represent you.

Do I need to bring anything to the meeting of creditors?
In every bankruptcy case, the debtor is required to provide two pieces of proof of identity at the creditors’ meeting, one of which verifies the social security number. The preferred proof is a driver’s license and social security card. Other acceptable proof includes: (1) government ID, (2) a state picture ID, (3) a U.S. passport, (4) a military ID, (5) a resident alien card, (6) a medical insurance card, (7) a pay stub, (8) a W-2 form, (9) an IRS Form 1099, or (10) a Social Security Administration report.

What is a Reaffirmation Agreement?
Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements-must be voluntary; must not place too heavy a burden on you or your family; must be in your best interest; and can be canceled anytime before the court issues your discharge or within 60 days after the agreement is filed with the court, whichever gives you the most time.

If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.

Do I have to list my back child support in my Chapter 7 bankruptcy even if cannot be discharged?
Yes. The law requires that you must list all your debts so back child support must be listed in the schedules, however child support and/or alimony cannot be discharged. And, A Chapter 7 discharge does not affect future child or spousal support obligations.

Can I discharge payday loans in Chapter 7 bankruptcy?
Yes. Payday loans are dischargeable in bankruptcy.

Can the trustee take my tax refund after filing Chapter 7?
It depends on the particular situation. If you haven’t received the refund and spent it down prior to filing, the trustee would certainly be within their rights to take it. Each situation is unique.

What is a Bankruptcy Discharge and how does it operate?
One of the reasons people file bankruptcy is to get a “discharge.” A discharge is a  court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for most taxes, child support, alimony, most student loans, court fines and criminal restitution and personal injury caused by driving drunk or under the influence of drugs.

The discharge only applies to debts that arose before the date you filed. Also, if the judge finds that you received money or property by fraud, that debt may not be discharged.

You can only receive a chapter 7 discharge once every eight years. Other rules may apply if you previously received a discharge in a chapter 13 case. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.

What can I do if a creditor keeps trying to collect money after I have filed bankruptcy?
If a creditor continues to attempt to collect a debt after the bankruptcy case is filed they are likely in violation of the automatic stay. You should immediately notify the creditor in writing that you have filed bankruptcy, and provide them with either the case number and filing date or a copy of the petition that shows it was filed. If the creditor still continues to try to collect, you may be entitled to take legal action against the creditor to obtain a specific order from the court prohibiting the creditor from taking further collection action and, if the creditor is willfully violating the automatic stay, the court can hold the creditor in contempt of court and punish the creditor by fine or incarceration. Any such legal action brought against the creditor will be complex and will normally require representation by an experienced attorney.

 

 

 

 
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