Bankruptcy FAQs (General FAQs)
Yes. Even if an attorney were to file bankruptcy, she would hire a bankruptcy expert. Bankruptcy law is one of the most specialized practice areas; it’s a mistake to retain counsel who does it on the side. Seek a bankruptcy attorney with experience of hundreds of local cases.
There are bankruptcy rules: good faith, honesty, willingness to repay debt IF funds are available, and due diligence of attorney and client. As long as the debtor complies with bankruptcy law, they may be privileged with a powerful remedy: freedom from debt.
Bankruptcy IMPROVES credit scores. By zeroing out liabilities, you become a better loan candidate. Bankruptcy restores the income to debt ratio. Generally, our bankruptcy clients’ credit is already shot and their scores can only go UP. If the credit’s still good, it’s by virtue of making minimum payments that 1) cause undue hardship; and 2) won’t pay off debt in a lifetime.
Yes. After bankruptcy, you are an attractive loan candidate. After all, you can’t file bankruptcy again for several years. Bankruptcy is a strong foundation for improving income to debt ratio, rebuilding credit over time, and being better able to assume future debt.
Yes, IF the corresponding tax returns were last due 3+ years before filing bankruptcy, filed 2+ years before filing the bankruptcy, and not assessed within 240 days before filing the bankruptcy. The 3-year period commences from the later of the original due-date or the extension due-date, if applicable. The 240 days after assessment may be longer due to intervening events. Caveat: without careful examination of tax account transcripts and other conditions, cancellation of income tax debt in bankruptcy may not happen. Large or national bankruptcy law firms may neglect to even examine whether and when your income tax debt can be discharged.
No–with very rare exception. The exception for student-loan discharge in bankruptcy is “undue hardship.” Forgiveness of student loan debt in bankruptcy is contingent upon showing 1) past failure to repay it, despite great effort; 2) present inability to possibly repay it; and 3) future inability to repay it. These strict criteria imply the answer is negative absent disability precluding any level of present or future earning. Note: there is no distinction between the bankruptcy treatment of federal and private student loans.
Yes. Student loan debt (except in very rare circumstances) is not dischargeable (cannot be canceled) in bankruptcy. Income taxes can sometimes be canceled in bankruptcy, but very strict criteria must be satisfied. Child support, spousal support and DUI-related debts are other non-dischargeable debts. Debts incurred by fraud can be denied discharge. There are gray areas: your bankruptcy attorney will advise you regarding discharge of your specific types of debt.
Yes. The California exemption (allowance) for protected home equity has been increased to the greater of $300,000 or the median sale price (capped at $600,000). In San Diego, CA, the maximum value would likely presently apply. If your home equity (the value after deducting the mortgage payoff) exceeds the exemption, then you might opt to file chapter 13 bankruptcy instead of chapter 7 in order to keep your home.
The answer is almost always yes. A car is only subject to loss in chapter 7 bankruptcy if it has a whole lot of equity (the value less any loan payoff). Even if it’s paid off and has significant value, California’s exemptions (allowances for property) are generous.
No. Generous allowances (exemptions) allow people filing chapter 7 bankruptcy to almost always keep all their property. With your cooperation, your bankruptcy attorney must diligently identify, itemize, value and correctly exempt your property. If you have excessive property value, he may advise to file chapter 13 instead of chapter 7.
Yes. Chapter 7 bankruptcy gives you an important breather and may provide opportunity to refinance an “underwater” car, or possibly work things out with the lender. Ultimately, you have to bring your payments current. Chapter 13 bankruptcy can give you a framework to catch up on late payments over an extended period, and may also permit reduction of the principal balance on the loan.
Yes. Filing chapter 7 or chapter 13 bankruptcy immediately stops lawsuits and collections. Some debts (like domestic support, certain taxes, and student loans–with rare exception) cannot ultimately be canceled in bankruptcy. Collection of such excepted debts would either continue or be temporarily suspended by the bankruptcy.
Bankruptcy will not erase a judgment, but will prevent its continued enforcement: the creditor will be unable to garnish your paycheck or attach your bank account, even if it already has a judgment. If there’s an existing judgment lien (a recorded abstract that attaches to real property), your bankruptcy attorney must file a separate motion to “avoid” it, in order to clear title.
Yes, with limitations. If your prior case was dismissed (thrown out or rejected), then the several-year wait-periods that apply to refiling bankruptcy (after a prior case that ended in successful discharge of debt) do not apply. If you file a new bankruptcy less than a year after filing a dismissed case, then limitations apply to the automatic stay (the protection from creditors, which is in effect upon filing and pending discharge). Under certain circumstances, 180-day bars to refiling may apply; dismissal orders may prescribe restrictions. Your bankruptcy attorney will examine your dismissal order and when refiling, he’ll submit appropriate motions (such as an extension or instatement of automatic stay) to optimize your bankruptcy protection. Large or national firms may neglect to do so and thus leave you vulnerable.
Yes, you can do a repeat bankruptcy filing. The following waiting periods apply IF you received a discharge (successfully finished) your prior bankruptcy, and they apply to the period between (first) filing date to (second) filing date:
- You can file a chapter 7 bankruptcy eight (8) years after the filing date of a prior chapter 7 that ended in discharge. You can file a chapter 7 six (6) years after the filing date of a chapter 13 that ended in discharge (or less if a high amount of debt was paid in the chapter 13 bankruptcy).
- You can file a chapter 13 bankruptcy (in order to get a discharge or cancellation of unpaid-for debt) four (4) years after the filing date of a chapter 7 that ended in discharge.
- You can file a chapter 13 bankruptcy (in order to get a discharge or cancellation of unpaid-for debt) two (2) years after the filing date of a prior chapter 13 that had concluded with discharge.
- You can file chapter 13 bankruptcy prior to the expirations of the above periods, however you wouldn’t be entitled to discharge (cancel) any debt through that second chapter 13 bankruptcy. Some reasons to nonetheless file the repeat chapter 13 bankruptcy (notwithstanding denial of discharge) would be to cure arrears (catch up on delinquent mortgage payments) or to reduce and extend monthly payments on non-dischargeable debts (like student loans), though interest would accrue.
Before your bankruptcy case can be filed, you must complete an online credit counseling course. In theory, this 1-2/hr. session is designed to propose an alternative debt repayment plan outside of bankruptcy. In practice, it’s a formality to obtain a certificate, which we affix to your bankruptcy petition.
After you file bankruptcy, during the pendency of your case, you must complete a second online class in personal financial management. Of similar length to the pre-filing class, this course is helpful to some of our clients in providing instruction for budgeting after they’ve cleared their debts.
We direct you when and where to complete these classes with United States Trustee-approved independent providers.
Once your bankruptcy case is filed, it effects an automatic stay on collections and enforcement of judgments. This means that all lawsuits, garnishments, repossessions, foreclosures and creditor calls are stayed or stopped by federal court order.
Certain limitations apply (e.g. to family court matters), and there are limits to the automatic stay if you filed multiple bankruptcy cases within the last year.
The evidentiary requirements in bankruptcy are localized. They vary between Chapter 7 and Chapter 13 Bankruptcy, vary by case and are subject to change. Your bankruptcy attorney will instruct you in advance on exactly what’s needed and what’s not. The documents help us prepare your bankruptcy for filing, and some of them must be submitted to the trustee for review after filing.
We typically order a credit report in order to obtain a listing of debts to import to your bankruptcy petition. You’ll need to provide statements for any debts that are omitted from the credit report. Most of the other documents we need should already be readily available in electronic format (including pay stubs, bank statements and tax returns). Basic valuations for vehicles can be obtained online at Kbb.com and zillow.com is a starting point for home valuation. If we need a broker’s opinion on your real property or a tax account transcript, we’ll direct you when and where to obtain the additional documents.
The ball is generally in your court. The debtor in bankruptcy is obliged to provide a not-small amount of personal financial information and documentation. We take it from there and carefully, but quickly prepare your case to ensure your bankruptcy is timely and successfully filed. We know you want peace of mind and closure as soon as possible. Because we are legally barred from billing after a case is filed (debts to attorneys are likewise discharged), attorney and filing fees need to be paid in full before filing. Fortunately our flat rates are below the competition and reflect a discounted hourly rate for expert representation. Call us to inquire.
No. If you are married, you can choose whether to file jointly or singly, meaning with or without your spouse. However: the non-filing spouse IS affected by (or included, in a sense) in the bankruptcy. The non-filing spouse’s income generally factors into the filing spouse’s eligibility (for chapter 7) or payment amount (in chapter 13 bankruptcy). California is a community property state: earnings and acquisitions during marriage presumptively belong to both spouses. Thus, in bankruptcy, the non-filing spouse’s property IS the filing spouse’s property, except if there’s irrefutable proof it’s “separate property” (e.g., assets owned prior to marriage or property acquired from inheritance). You must be legally married to file bankruptcy together; domestic partners cannot file a joint case.
Chapter 7 Bankruptcy is a quick (usually 3 month) process once filed; you walk away from debts without making any payments. If you have far too much property, then some assets may be sold for repayment of debt. That is rare; California bankruptcy law protects the property of almost all persons who (properly) file chapter 7 bankruptcy. You may also be able to settle (pay an equivalent amount) instead of giving up an asset.
Both low-income AND high-income debtors qualify for chapter 7 bankruptcy, though very-high income may compel you to file Chapter 13 bankruptcy.
Chapter 13 bankruptcy is a debt repayment plan. You make monthly payments for 36- to 60-mos. Usually, you end up paying pennies on the dollar; the unpaid-for balance gets canceled (discharged).
Chapter 13 bankruptcy also lets you lower car payments and remove your second mortgage or equity line if the home value has depreciated below the payoff on the first mortgage. Payments are suited to your budget and designed to be affordable.
Bankruptcy is a complex but powerful legal mechanism (provided for in the United States Code Title 11) to get rid of debt AND keep your property. Bankruptcy is forgiveness of debt, release from hardship and a fresh start. Chapter 7 bankruptcy and Chapter 13 bankruptcy are the primary avenues for the consumer and small-business person to obtain comprehensive freedom from back-breaking debt.
Chapter 13 FAQs
Chapter 13 Bankruptcy is a 36- to 60-month repayment plan. You may qualify for the minimum period if your income is below the state gross median. Usually you pay pennies on the dollar; the unpaid-for balance gets discharged (canceled) upon plan completion. Chapter 13 bankruptcy may reduce auto loan payments and (if the real property is severely depreciated) remove a second mortgage or equity line.
You need a source of income or funds to afford monthly payments. Your total secured debt must be below $1,257,850; total unsecured debt must fall short of $419,275. If you file a chapter 13 bankruptcy within less than 4 (four) years after having filed a chapter 7 bankruptcy that concluded with discharge of debt, then you cannot receive a chapter 13 discharge.
Yes. If you financed your car 910+ days (about 2½ years) before filing chapter 13 bankruptcy, then we can “cram down” your car loan. This means reducing the loan’s principal to the fair market value. Typically interest is paid at 4.25%. This is a unique benefit to chapter 13 bankruptcy, and is not applicable to chapter 7. If you financed your car more recently, you can extend your monthly payments up to 60 months from the present (the normal maximum length of a chapter 13 bankruptcy payment plan).
If you’re behind on mortgage payments, but are presently able to resume payment on current dues, you can repay the arrears (the late payments) over up to 60 months with a chapter 13 payment plan. Chapter 13 bankruptcy filing will stay (stop) the foreclosure and give you time to confirm a repayment plan.
If the value of the real property has depreciated below the payoff on the primary mortgage, then the second mortgage can be “re-labeled” as unsecured debt and “stripped” off in a chapter 13 bankruptcy. This type of motion was commonly filed after the last real estate crash, but the opportunity isn’t common in a strong housing market.
Chapter 7 FAQs
- Most persons who seek our help DO qualify for Chapter 7 bankruptcy. Chapter 7 bankruptcy is available to consumer debtors whose income does not substantially exceed their income. Even if your income is above the “median” (median is the middle point: half the state earns more and half the state earns less), you can qualify for chapter 7 bankruptcy if your necessary obligations (including taxes, mortgage, car payments) fully offset your income.
- If a consumer debtor does have “too much” income for chapter 7 bankruptcy, they can file chapter 13, which lets them MANAGE their debt; they repay it over time, often for pennies on the dollar.
- There are exceptions to qualify high income earners, including persons with mostly business or tax debt.
- Chapter 7 bankruptcy filers almost always keep all their property.
- There is no explicit minimum debt requirement for chapter 7 bankruptcy.
- To file chapter 7 bankruptcy, you need to wait 8 years from the time you had filed a prior chapter 7 (that ended in discharge or cancellation of debt), or 6 years from the time you had filed a prior chapter 13 (shorter if that chapter 13 paid off a very high amount of debt).
About a month after a Chapter 7 Bankruptcy is filed, you MUST attend the so-called Meeting of Creditors. “So-called” because creditors often don’t appear. The meeting–conveniently conducted via telephone or Zoom–typically amounts to a very-brief interview with a chapter 7 trustee. She will confirm your identity and have you answer (mostly basic yes/no) questions to confirm that you’ve truthfully reported your financial affairs in the bankruptcy papers filed with the court. The trustee will also verify receipt of supporting documentation. We work hard to satisfy all requirements in advance to ensure the meeting amounts to an uneventful formality. We also fully prepare our clients to help eliminate any stress or uncertainty in regard to the meeting and the progression of their case.
Your bankruptcy discharge followed by case closure is due about 61 days after the meeting of creditors (or 3 months from the filing date). During that interim we may discuss reaffirmation (reinstatement) of any secured loans (without any detrimental change to terms), which may be helpful for noticing purposes (otherwise, you don’t receive billing statements) and rebuilding credit, After bankruptcy, your credit can improve: by eliminating old debt, you can later take on new obligations, such as mortgages. Your income to debt relationship will be restored to a proper ratio. While there are exceptions to cancellation of debts (like student loans), the chapter 7 bankruptcy discharge is a powerful, cost-effective remedy to wipe out most types of debt and obtain a fresh start,