Bankruptcy may make it possible for you to:
– Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. It is designed to give you a fresh financial start.
– Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
– Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
– Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
– Restore or prevent termination of utility service.
– Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.
Bankruptcy cannot cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:
• Eliminate certain rights of “secured” creditors. A creditor is “secured” if it has taken a mortgage or other lien on property as collateral for a loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money on the debt if you decide to give back the property. But you generally cannot keep secured property unless you continue to pay the debt.
• Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, most student loans, court restitution orders, criminal fines, and most taxes.
• Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
• Discharge debts that arise after bankruptcy has been filed.
There are four types of bankruptcy cases provided under the law for most instances:
• Chapter 7 is known as “straight” bankruptcy or “liquidation.” It requires an individual to give up property which is not “exempt” under the law, so the property can be sold to pay creditors. Generally, those who file chapter 7 keep all of their property except property which is very valuable or which is subject to a lien which they cannot avoid or afford to pay.
• Chapter 11, known as “reorganization,” is used by businesses and individuals whose debts and/or income are very large or who have a need that cannot be met in another chapter.
• Chapter 12 is reserved for family farmers and fishermen.
• Chapter 13 is a type of “reorganization” used by individuals to pay all or a portion of their debts over a period of years using their current income. In California, the time of debt repayment is almost always making monthly payments over 60 months. **IMPORTANT: In most instances, we can get a better result using a customized Chapter 11 case. Only a few firms handle consumer Chapter 11 cases, so we are uniquely equipped to help present ALL the options for most individuals.
Most people filing bankruptcy will want to file under either chapter 7 or chapter 13 (although most of the time, we can get a better outcome with a Chapter 11 case). Either type of case may be filed individually or by a married couple filing jointly.
In a bankruptcy case under chapter 7, also known as a “straight bankruptcy”, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors.
If you want to keep property like a home or a car and are behind on the mortgage or car loan payments, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.
If your income is above the median family income in your state, you may have to file a chapter 13 case. Median family income is different in each state. For example, in 2020, the median income for a family of four in California is $101,315. Higher-income consumers must fill out “means test” forms requiring detailed information about their income and expenses. If the forms show, based on standards in the law, that they have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that they cannot usually file a chapter 7 case, unless there are special extenuating circumstances.
In a chapter 13 case you file a “plan” showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property–especially your home and car–which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind.
You should consider filing a chapter 13 plan if you:
• Own your home and are in danger of losing it because of money problems;
• Are behind on debt payments, but can catch up if given some time;
• Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.
You will need to have enough income during your chapter 13 case to pay for your necessities and to keep up with the required payments as they come due.
Here’s where we will shoot straight with you, whereas lots of others will not.
To file a bankruptcy case requires some hard costs that cannot be avoided without a fee waiver for REALLY low income (around $1000 a month). Those costs involve filing fees for the court, credit counseling, credit reports, and printing/mailing expenses. The credit report is a special report that we obtain specifically for bankruptcy cases; a Credit Karma credit report will not help us much. Further, sometimes there are required expenses for things like real estate appraisals or automobile valuations. We refer to all of these types of expenses as “costs”.
In addition to the costs of the case, there is a need to pay the professional fees for a law firm to handle the case. This includes preparing the petition itself, going to the creditor meeting, conferring with creditors, and other things that are specific to your case and its needs. The lawyers have to be paid for their work, and that’s what the professional fees cover.
In a typical Chapter 7 case where there are no assets being used to pay creditors and there are no “bumps or hiccups”, the total expense for a case including both the costs and the professional fees is around $1,800 – $2,000. That is an HONEST, real price. Not a lowball number designed to get you in the door and then we ping you to death with “extra” expenses that you should have been told about upfront.
In a typical Chapter 13 case, the costs and professional fees to launch the case are usually right around $3,000. Thereafter, you will make monthly payments to “fund” your Chapter 13 plan and the expenses of your case are paid from these payments.
A somewhat basic Chapter 12 case takes around $5,000 to get started, and then the remaining costs are also paid as part of your Chapter 12 plan.
It’s really hard to estimate the costs of a Chapter 11 case because there are so many variables involved in them. Sometimes we have to do a whole lot of work on these cases (usually business reorganizations) and sometimes we have to comparatively little (often those cases that could have been a Chapter 13, but we can get a better outcome in a Chapter 11). This is really broad bush and huge generalization, but to give you some idea—an individual Chapter 11 case usually needs about $10,000 to start the case and a business reorganization usually needs about $20,000. The total expense of the case will vary wildly based on the complexity, but a simple individual case could be around $10,000 total, and a complex business reorganization can be more than $100,000.
Like I said—we’re honest about what to expect. No surprises.
You must receive budget and credit counseling from an approved credit counseling agency within 180 days before your bankruptcy case is filed. The agency will review possible options available to you in credit counseling and assist you in reviewing your budget. Different agencies provide the counseling in-person, by telephone, or over the Internet. If you decide to file bankruptcy, you must have a certificate from the agency showing that you received the counseling before your bankruptcy case was filed. I can help you to find a proper approved credit counseling agency.
Most approved agencies charge between $30–$50 for the pre-filing counseling. However, the law requires approved agencies to provide bankruptcy counseling and the necessary certificates without considering an individual’s ability to pay. If you cannot afford the fee, you should ask the agency to provide the counseling free of charge or at a reduced fee.
If you decide to go ahead with bankruptcy, you should be very careful in choosing an agency for the required counseling. It is extremely difficult to sort out the good counseling agencies from the bad ones. Many agencies are legitimate, but many are simply rip-offs. And being an “approved” agency for bankruptcy counseling is no guarantee that the agency is good. It is also important to understand that even good agencies won’t be able to help you much if you’re already too deep in financial trouble.
Some of the approved agencies offer debt management plans (also called DMPs). A DMP is a plan to repay some or all of your debts in which you send the counseling agency a monthly payment that it then distributes to your creditors. Debt management plans can be helpful for some consumers. For others, they are a terrible idea. The problem is that many counseling agencies will pressure you into a debt management plan as a way of avoiding bankruptcy whether it makes sense for you or not. You should not consider a debt management plan if making the monthly plan payment will mean you will not have money to pay your rent, mortgage, utilities, food, prescriptions, and other necessities. It is important to keep in mind these important points:
• Bankruptcy is not necessarily to be avoided at all costs. In many cases, bankruptcy may actually be the best choice for you.
• If you sign up for a debt management plan that you can’t afford, you may end up in bankruptcy anyway (and a copy of the plan must also be filed in your bankruptcy case).
• There are approved agencies for bankruptcy counseling that do not offer debt management plans.
It is usually a good idea for you to meet with an attorney before you receive the required credit counseling. Unlike a credit counselor, who cannot give legal advice, an attorney can provide counseling on whether bankruptcy is the best option. If bankruptcy is not the right answer for you, I will offer a range of other suggestions that might work in your case. I can also provide you with a list of approved credit counseling agencies, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust.
In a chapter 7 case, you can keep all property which the law says is “exempt” from the claims of creditors. It is important to check the exemptions that are available in the state where you live. (If you moved to California from a different state within two years before your bankruptcy filing, you may be required to use the exemptions from the state where you lived just before the two-year period.) In some states, you are given a choice when you file bankruptcy between using either the state exemptions or using the federal bankruptcy exemptions.
California has “opted” out of the federal bankruptcy exemptions, and you will be required to choose exemptions mostly under California law. Further, California has two different schedules of exemptions, and it will be necessary to consider your particular case to determine which exemption list works best in your particular case. In addition to the California exemptions, you may use a special federal bankruptcy exemption that protects retirement funds in pension plans and individual retirement accounts (IRAs) as well as other special types of property.
In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth when your bankruptcy case is filed. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.
You also only need to look at your equity in property. That means you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $250,000 house with a $240,000 mortgage, you have only $10,000 in equity. You can fully protect the $250,000 home with a $10,000 exemption.
While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy.
Yes! Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.
Generally, yes, with some exceptions. Bankruptcy will not normally wipe out:
• Money owed for child support or alimony;
• Most fines and penalties owed to government agencies;
• Most taxes and debts incurred to pay taxes which can not be discharged;
• Student loans, unless you can prove to the court that repaying them will be an “undue hardship” (a very difficult, but not impossible standard);
• Debts not listed on your bankruptcy petition;
• Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
• Debts resulting from “willful and malicious” harm;
• Debts incurred by driving while intoxicated;
• Mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).
In most bankruptcy cases, you only have to go to a proceeding called the “meeting of creditors” to meet with the bankruptcy trustee and any creditor who chooses to come. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation.
Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear at a hearing. In a chapter 13 case, you may also have to appear at a hearing when the judge decides whether your plan should be approved. If you need to go to court, you will receive notice of the court date and time from the court and/or from your attorney.
After your case is filed, you must complete an approved course in personal finances. This course will take approximately two hours to complete. Many of the course providers give you a choice to take the course in-person at a designated location, over the Internet (usually by watching a video), or over the telephone. I can give you a list of organizations that provide approved courses, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust. If you cannot afford the fee, you should ask the agency to provide the course free of charge or at a reduced fee. In a chapter 7 case, you should sign up for the course soon after your case is filed. If you hire me to represent you and file a chapter 13 case, I will advise you should take the course.
Somewhat surprisingly, there is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse.
The fact that you’ve filed a bankruptcy can appear on your credit record for ten years from the date your case was filed. But because bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit.
If you decide to file bankruptcy, remember that debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not own anything on the debt. Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult or costly to get credit. You should check your credit report after your bankruptcy discharge and file a dispute with credit reporting agencies if this information is not correct.
I (Michael Jones) am in the military too! In my military life, I’m a JAG officer with the U.S. Army. As such, I can definitely guide you here.
The implications of a bankruptcy filing for a person in the military can be very far-reaching. There may be some positions for which you will no longer eligible. Additionally, there can be serious consequences as it relates to your security clearance. I can directly advise you on these areas should you hire me to represent you.
Utility services—Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills which arise after bankruptcy is filed.
Discrimination—An employer or government agency cannot discriminate against you because you have filed for bankruptcy. Government agencies and private entities involved in student loan programs also cannot discriminate against you based on a bankruptcy filing. If you are in the military, or have a job requiring a security clearance, it is important that you receive direct guidance on the possible effect of a bankruptcy petition.
Driver’s license—If you lost your license solely because you couldn’t pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back.
Co-signers—If someone has co-signed a loan with you and you file for bankruptcy, the co-signer may have to pay your debt. If you file under chapter 13, you may be able to protect co-signers, depending upon the terms of your chapter 13 plan. If you hire me to work on your case, I will advise you on the possible effect on co-signers.
Although it may be possible for some people to file a bankruptcy case without an attorney, it is not recommended. The process is difficult and you may lose property or other rights if you do not know the law. It takes patience and careful preparation. Chapter 7 (straight bankruptcy) cases are somewhat easier. Very few people have been able to successfully file chapter 13 (reorganization) cases on their own. We have never seen a Chapter 11 case succeed without a very capable Chapter 11 Attorney.
As with any area of the law, it is important to carefully select an attorney who will respond to your personal situation. The attorney should not be too busy to meet you individually and to answer questions as necessary.
In bankruptcy, as in all areas of life, remember that the person advertising the cheapest rate is not necessarily the best. You should be especially cautious about non-lawyers that offer to help you file your case on your own.
Document preparation services also known as “typing services” or “paralegal services” involve non-lawyers who offer to prepare bankruptcy forms for a fee. Problems with these services often arise because non-lawyers cannot offer advice on even simple, not to mention, difficult bankruptcy cases. Furthermore, they offer no services once a bankruptcy case has begun. There are also many shady operators in this field, who give bad advice and defraud consumers. An improperly done bankruptcy case can result in an outcome worse than when you started.
If you would like to discuss your particular case with an attorney, you should be prepared to answer the following questions:
• What types of debt are causing you the most trouble?
• What are your significant assets?
• Has anyone filed suit against you, and if so, what is the current status of the case?
• How did your debts arise and are they secured?
• Is any action about to occur to foreclose or repossess property, to attach your wages or bank account, or to shut off utility service?
• What are your goals in filing the case?