Bankruptcy

I am a co-signer for a debt, how does bankruptcy affect my obligation? If the debt is a dischargeable debt then you will not have to pay it. However, the cosigner will become primarily responsible for the debt. Be sure to list the co-signer as a creditor in your schedules as they have a contingent claim against you.

Can I keep my house after bankruptcy? Depending upon which exemption scheme is selected and your circumstances, you may exempt up to $100,000 in equity. When calculating your equity you should use a value that is based upon a forced liquidation as opposed to the best selling conditions to arrive at a value for your home. Once you know the value, subtract the amount owed plus selling and transfer costs from the value to calculate the equity. In the depressed California market, liquidated properties are often valued less than what we like to think the property is worth.

Can I keep my credit cards after bankruptcy? Under some circumstances you may keep your credit cards. There are many factors which must be considered. Some of those include the credit card balance at the time of the bankruptcy, what the credit card company is willing to do and your ability to pay the present and future credit card debt.

Will I lose my job? No. Bankruptcy laws prohibits discrimination based upon a debtor filing for protection under the bankruptcy laws.

Can I go to jail if I file bankruptcy? No. There are no debtor’s prisons in the United States.

Will my employer find out about my bankruptcy? Under normal circumstances, unless your employer is a creditor, your employer will not know.

Will bankruptcy stop a wage attachment? Yes.

Will bankruptcy stop a judgment? Yes. Most civil judgments are stopped by bankruptcy.

Will a bankruptcy remove a lien? Under some circumstances once the bankruptcy proceedings have started, special motion can be filed to remove certain liens. It will take a bankruptcy court order to remove them. This is a complicated area of the bankruptcy law and an attorney should be consulted.

Will bankruptcy stop an eviction action? Perhaps. However, this will only delay the inevitable. The owner is entitled to possession of his property and at best you will be able to remain in the property until you have received your discharge from bankruptcy or the landlord obtains an order from the bankruptcy court. I must caution you that if the only reason you filed the bankruptcy is to stop an eviction then this might be considered an abuse of Chapter 7. If the bankruptcy court finds that this is true then the court can immediately dismiss the bankruptcy and impose other legal and monetary sanctions on you.

Will bankruptcy stop a foreclosure? Yes. However, a home is an asset usually secured by a deed of trust. The mortgage company is entitled apply to the court for relief from the automatic stay, the order preventing creditor action by virtue of the bankruptcy. Depending upon several factors, you may be able to prolong a foreclosure until you have received your discharge from bankruptcy. Usually, to keep a home that is in foreclosure you will have to make a deal with the noteholder.

I am divorced, will bankruptcy wipe-out my obligation to pay community debts? In general, you will be discharged from all dischargeable community debts. However, you should discuss this with your family law attorney to understand the other implications of the filing of a bankruptcy during the pendency of a dissolution action (divorce case). Also, remember that if you are discharged from community debts, your spouse is responsible for the entire balance owing on the debt. Put another way, they shift the responsibility on to you.

Are there any debts that I can’t wipe out in bankruptcy? Yes, there are certain debts that are NOT dischargeable in bankruptcy. Generally speaking, the following debts will not be discharged: Taxes; Spousal and Child Support; Debts arising out of willful misconduct and or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy; student loans and criminal fines, penalties and forfeitures. Those debts which are secured will be discharged, however, expect the creditor to take the necessary legal steps to take back the property. In most cases if the debtor’s equity interest in the property is exempt, the debtor may retain the property by redemption or reaffirmation.

The bankruptcy process

When making financial decisions during the process, you should consult your attorney. In particular there are three items worth mentioning.

Under bankruptcy law, certain luxury purchases over $1000 within 60 days of the bankruptcy filing are presumed nondischargeable.  Under bankruptcy law, cash advances agregating $1000 within 60 days of the bankruptcy filing are presumed nondischargeable. Debts involving materially false financial statements are nondischargeable under certain circumstances.

If you file the bankruptcy yourself, you must fill out the forms. There are several forms. There could be between 30 and 60 pages in your petition, schedule and other papers filed at the time of your bankruptcy. You must follow the local and federal bankruptcy court rules in completing the forms. Preparing these forms requires an understanding of both bankruptcy law and local state law in order to enter the information correctly and accurately. The forms have to be typed and a certain number of copies must be included with the filing. Today, most attorneys use a computer system to prepare these forms because of there complexity and voluminous nature.

About 30 to 40 days after you file the bankruptcy you will have to attend a hearing presided over by the bankruptcy trustee. This hearing is called the First Meeting of Creditors. At this hearing the trustee will ask questions under oath regarding the content of your bankruptcy papers, assets, debts and other matters. After the trustee is done, your creditors will be permitted to question you. Do not worry, your attorney will be there to represent you and your attorney will help you prepare for the hearing. Sometimes, after your hearing is over, various creditors will approach you to discuss the status of secured property or the your desire to retain a credit card. Your attorney will negotiate with them, with your knowledge and approval.

After this hearing you will normally not need to return to court. However, if a creditor files a motion or an adversary action, most likely you will have to return to court. This is the exception and only your attorney can determine if this is likely to happen.

Under normal circumstances, the bankruptcy court will automatically issue the discharge 60 to 75 days after the First Meeting of Creditors.

You can reestablish credit though and be back in “A” credit two years after the discharge of Bankruptcy. The bankruptcy is a judgment and will be listed for a period of up to 10 years after the discharge. You must wait 6 years to file again or if your bankruptcy was dismissed you must usually wait for 180 days to refile.

Alternatives to bankruptcy

There is just no easy way to get out of debt, you have to face up to the consequences. A bankruptcy is not always the answer, as the effects are long lasting. There are four ways to handle debts that are out of control, listed in best to worst in regards to the effect it will have on your credit. If your credit isn’t in terrible shape, can you reduce your other expenses, even if it means making hard choices or just change your lifestyle to fit your income? Some ways to do this:

  • Selling the second car
  • Pulling equity out of your home
  • Applying for a non-secured signature loan
  • Loan from a relative
  • Selling your home and paying off your debts with the proceeds and then renting
  • Cashing out your 401K/retirement benefits
  • Selling family heirlooms/jewelry/guns

If your credit is already gone or one of the above isn’t an option, go through Consumer Credit Counseling Services (CCCS). Check your yellow pages for the local number. In this way you’re paying off your debts as if you were in a Chapter 13 BK, but you don’t file a BK.

If CCCS won’t take you, you may want to consider bankruptcy. Doing a Ch 13 takes longer, but your credit isin a little better standing than if you do a Ch 7. In the Ch 13 they give you up to 5 years to pay off your debts.

The disadvantage is that you’re in BK for up to 5 years plus your credit report shows your BK for 7 more years after you have finished paying off your debts.

If you are so far in debt that you can never repay it, then the best solution may be a Chapter 7 BK. A Ch 7 is the least desirable credit-wise, but you are typically out of BK in 6 months and you don’t have to repay any debt. The disadvantage is that this shows on your credit report for 10 years from the date of filing your BK, and creditors are starting to tighten their credit requirements, and you may have a tough time getting future financing.

There is no magic solution. Don’t believe anyone who tells you otherwise.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is a liquidation proceeding. The debtor turns over all non exempt property to the bankruptcy trustee, who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all discharageable debts.
To file a Chapter 7 bankruptcy:

  • You must reside or have a domicile, a place of business, or property in the United States or a municipality.
  • You must not have been granted a Chapter 7 discharge within the last 6 years or completed a Chapter 13 plan.
  • You must not have had a bankruptcy filing dismissed for cause within the last 180 days.
  • It must not be a “substantial abuse” of Chapter 7 to grant the debtor relief. Generally speaking, if after you pay the monthly expenses for necessities there is not enough money to pay the remaining monthly debts, then granting a discharge would not be an abuse of Chapter 7.
  • It would not be fundamentally unfair to grant the debtor relief under Chapter 7.

The most common reasons for consumer bankruptcy are unemployment, large medical expenses, seriously over extended credit, marital problems and large unexpected expenses.

Issues after filing

What happens after I file my bankruptcy? Under normal circumstances, the bankruptcy court will automatically issue the discharge 60 to 75 days after the First Meeting of Creditors.

What happens to my credit rating after bankruptcy? You can reestablish credit though and be back in “A” credit two years after the discharge of Bankruptcy. The bankruptcy is a judgment and will be listed for a period of up to 10 years after the discharge.

After bankruptcy, can I get credit? Sure. For awhile though, expect to pay high interest rates and fees. There is a whole new mortgage industry springing into action loaning to people with less-than perfect credit.

If I need to file bankruptcy again, how long do I have to wait? You must wait 6 years to file again or if your bankruptcy was dismissed you must usually wait for 180 days to refile.

Bankruptcy and Bills

The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond his/her ability to repay the debt should be given a fresh start through the discharge of debts in a bankruptcy proceeding. Not all debts are dischargeable. Generally speaking, the following debts will not be discharged:

  • Taxes.
  • Spousal and Child Support.
  • Debts arising out of willful or mailicious misconduct.
  • liability from driving while intoxicated.
  • debts from a prior bankruptcy.
  • Student loans.
  • Criminal fines and penalties.

Those debts which are secured will be discharged, however, expect the creditor to take the necessary legal steps to take back the property. In most cases if the debtor’s equity interest in the property is exempt, the debtor may retain the property by redemption or reaffirmation.

Who can help me with bankruptcy?

We’re just going to say it one more time: the best person to help is your attorney. When you discuss your situation with your attorney you will need to be prepared to discuss all areas of your case. This includes each and every debt you owe and creditor you have. It is very important to list all your creditors in your bankruptcy. One of the best ways to know all your creditors is to get a TRW or other credit report about your credit history. This should list the majority of your creditors, even ones you did not know about. You should also have a post-bankruptcy budget prepared before you go to the attorneys office. This budget should contain your income and expenses that you will have after you file your bankruptcy.

Do I have to go to court?

Yes. About 30 to 40 days after you file the bankruptcy you will have to attend a hearing presided over by the bankruptcy trustee. This hearing is called the First Meeting of Creditors. At this hearing the trustee will ask questions under oath regarding the content of your bankruptcy papers, assets, debts and other matters. After the trustee is done, your creditors will be permitted to question you. Do not worry, your attorney will be there to represent you and your attorney will help you prepare for the hearing. Sometimes, after your hearing is over, various creditors will approach you to discuss the status of secured property or the your desire to retain a credit card. Your attorney will negotiate with them, with your knowledge and approval. After this hearing you will normally not need to return to court. However, if a creditor files a motion or an adversary action, most likely you will have to return to court. This is the exception and only your attorney can determine if this is likely to happen.

Bankruptcy and bill collectors

One of the major benefits of filing for protection under Chapter 7 is that many creditor actions are stayed. This means that debt collection efforts and foreclosure is halted.
Once a creditor or bill collector becomes aware that you have filed for bankruptcy protection, he/she must stop all efforts to collect the debt. After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This usually takes a couple of weeks. If this is not soon enough, then you should have your representative inform the creditor immediately. If a creditor continues to use collection tactics once informed of the bankruptcy they may be liable for court sanctions and attorney fees for this conduct.

After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This usually takes a couple of weeks. If this is not soon enough, then you should have your representative inform the creditors immediately. Your attorney deals with your creditors. It may be the only time you ever have the luxury of saying “you’ll have to talk to my lawyer”

Your property and assets

Once the bankruptcy is filed, all the property of the debtor at the time of the filing and certain other property to be received in the future, becomes the property of the bankruptcy estate. This means that the bankruptcy trustee will take control of this property for purposes of satisfying the creditors. HOWEVER, there is certain property which is either excluded or exempt and the debtor will be able to keep it. Property or asset exemption are determined based upon your situation, income and the laws of your state. The best way to determine which property to keep requires a detailed analysis of your situation. You need a good lawyer.

As for real property in many states, dependent upon which exemption scheme is selected and your circumstances, you may exempt up to $100,000 in equity. When calculating your equity you should use a value that is based upon a forced liquidation as opposed to the best selling conditions to arrive at a value for your home. Once you determine this value, subtract the amount owed plus selling and transfer costs from the value to calculate the equity. As for personal property, in California, you are permitted exemptions for a variety of personal property. This includes, automobiles,household furnishings and personal effects, jewelry, tools of the trade, retirement plans, unmatured life insurance, personal injury awards, earnings, animals and some other miscellaneous property. The value of each exemption and which exemptions can be used are determined by the statutory exemption scheme is selected. (State laws vary)

Your house and car

Depending upon which exemption scheme is selected and your circumstances, you may exempt up to $100,000 in equity. When calculating your equity you should use a value that is based upon a forced liquidation as opposed to the best selling conditions to arrive at a value for your home. Once you know the value, subtract the amount owed plus selling and transfer costs from the value to calculate the equity. In the depressed California market, liquidated properties are often valued less than what we like to think the property is worth.
Depending upon which exemption scheme is selected, you make keep your car if your equity is equal to or less than the allowed exemption. Generally speaking, depending upon the exemption scheme selected, you may exempt as little as $1200 or as much as $9100. When calculating your equity you should use the Kelly Blue Book or a comparable guide. Once you know the value, then subtract the amount owed from the value to calculate the equity.

Generally, most courts understand that you need a car to work to get back on your feet. Apply rules of common sense here: If you own vintage cars which are free and clear and worth thousands of dollars, you are probably not going to be able to keep them. If, on the other hand, you have a car worth $10,000 and you owe $8000 on it, you will most likely keep it. Again, the need to talk to a good lawyer should be evident. Most leased vehicles have no equity and therefore are entirely exempt. If you owe money on your car or it is leased you must still make the payments. In those instances you will have to redeem or reaffirm the property to keep it. However, in some circumstance your representative can re-negotiate the loan or the lease to get a more favorable deal for you.

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