frequently asked questions
The following section is meant to be for general knowledge only. Specific questions about your situation should be discussed
with an attorney before you make any decisions. Please call me now for a free constulation: 888-755-2559
What does Ch 7 bankruptcy do
for me?
Chapter 7 bankruptcy was designed to stop your creditors from harassing you and give you an opportunity start over without the burden of overwhelming debt. Specifically, your discharge that you receive relieves you from a promise to pay that you made prior to the moment your case is filed (with some exceptions.) In a typical chapter 7 credit card debt, medical bills, deficiencies from surrendered cars or homes, and most judgments are all wiped out.
Will I lose my house or my car?
Bankruptcy releases you from liability on most of your debts
but it does not cancel liens and mortgages. When you bought
your car or your home you signed 2 documents, a promise
to pay the loan back AND you signed a security agreement
– an agreement to offer the property as security for the
loan. In the case of a home it was a note (promise to pay)
and a deed of trust (security agreement.) In bankruptcy
you can walk away from your house and be released from any
liability on the notes BUT the bank still has the right
to sell the house to satisfy the debt. In the case of a
motor vehicle you signed a note and gave the lender a lien.
You’ll see on your registration that you are the registered
owner and the lender is listed as the lienholder. In bankruptcy
you can walk away from the car and you will not be liable
for anything left on the note. However, the lender will
have the right to repossess the car. In order to keep your
house or your car in chapter 7 YOU MUST BE CURRENT ON YOUR
PAYMENTS when you file or the lender will be able to take
the property from you. Your car lender may also require
that you reaffirm the balance on the loan.
Will the court sell my
property to pay my bills?
The point of chapter 7 is to allow
you a fresh start, not to throw you out on the street. In
California we have two sets of exemptions to choose from
to protect your property from being sold. The result is
that you get to keep almost all your property – cars, household
goods, electronic equipment, jewelry, pensions, 401K’s –
these can all be protected. If you own a home and you have
equity in the home (the amount left when you subtract what
you owe from what it is worth) we can protect $50,000 if
you are single, $75,000 if you are married and $150,000
if you are over 65 or disabled. If you do not own a home
we have a $20,000 wildcard to protect any items you have
above the regular exemptions available. Chapter 7 estates
with assets to be sold by the trustee are rare. Bankruptcy
planning is important if you do have a few valuable assets.
Make an appointment right away to determine what to do with
your assets to prevent them from being sold.
What debts are not discharged?
Here are the main types but this list is not exhaustive:
Taxes – some types of taxes, usually
associated with owning and operating a business, are never
discharged in a chapter 7. Personal income taxes that became
due within the last three years are also nondischargeable.
Generally, personal income taxes that were due more than
three years ago and the return was filed more than two years
ago ARE dischargeable. There are a lot of conditions to
consider with taxes. Be sure to make an appointment to see
an attorney to determine if your taxes are dischargeable
or not. For instance, you may be personally discharged from
a tax but if the IRS has filed a lien on your property their
lien will survive.
Student Loans – Over the last
20 years congress has limited the effect of bankruptcy on
student loans. Currently, student loans are not dischargeable.
If you charged tuition on a credit card that portion of
your credit card bill may also be nondischargeable. The
good news is credit card companies rarely pay attention
to this and miss their opportunity to have their debt ruled
nondischargeable.
Debts incurred within 90 days of filing your
case - There is a presumption in bankruptcy
that during the 90 days prior to day you filed your case
you KNEW or you SHOULD HAVE KNOWN that you were insolvent
and could not repay your debts. If you incur a consumer
debt (use your credit card) during that 90 day period the
lender can sue to have that ruled nondischarageable. Do
not use your credit cards during this 90 day period. Credit
card companies watch this very closely.
Debts as a result of driving while intoxicated – These are
never discharged and include fines and all liability assessed
by the court. In fact, criminal fines of any kind are not
discharged.
Domestic Support Orders – Back
child support and alimony are never discharged. However,
having all your other debt wiped out should make it easier
to pay on these orders and catch up on back support.
Divorce decrees – Currently you
cannot escape paying on a debt you agreed to assume in a
dissolution property settlement agreement. The creditor
will get notice of your bankruptcy and then go after your
ex-spouse for the debt. In turn, your ex-spouse will have
the right to demand that you hold him/her harmless for the
debt and you will have to pay it.
What about electronics or furniture
bought with store credit accounts?
Many large companies that offer store credit cards or credit
accounts had you sign a general security agreement along
with the application for the card. Under current California
law these agreements are enforceable and do not require
the merchant to file any other document with the county
or the state. The computer you purchased or even the engagement
ring may be secured by the creditor. In my experience with
nearly 1000 cases filed here in San Diego, the creditor
will send a demand letter for turnover of the property and
that will be as far as it goes. The creditor will not show
up at your door demanding to have their used sofa back or
their used computer. The only exception has been expensive
jewelry. The creditor has the right to go into bankruptcy
court and have their debt deemed nondischargeable or even
ask that your discharge be revoked but the cost to the creditor
makes this impractical and it just doesn’t happen.
How does Chapter 7 affect foreclosure?
When you file bankruptcy under any chapter you are immediately
protected by something called the ‘automatic stay.’ This
means your creditors may not take any action to collect
on a prepetition (before you filed) debt. In order for a
creditor to proceed with any action they have to first go
to the bankruptcy court and get permission to proceed. This
is called ‘relief from the automatic stay.’ In a chapter
7 your only defense to a relief from stay motion in a foreclosure
is to cure the default. The court will almost always grant
this motion and the lender may continue with the foreclosure.
It is important to time your filing when a foreclosure is
involved. The IRS views bankruptcy as proof positive that
you are insolvent. If your foreclosure happens in the context
of a bankruptcy the cancellation of debt will not be a taxable
event. If you only have one loan that may not be an issue.
If you have a second you must pay close attention to the
timing of events. Usually it is the lender in first position
that is foreclosing. The second will get wiped out upon
foreclosure by the first (in most cases.) If this happens
the second is referred to as a ‘foreclosed junior.’ The
foreclosed junior has the right to sue you for the entire
balance of the loan. The junior may also simply write the
loss off and then send you a 1099 for the entire balance.
The IRS will consider this as income to you and expect you
to pay tax on it. However, if the foreclosure happens in
the context of your bankruptcy then you are discharged from
the debt (the junior cannot sue you for it) and any cancellation
will NOT be taxable because you were insolvent when it occurred.
It is important to discuss all these issues with your attorney
in preparation of filing your case.
Will bankruptcy stop a garnishment?
The automatic stay stops your creditors in their tracks.
They cannot go forward with any attempt to collect on a
debt. The moment we file we let the sheriff know about your
case and your garnishment ceases. This is true of most court
actions at the time we file.
What about eviction proceedings?
It is an abuse of the bankruptcy code to file a case simply
to hinder or delay a creditor. There was a time when non-attorneys
were preparing numerous cases just to give renters an extra
month or two in an apartment rent free. You and your attorney
will be sanctioned for this. You must not file bankruptcy
where your only intention is to stop an eviction and you
clearly have no intention to pay your rent and stay. In
an effort to stop this sort of abuse the code sets out that
if the state court has already ordered the eviction there
is no automatic stay protection and the sheriff can boot
you out anyway. If you file prior to the order being granted
the automatic stay will take effect and the landlord will
have to go to bankruptcy court to get relief from the stay
before proceeding with the eviction in state court.
Do I have to go to court to
get my discharge?
Most chapter 7 debtors never see the inside of a courtroom.
After you retain your attorney you will receive a checklist
of all the documents needed to file your case. Once your
attorney has all these documents and has prepared your petition
you’ll meet with him or her again to go over everything
and sign your petition, schedules and statement of affairs.
Your case will be filed and you will be assigned a case
number, a trustee and a date for your ‘Meeting of Creditors.’
The trustee is appointed to oversee your case. His or her
job is to make sure you have filled out your papers correctly,
that you are telling the truth and that you are not hiding
any assets. This is why there are so many documents required.
Your attorney sends all the supporting documents to the
trustee for review. At the meeting of creditors (also called
341(a) meeting) the trustee will swear you in and you will
testify under penalty of perjury as to the truth of all
your documents. Once the trustee is satisfied that you are
telling the truth and that you qualify for a discharge the
trustee will conclude the meeting. On rare occasions the
trustee will continue the meeting and ask you for more supplemental
documentation. If all of your documentation is in order
this meeting takes 5 – 10 minutes. The trustee has about
15 people an hour to see and wants this to be over just
as much as you do!
What can go wrong?
In my experience the only time a chapter 7 blows up is when
someone has been withholding information or flat out lied
to me. For some reason, when you get to the meeting of creditors
clients finally spill the beans and everyone is left standing
with egg on their faces. If you think you know more than
your attorney then GET A NEW ATTORNEY. If you think you
cannot tell your attorney the truth, find one that you CAN
trust. Withholding information is a recipe for disaster.
Thinking you can outfox everyone is a treacherous attitude.
In bankruptcy honesty IS the best policy. Your attorney
is trained to make this as smooth and painless as possible.
If you cooperate that is exactly how it will be. Bankruptcy
fraud is a felony and subjects you to a $500,000.00 fine
and up to 5 years in a federal prison.
call now to set up a free consultation: 888-755-2559
