Frequently Asked Questions about the Bankruptcy Process:
The process for filing a Chapter 7 Bankruptcy is relatively straight forward. Unlike many other legal matters, it is extremely rare for Chapter 7 Bankruptcy cases prepared by experienced bankruptcy attorneys to drag on. Arguably 90% of the work is completed before the case is filed.
Almost all of the work for an effective Chapter 7 Bankruptcy is done prior to filing. Typically, you meet with one of our bankruptcy attorneys to discuss your situation and see if non-bankruptcy alternatives are available. If not, then one of our bankruptcy attorneys will assess your income, expenses, assets, and goals to determine if a Chapter 7 or Chapter 13 is better for your situation.
During that same meeting, which usually last about one hour, we will often do some of the basic data entry necessary to complete your schedules, download a credit report, and come up with a list of things needed for the second meeting.
After the first meeting, we will usually ask you to gather necessary documents such as your most recent tax return, bank statements, and pay stubs, and take the court required online counseling session. This online session is usually 30 minutes to an hour in length, and can be done in our office or in your home. At the end of that online session, you will be provided an electronic certificate that must be filed with your case.
After you have obtained the few necessary documents and taken the online counseling session, we typically schedule a second meeting with our bankruptcy attorneys to finalize your schedules, review the petition, and sign the documents. This second meeting can take anywhere from 15 minutes to two hours depending on the complexities of your case and how much we were able to accomplish during the first meeting. Typically, within one to two business days after you have signed the documents, our bankruptcy attorneys will file them with the court.
After your case has been filed, you will receive a one page piece of paper from the court titled “Notice of Commencement of Case.” This is the same document that your creditors get, and to the extent you are receiving harassing phone calls, they usually stop once this document is received. This document typically arrives within four to seven business days after filing.
The Notice of Commencement of Case is important as it describes the date, time, and location of your “First Meeting of Creditors.” Unfortunately, the name “First Meeting of Creditors” is a misnomer as creditors rarely attend in consumer cases. It is usually only the clients, the bankruptcy attorneys, and the Chapter 7 trustee in attendance. These meetings are scheduled for a one-hour block of time, but there are usually 10-15 cases on calendar for that same hour. If your case was prepared by one of our experienced bankruptcy attorneys, it is unlikely that your interview will last more than 3-5 minutes! A quick Meeting of Creditors is the result of good bankruptcy attorneys who have completed your schedules accurately and discussed any potential issues with the trustee in advance. It is required that you bring approved evidence of your Social Security Number (e.g. Social Security Card) and a government issued photo identification to the meeting. Otherwise, you may have to attend a second meeting of creditors.
Besides attending the meeting of creditors with proper identification and answering a few basic questions, there is really only one additional requirement in order to complete your bankruptcy case. You will need to take a Debtor Education course. These courses are offered online, often by the same company that handled your pre-bankruptcy counseling session, and typically take 90 minutes to complete. Once you have taken that course, be sure that one of our bankruptcy attorneys receives the certificate, because it needs to be filed with the court.
In 95% of the Chapter 7 cases handled by our bankruptcy attorneys, no further work is needed on your part, and you will receive your discharge approximately 100-110 days after the date your meeting of creditors was first scheduled.
The process for a Chapter 13 bankruptcy is very similar to that for a Chapter 7. Most of the work is done at the outset. The petition, schedules, and statement of financial affairs are filed usually at the same time, or within 14 days of the petition. Likewise, a “Means Test” type analysis is performed to determine the amount of current monthly income and disposable income of the debtors. The form seems relatively straightforward, but completing it accurately is very difficult, and can have a huge impact in deciding the length of the plan of reorganization, and the amount that has to be paid to creditors during the course of the Chapter 13.
In addition to the above documents which are very similar to a Chapter 7 bankruptcy, in a Chapter 13 bankruptcy a Plan of Reorganization has to be prepared, filed, and transmitted to the creditors. If the Plan meets certain statutory requirements, it will be approved by the court. There is no “vote” of creditors required, and even if a creditor objects to the Plan it will still be approved if the statutory requirements have been met.
In addition to the filing of a Plan, there are often motions to value collateral that must be filed and potentially litigated. These motions are important as they can determine how a potentially secured creditor’s lien is to be treated in the bankruptcy.
When a Plan is approved by the court, the Debtor then traditionally makes monthly payments to the Chapter 13 trustee. While theoretically the Plan payments may only last a few months, in virtually all cases the Plan payments last between 36 and 60 months. The length of the Plan payments is determined by many factors including the income of the debtors, the assets of the debtors, and the amount of claims that need to be paid.
Before the debtors have completed their plan payments, they will want to have taken Debtor Education Course which is required before a discharge can be entered. The course is usually done online, takes approximately 90 minutes, and costs less than $25.00. Once all of the Plan payments have been made, and the course has been taken, the trustee will issue a final report. Following the issuance of the final report by the trustee, and a final report by the Debtor regarding support payments and similar items, the clerk will issue a “discharge”. This is typically the final act in the case, and thus shortly thereafter an order closing the case is issued.
Chapter 7 and Chapter 13 bankruptcies are very much controlled by mandatory forms and procedures. The benefits of them are that they are economical, and not subject to much litigation or dispute. The problem with Chapter 7 and Chapter 13 bankruptcies is that they allow for very little customization. A Chapter 11 is a customizable reorganization bankruptcy. Unless the Debtor had a previous history of wrongdoing, generally speaking, a Debtor that acts with diligence, provides accurate financial reports, and acts in the best interest of the estate is entitled to remain in possession during the bankruptcy.
Many of the same schedules and statements that are required in a Chapter 7 or Chapter 13 bankruptcy are required in a Chapter 11. However in most Chapter 11 bankruptcies, the debtor may customize the plan of reorganization. However, with that right to customization comes with it an obligation to prepare, file, and circulate a disclosure statement. A disclosure statement is much like a business prospectus in that it seeks to be a plain English explanation of what the plan provides, and provides information from which a creditor can determine if they want to vote for the plan.
Unlike in a Chapter 7 of Chapter 13 bankruptcy, to confirm a plan of reorganization in a Chapter 11 requires a vote of the creditors. The number of votes needed is subject to many nuances. While the occasional debtor can successfully handle a Chapter 7 or a Chapter 13 without an attorney, it is extremely rare that a successful Chapter 11 occurs without the assistance of an experienced bankruptcy lawyer. Chapter 11’s not handled properly are typically converted to a Chapter 7, and occasionally dismissed.
No matter which bankruptcy you file, it is very likely you can keep your home. If your home does not have any equity, or the equity is within the limits of California exemption limits, you will be able to keep your home. However, if you want to keep your home you will need to negotiate with, continue to pay, or strip off any secured claims against your home.
If your home is in the foreclosure process or otherwise in default, Chapter 13 is usually the preferred of the bankruptcies to file to save your home. In a Chapter 13, you have the ability to force the creditors to allow you to make catch-up payments over a period of time, which can be as long as 60 months. Regarding the ability to make catch-up payments, a Chapter 11 bankruptcy gives you very similar rights as a Chapter 13. However, a Chapter 11 is typically more expensive and cumbersome than a Chapter 13.
A Chapter 7 bankruptcy may give you a brief period of breathing room, but it is not a long-term solution to mortgage delinquencies. In a Chapter 7, the foreclosure will be temporarily stayed, but a formal plan of reorganization cannot be forced upon a creditor, it must be voluntarily negotiated. However, Chapter 7’s can still be useful in that you can discharge, or get rid of, most of your other debts allowing you to focus your energy and resources on getting caught up on your home mortgages.
We are often asked whether it is better to have a short sale, a foreclosure, or to file bankruptcy. Unfortunately, there is no simple answer. It is like asking whether it is better to have a black eye, a bloody nose, or a busted lip. In many aspects they are all superficial injuries and have similar discomfort. However, personal preference and unique financial reasons have a huge impact.
Most people are better off with a bankruptcy because the home foreclosure is only one symptom of a bigger financial problem. If you are going to take a huge hit on your credit, you should usually do it all at once. Some would prefer a short-sale as that may be their only financial issue, and resolving that issue, may otherwise stabilize their financial life. Some would prefer a foreclosure as it can often maximize the length of time you can stay in the home. None of the reasons above are absolute, and in fact the opposite can be true depending on the circumstances. If you are struggling with this issue, there really is not a substitute for a consultation with a bankruptcy attorney to see what is best for your particular situation.
When you file a bankruptcy, all creditors are notified by the court. Other than the trustee, no one else is notified by the court. Unless you are a high profile person, it is unlikely that your friends, family, or employer will find out about your bankruptcy unless they are a creditor. Bankruptcies are filed regularly, and people have better things to do then troll the public files looking for the names of their friends.
Of course, there are exceptions. If you have a friend or family member that is involved in a financial industry, particularly nosy, or has access to your credit report or mail, they may see that you have filed a bankruptcy. Although very rare, occasionally a trustee will need to confirm your income, and may contact your employer. This is a very unusual circumstance, and not likely to be done if you respond to requests from the trustee directly.
Oddly enough, most of our new bankruptcy referrals come from existing or past bankruptcy clients. They are usually so relieved from all of the financial stress, and want their friends and family to have the same benefit . Consequently they tell their friends and family to call us.
The value of your home can play many different roles in a bankruptcy. It can impact which exemption list you choose, it can impact your ability to strip or remove liens, and it can impact whether you have to pay creditors, or how much you have to pay creditors. For standard single family residences located in standards subdivisions, using an on-line valuation tool such as zillow.com or redfin.com are very informative. However, if your home is not a standardized home in a standardized neighborhood, those valuation tools can be significantly off.
For most people, aside from any retirement accounts, your home is your most valued and most prized possession. If you are concerned about the valuation of your home and its impact on your bankruptcy, you should speak not only with a bankruptcy attorney, but also a real estate professional to get their opinions as to valuation.
Will filing bankruptcy impact my job? Can my employer fire me for filing bankruptcy? What if my employer is a creditor?
The good news for debtors is that the law is explicit about prohibiting discriminatory treatment against someone that filed bankruptcy. The law is codified at 11 USC §525 which states in essence that no private employer may terminate or discriminate against an employee who has filed bankruptcy or who has not paid a debt that was discharged in a bankruptcy. Consequently, it is generally illegal not only for a private employer to terminate or discriminate against an employee for filing a bankruptcy, but it is also illegal for private employer to require an employee to repay a debt as a condition of their employment.
While the statute against discrimination is clear, there are some exceptions that have been carved out by the courts. One of the more common exceptions includes those that need high level security clearance in a fiduciary capacity. The good news is that most employers view bankruptcy as a mature way of handling a bad financial situation, in contrast to the person that just struggles month to month juggling creditors.
We are often asked whether the filing of bankruptcy will impact the debtor or the debtor’s child from getting student loans. The good news is that Congress made it clear in enacting 11 USC §525(c) that student loan agencies and companies may not discriminate against the debtor or someone associated with a debtor in the making of a student loan.
The ability to discharge or eliminate taxes in a bankruptcy is very technical, and a nerve racking question for the most experienced bankruptcy attorneys. The short answer is that many taxes can be discharged, and many taxes cannot be discharged. In determining whether taxes can be discharged there are many twists and turns, and an individual should never try and navigate these waters without an experienced bankruptcy attorneys. The ability to discharge taxes depends largely on the type of tax owed, the period of time the taxes have been due and owing, whether a return was filed by the debtor, whether there was fraud involved, and whether there was an offer and compromise in place or some other stay against collection.
If you owe taxes, it is particularly important that you meet with a qualified bankruptcy attorney. Ideally when meeting with a bankruptcy attorney, you should have a copy of your tax transcript which the IRS will furnish for free and can be obtained both on the internet and by calling the IRS.
For most people, it does not matter if you file bankruptcy before or after a judgment is entered, especially if you are being sued for something like a credit card debt or personal loan. However, waiting until after a judgment can make a huge difference.
Some of the situations in which a judgment being entered can impact your bankruptcy include: when there have been liens placed on your assets as a result of the judgment; your assets garnished or seized as a result of the judgment; debt liquidated thus impacting your ability to qualify; and an express finding of fraud or other non-dischargeability circumstances.
If a lawsuit is threatened or pending, you should consult with a bankruptcy attorney at once to see what impact if any that an adverse finding or judgment could have on you.
Generally, judgments in California are good for 10 years. However, they can typically be renewed for additional 10 year periods, and the renewal of a judgment is very easy.
Checking cashing companies are like any other creditor in a bankruptcy, and generally the debts owed to check cashing companies are discharged. There are certain exceptions to discharge; one of the main exceptions is based on fraud. Unless the check cashing loan was fraudulently obtained, it is very likely to be discharged. To learn more, please contact one of our bankruptcy attorneys.
The length of time between bankruptcies is fairly complicated. Generally, you cannot receive a discharge in a second Chapter 7 bankruptcy filed within 8 years of the first bankruptcy. However, that does not mean you have to wait 8 years to achieve bankruptcy protection. There are many options in the bankruptcy court that exist to someone who has not had 8 years lapse. If you are in financial distress and it has not yet been 8 years since a Chapter 7 bankruptcy was filed, you should still consult with a bankruptcy attorney about other possible options.
When you file bankruptcy, you are required to list all of your creditors. You cannot pick and choose between creditors. However, in the bankruptcy you have the ability to reaffirm debts, meaning you formally agree to repay those debts as if the bankruptcy had not been filed or on new terms. Likewise, you can informally pay creditors back even without signing a reaffirmation agreement.
Even with the above options, it is usually not advisable to reaffirm or repay credit card debts post bankruptcy. Most people after a bankruptcy will be inundated with new credit card offers, or have the ability to obtain secured credit cards. These new options, while with drawbacks, are typically a far better solution than repaying an old unsecured credit card debt.
The issue of who can count as a dependent in a bankruptcy can vary significantly from jurisdiction to jurisdiction, and even judge to judge within that jurisdiction. Many judges believe that a dependant is someone who regularly sleeps within the household. Some judges are a little more liberal and will accept as dependents someone who looks to the debtor for their main financial support, even if not living in the household. This is a tricky question that can have important implications in a bankruptcy, and should be discussed with a bankruptcy attorney.
If you own a business, it is considered an asset. If you have enough exemptions left to cover the value of the business, you will likely get to keep the business. However, this is only the top of the mountain of issues regarding business ownership in a bankruptcy. In virtually all cases, the debtors get to keep the business but there are many issues that need to be addressed, and those issues can depend on: whether the business is a sole proprietorship or its own legal entity; whether the business is liable for the same debts; and whether the business is a personal services business.
When you file a bankruptcy, all creditors are prohibited from contacting you and harassing you during the period of the automatic stay. When you receive your discharge, all creditors that were discharged are forever barred from harassing you.
If you had an account seized and file a bankruptcy immediately, it is very likely that the creditor will have to surrender the money seized. If you have enough exemptions available, which is typical for most debtors, that money will likely be returned to you. If you do not have enough exemptions available, it may be turned over to the trustee to pay some of your debts.
The fact that a debt was written off by a creditor does not bar them from selling your debt to a collection agency, or seeking to come after you for that debt later. A bankruptcy discharge on the other hand is permanent, and they are forever barred from coming after you.
There is no prohibition on acquiring property after a bankruptcy. You receive a fresh start, and should use it as such. On the other hand, you should never commit bankruptcy fraud by having someone else hold property belonging to you until after a bankruptcy. It is a crime, and the risk of prison or denial of discharge is not worth it. Most property can be protected in a bankruptcy, so honesty is the best policy!
Please contact our law firm today to discuss your case with one of our Sacramento Bankruptcy Attorneys.