Bankruptcy Frequently Asked Questions
Listed below are frequently asked questions for individuals considering filing Chapter 7 bankruptcy. If you have a question that is not answered below, please Submit your question immediately and one of our attorneys will answer you directly and post it to this page within 24 hours.
Can I keep my home?
Yes, you can keep your home. As long as your equity in your home falls within the exemption criteria, you may keep your home despite filing bankruptcy. Currently, the equity amounts start at $75,000 and go up to $150,000 in the state of California. Check the exemptions page for more details.
Can I keep my car?
Yes, you can keep your car. Like your home, you may keep a car up to the exemptions available by state law. Depending on which exemptions you choose, you can exempt up to $20,000 worth of vehicles. If you are still making payment on your car, you may want to reaffirm the debt with the creditor in order to keep the vehicle.
Do I have to pay my creditors in order to file bankruptcy?
No, debtors in chapter 7 bankruptcy do not have to make payments to creditors. Further, as long as you can exempt all your available personal property (cars, furniture, collections, etc.), you will not have to turn over any property to the trustee or creditors.
Do I have to give up my stuff to file bankruptcy?
No, most clients can keep everything they own despite filing bankruptcy. The bankruptcy law provides that debtors are eligible to exempt a certain amount of assets from bankruptcy. In California, these exemption limits are relatively high and most clients keep all of their things.
What is the cost of filing bankruptcy?
Because every client is different, the cost will vary with your case. Call us today to get an idea of cost. Some of the factors that influence cost include whether you are filing a joint or individual petition, whether you want to reaffirm debt, and whether you are self-employed.
What are the requirements to file bankruptcy?
You are only eligible for Chapter 7 bankruptcy if you can meet the requirements of the Means Test. The Means Test looks at your income for the previous six months and compares it to the average income for a household in your area. If you income falls below the state median, then you qualify for Chapter 7. You may also qualify for Chapter 7 bankruptcy under the Means Test if your monthly expenses under IRS guidelines push your income below the state median. Because the requirements for Chapter 7 are complex, please call today for more information.
What if I can’t remember all of my creditors?
Our office runs a three-bureau credit report in order to ensure that all creditors are accounted for. We also serve notice of the bankruptcy on original creditors as well as any collection agencies that have contacted you. Finally, should a creditor be left off the petition, our office can amend the schedules to include the omitted creditor.
What documents will I need to file bankruptcy?
Some of the documents you will need to file bankruptcy include pay stubs, bank statements, and tax returns.
What if I don’t have all the documents?
Most of the documents can be easily obtained. If you do not have paystubs, your employer should be able to provide you with them. Further, our office can help you order old tax returns through the IRS.
What other requirements are there to file bankruptcy? Why do I have to take classes to file bankruptcy?
Before you can file bankruptcy, the law requires that you complete a pre-bankruptcy credit counseling session. This class can be completed online or over the phone and usually lasts less than an hour. Once the class is completed, a certificate will be issued that must be sent to the court along with your petition.
What is a discharge?
A Chapter 7 bankruptcy discharge means that your qualifying debt is discharged. Although the discharge will not mention the debt by name, it includes your unsecured debt such as credit cards, medical bills, and personal lines of credit.
Will bankruptcy permanently stop a foreclosure?
No, chapter 7 bankruptcy is not a permanent solution to a foreclosure. However, Chapter 7 bankruptcy will effectively buy you extra time to make a decision regarding the property. For many clients, Chapter 7 bankruptcy allows our office to negotiate a loan modification or consider Chapter 13 bankruptcy as a solution to keep your home.
Can I apply for a loan modification after I file bankruptcy?
Many of our clients are able to successfully modify their loans after bankruptcy. Most lenders are still willing to consider loss mitigation efforts such as loan modification despite a recent bankruptcy.
Can I qualify for bankruptcy after I have had a loan modification?
Yes, we have been able to successfully modify home loans after bankruptcy. While there is no guarantee of success with a loan modification, bankruptcy is an effective way to stall foreclosure while negotiating for a loan modification.
What is the automatic stay?
The automatic stay stops creditor actions against you and your property. Upon filing the bankruptcy petition, the automatic stay immediately starts and acts as a stay against lawsuits by creditors, stops wage garnishments, and stops any foreclosure proceedings.
What is the difference between Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 bankruptcy is a simple bankruptcy or liquidation bankruptcy. In a Chapter 7 case, a client has all of their unsecured debt forgiven but the bankruptcy has no effect on secured debt such as real property. Chapter 13 bankruptcy is for those that do not qualify for Chapter 7 bankruptcy or who want to reorganize their debt on real estate or strip a second mortgage in bankruptcy. For more information on Chapter 13 bankruptcy, check out the benefits of Chapter 13 page.
Can I eliminate a second mortgage in Chapter 7 bankruptcy?
No, Chapter 7 bankruptcy does not have the power to eliminate a second mortgage. However, Chapter 7 is great for those who want to quickly eliminate credit card debt without having to make payments to creditors.
Can I eliminate taxes in bankruptcy?
In most cases, taxes are non-dischargeable (meaning that they will survive the bankruptcy). However, if the tax liability is old enough and a debtor has not entered into an offer in compromise, the tax liability may be dischargeable. Contact our office for more information on whether your taxes are dischargeable.
What types of debt do not qualify for bankruptcy?
In addition to most taxes, there are other types of unsecured debt that are non-dischargeable. These include alimony and child support payments, criminal fines, student loans. and other penalties or fines due to the government. Additionally, some debts that arose as part of fraudulent conduct may not be dischargeable.
What is the Means Test?
In order to qualify for Chapter 7 bankruptcy, a debtor must meet the income requirements of the Means Test. The Means Test analyzes a debtor’s income relative to the median income for the state. If a debtor’s monthly income for the last six months falls below the median income for a similar household, then a debtor qualifies for chapter 7 bankruptcy. If the debtor’s income does not fall below the median, a debtor may still qualify based on a breakdown of monthly expenses as determined by IRS guidelines. Contact our office to see if you qualify for Chapter 7 bankruptcy.
What does it mean to Reaffirm? What is a Reaffirmation Agreement?
A reaffirmation agreement is an agreement that survives bankruptcy. A reaffirmation agreement may be necessary if you desire to keep secured debt beyond the bankruptcy. The most common reaffirmation agreement is for vehicles that are still financed. Our office advises debtors on whether a reaffirmation agreement is necessary and the process to reaffirm a debt.