20 Bankruptcy FAQs

The general answer to this question is NO. However, care must be taken to protect assets, through the use of exemptions, prior to, and during, a bankruptcy. For example, a residence with $50,000 in equity can be protected as exempt in a bankruptcy proceeding. However, in order to be protected, certain steps must be taken prior to the bankruptcy filing to establish the homestead and then properly claim the exemption in the bankruptcy paperwork. Assets not properly exempt can be lost to the bankruptcy trustee.

Creditors usually stop calling as soon as you can give them the name and phone number of an attorney whom you have hired to represent you in your bankruptcy proceeding. Of course, if you represent yourself, you will still need to take these calls. Once your bankruptcy is filed, creditors stop calling completely if they are simply trying to collect on the debt. However, if they are claiming to have a security interest in your assets, believe your debt to them was fraudulently incurred, or simply want you to voluntarily sign a reaffirmation agreement, they can continue to contact your attorney or you personally if you do not have an attorney.

There is no reason for an employer to know that you have filed bankruptcy UNLESS:

1. There was a wage garnishment pending at the time of the filing, in which case they must be notified to stop withholding money from your salary;

2. You owed your employer money, in which case they must be listed as a creditor in the bankruptcy proceeding; or

3. They see your bankruptcy published in the paper, which is unlikely (see question #12 below).

There are three different types of bankruptcy available to most persons. Each is created under a different chapter of the Bankruptcy Code.

Chapter 7 – Chapter 7 is often referred to as straight bankruptcy and is by far the most common. All exempt assets are retained by you, free from creditors claims (except mortgages and secured debts). Assets that cannot be exempted are sold and the proceeds divided among your creditors. Your debts are then discharged (legally terminated), and you are free to start your financial life anew.

Chapter 13 – Chapter 13 permits you to pay your creditors in monthly installments over three to five years. A formal plan is prepared which allocates how much money will be paid to your creditors each month. This plan is submitted to the Bankruptcy Court and the Chapter 13 Trustee for approval. To qualify for Chapter 13, your unsecured debts must be less than $307,675 and your secured debts must be less than $922,975. Chapter 13 is most often used when there would be some problem with filing a Chapter 7 bankruptcy. For example, if your mortgage payments are behind and you do not have the ability to bring the payments current in the next few months, you will want to consider Chapter 13. It allows the past-due payments to be paid in installments over 36 months. If you have considerable assets which could be lost in a Chapter 7, you might consider filing Chapter 13. Chapter 13 permits you to keep all your assets because, over time, you will be paying your creditors the value of these assets. Debts that may not be discharged in Chapter 7 can be made to go away with a Chapter 13. For example, debts incurred by fraud may not be “dischargeable” in Chapter 7. However, they can be discharged in Chapter 13. Lastly, taxes which are not “dischargeable” can be repaid over a three-to-five year period while under the protection of the Bankruptcy Court.

Chapter 11 – Chapter 11 also reorganizes debts by submitting a repayment plan to the court. This chapter is used when debts exceed the dollar limits of a Chapter 13 discussed above. Chapter 11 is more complex but does offer greater flexibility. Businesses usually file under Chapter 11. We offer a free consultation.

With very few exceptions, every person who files for bankruptcy must attend at least one hearing. This is called the first meeting of creditors, or the 341(a) hearing. All creditors get notice of this hearing, can attend, and are allowed to ask you questions during the examination.

If you are not represented by an attorney, a creditor can briefly discuss matters with you at almost any time. Some creditors make it a practice to attend the first meeting of creditors so they can discuss things such as payment on a security interest with debtors. Those individuals represented by attorneys should have all such communication go through their attorney and they never directly speak with any creditors.

The advantages to bankruptcy seem so great that sometimes clients have a hard time believing that it’s all true. There are, however, some disadvantages to bankruptcy which must be taken into consideration. First, a bankruptcy filing can remain on your credit report 7 to 10 years. While this is something to consider, most clients find that it is not insurmountable. Many are surprised to receive new credit within a few years after they filed bankruptcy.

Second, you cannot file another Chapter 7 Bankruptcy for six years. While this means that you give up your financial safety net for this period of time, few people require a second Bankruptcy.

If additional problems arise, you may still file a Chapter 13 Bankruptcy anytime after the Chapter 7 proceeding is concluded. Third, it will be difficult to purchase a home or rent a new apartment for a few years. Real estate brokers and lenders tell us that after this period of time buyers can qualify for real estate loans once again. This is especially true if they have a sizeable down payment and a good payment history after the bankruptcy.

The answer is NO. Either spouse may file a bankruptcy on their own. However, many times it is far more advantageous for both spouses to file together. This decision should be made with an experienced bankruptcy attorney.

There seems to be some misconception that only delinquent bills can be made to go away in bankruptcy. This simply is not true. However, if a person’s debts are current and they are considering bankruptcy, they may not need to file bankruptcy or they may be very adept at handling a negative monthly cash flow. This analysis should be done with an experienced bankruptcy attorney.

No, all debts must be listed in a person’s bankruptcy papers. You may not want to include a particular creditor, such as a relative, friend, or credit card company whose card you want to keep. However, you must include all of your creditors. You are committing fraud if you do not include all persons to whom you owe, or may owe, money.

Incidentally, if you have a credit card that does not have a balance due on it, it need not be listed. Many times, these zero balance credit cards can be used after the bankruptcy is over to re-establish credit. If you wish to pay a discharged debt after your bankruptcy, it is your legal right to do so. You simply reaffirm the debt. Reaffirmation means that you legally recreate the debt after the bankruptcy is filed.

At the time of a bankruptcy filing, all the debtor’s assets become property of their bankruptcy estate and subject to administration by the bankruptcy trustee. Fortunately, in most instances, a debtor’s assets have been exempted, or protected, by their attorney in the bankruptcy paperwork. If a trustee wished to view personal assets inside a residence, he or she would probably be free to do so. However, as a practical matter, this almost never occurs because the personal possessions have been properly exempted in the bankruptcy paperwork. Further, our personal possessions usually do not have significant resale value. As a result, a trustee usually has little interest in a debtor’s personal possessions.

No. However, some newspapers feel that business filings (and not usually consumer filings) have some news value to their readers. If a paper chooses to do so, they can publish this information as it is public record. As a practical matter, they rarely do so unless the person was engaged in a business.

A normal chapter 7 bankruptcy takes about 4 months until the discharge is received. At this point, most consider the bankruptcy final.

Certain transactions can be set aside as fraudulent. If you transfer assets to a friend or relative without receiving a fair price or consideration in return, the transaction is voidable as fraud. It is improper to transfer assets to others prior to filing bankruptcy so as to deprive your creditors of their right to satisfy their claims out of your assets. However, you are entitled to transfer assets into exempt property which you may keep free of creditors’ claims. You should always discuss any transfers of assets with an attorney before your bankruptcy is filed. Also, payments to creditors which favor one creditor at the expense of the others may be voided as a preference.

The Bankruptcy Code mandates that all similar type creditors should be treated equally. Accordingly, any type of preferential payment can be recovered by the Court. By way of example, you cannot pay off an unsecured debt to your uncle a few months before filing bankruptcy because your other unsecured creditors can complain that the payment is a preference payment.

As a general rule, a bankruptcy will not effect the terms of a mortgage. A Chapter 13 bankruptcy can allow a person to repay delinquencies over a three year period. However, at the same time, they must continue to make the new payments as they become due. A bankruptcy will not allow you to force a bank to modify your interest rate, monthly payment, or term of the loan, especially a first deed of trust. There are some minor exceptions to this rule with a second deed of trust. However, because this area of the law is rapidly changing, you should always consult an attorney to discuss this issue.

Any individual can file their own bankruptcy proceeding. This is called filing in pro per. If a person wishes to spend enough time learning about this area of the law, they can probably get through a simple bankruptcy filing. However, individuals with assets or problem debts are foolish to try to go it alone as they will most certainly harm themselves financially as a result.

Yes. There are a number of grounds upon which a bankruptcy can be denied. Failure to cooperate with the trustee or provide an adequate explanation as to assets and liabilities are common grounds to deny a discharge in bankruptcy.

We do not recommend it. Many paralegals know what they are doing. However, using an independent paralegal (one not affiliated with a law office) can be a risky proposition. In California, for example, paralegals are not licensed or regulated. Yet, people seem to place the same trust and confidence in them as attorneys who have gone to school for three years and passed the most difficult bar exam in the country. Many paralegals charge almost as much as an attorney. Given these facts, it just doesn’t make sense to take a chance with an independent paralegal.

The best way is by personal referral. If you cannot get a referral, you must rely on media advertising. Interview a few attorneys and choose one with plenty of experience helping people with financial problems. An experienced bankruptcy attorney can make all the difference in ensuring that you get your fresh start.

When people seek advice about bankruptcy, they are usually quite distressed. They may be facing the loss of their home and are being harassed by creditors. Frequently, these financial problems have spilled over into their personal lives and caused problems with their health or disruption of their family relationships. These people are suffering from anxiety about their future.There is no disgrace in seeking help for financial problems.

It is far better to address these issues and solve these problems now rather than ignoring them and allowing the situation to become worse. Many successful and famous people have gone through bankruptcy. Some have heard it said that the average millionaire has been broke more than two times during his or her lifetime. Our financial system is based on the concept of risk. People are encouraged to incur debt to finance business ventures or the purchase of goods and services associated with the good life.

Unfortunately, not all risks work out for the best. Consequently, the Constitution gives each person the right to seek relief under the Bankruptcy Code if they are unable to repay their debts. The worst thing that you can do is nothing. Do not continue to let financial problems eat you up. Do something today. Your life is not getting any shorter! Most of our clients tell us that their only regret is they waited too long to take action. Bankruptcy may not be the total answer. However, it might be part of a comprehensive financial plan. Why not take the time to come in and see us and a get our thoughts on what you can do to turn around your financial life?

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