Frequently Asked Questions
Can I keep My Home, Car, or other Personal Possessions when I declare Bankruptcy?
Generally YES, if the equity you have on each item is within the exemption available in Bankruptcy law. In California, a Debtor in Bankruptcy has two sets of exemptions: one with larger homestead exemption, and one with higher exemption in other personal properties. For example, you can have up to a $75,000 exemption for the equity in the house you have or you have about $24,000 of another exemption you can apply to any item of your choice. 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.
When Collection Agencies STOP Chasing Me?
As soon as you file bankruptcy, all creditors shall cease collection activities. If you supplied all of your creditors’ names and addresses, the bankruptcy court will send a notice of bankruptcy directly to them. This process might take couple of days before all of them stop calling you. You should send the notice also to any creditor or collection agency that continues calling you and ask them to stop their activities. Also, creditors stop calling when you can give them the name and phone number of an attorney you hired for your bankruptcy proceeding.
Can Bankruptcy Affect my Employment?
Generally employers won’t be notified when you file bankruptcy. However, your employer should be notified if :
- A creditor is garnishing your pay check, you have to notify the employer to cease garnishing, or
- Your employer is also one of your creditors.
What Type of Bankruptcy Should I File?
For individuals, bankruptcy law provides two solutions: Chapter 7 and Chapter 13. Each is created under a different chapter of the Bankruptcy Code.
Chapter 7: Generally is a straight bankruptcy: you have limited income and your assets are with the exemption provided by bankruptcy law. Chapter 7 usually involves a creditor’s hearing, which mostly takes about 10-15 minutes of general questions. And then you get your discharge about 90 days after filing bankruptcy.
Chapter 13: if you have assets or higher income then you belong in this chapter. The law allows you to pay your creditors in monthly installments over three to five years. This chapter is much harder to prepare: A Chapter 13 plan shall be prepared to indicate the amount of money you can afford to pay per month and how to allocate the payments.
This plan shall be approved by the bankruptcy court and t he trustee. Sometimes it takes more than one trip to the court and attempts to modify your plan. To be qualify for this chapter, your unsecure debts shall be less than $360,475 and less than $1,081,400 in secured debt.
If your debt exceeds these limit you shall consider Chapter 11 bankruptcy. Chapter 13 is often used when your equity in your property exceeds the exemption in Chapter 7, or your income is much higher than the limit. For example, you might have a house that’s worth $500,000 with a mortgage of $400,000. Therefore, you have an equity for $100,000. There is a exemption for $75,000 and the rest of $25,000 is not exempt. In this situation, you might file a chapter 13 bankruptcy and pay a monthly payment to trustee for three to five years, and then you get a discharge.
Also, you can use Chapter 13 bankruptcy when you are behind in your mortgage payment and you are unable to make it current. In Chapter 13 bankruptcy, you are able to pay the arrears within 3 to 5 years. Another use of Chapter 13 is when you have a second mortgage and want to erase it. If your house, for example, is worth $500,000, and you have a mortgage for $550,000, which is higher than the value of the house, then you can make the second mortgage unsecured. Then, after the discharge of your bankruptcy, the second mortgage will disappear as well.
Lastly, some debt may not be discharged in Chapter 7 but can go away in Chapter 13. As an example, fraudulent debts are not dischargeable in Chapter 7, they might be discharged in Chapter 13.
Ultimately, your taxes you owe to IRS are not dischargeable but can be repaid in Chapter 13 within three to five years.
Do I Have Any Disadvantage by Filing Bankruptcy?
Bankruptcy is your right. It will protect your exempt assets from being taken over by your debts. The advantage of bankruptcy is so great that it is hard for some people to believe. The only downfall is that it stays in your credit record for extended period of time. However, this doesn’t substantially affect your life. Sometimes after the bankruptcy, when there are no more adverse reporting, your credit score increases, sometime by 80 to 90 points within the first year, and you might be able to finance a house if you have enough income. This is especially true if they have a sizeable down payment and a good payment history after the bankruptcy.
WILL Any Body Come to My House and Take My Stuff Away?
No. When you file bankruptcy, by the operation of the law, your asset becomes part of the bankruptcy estate. This estate is subject to administration by the bankruptcy trustee. If your property value is less than the amount of exemptions, nobody can take your property away. You should look at the exemption table to find out how much of your properties are exempt. You should be aware that the value of your property is the current value, that means, that amount you can get if you sell it right now, and not the price you paid for it. For example a car that was purchased in 2001 for $10,000 might have a resale value for $2000 now. So as a practical matter, no trustee will visit your residence at all.
How Long Process of Bankruptcy Takes?
Bankruptcy usually starts by filing the petition. Thereafter, there will be creditor’s 341(a) hearing set for a month later. About two months after the hearing, the court closes the case and the discharge would be issued. If the trustee sets another hearing or needs additional documents, this time extends. Usually before the final discharge will be issued, the trustee files his or her report.
What Will Happened to My Mortgage And Payments on My Car?
As a general rule, a Chapter 7 bankruptcy won’t affect the terms of a mortgage. So you should continue your payment on your house and car. The bankruptcy law requires that you sign a reaffirmation agreement with your creditors so the court formally recognize the debts. A bankruptcy won’t allow you to modify the terms of the mortgage agreement. However, many banks would allow many homeowners to modify their loan under HEMP. You should do some research on this subject.
Do I Have to Appear in the Court?
There is usually no court appearance in Chapter 7 bankruptcy, but you have to attend a creditor’s hearing. The hearing mostly lasts about 10-15 minutes with trustee asking very general questions, like your name, address and so on. However, the hearing in Chapter 13 is more comprehensive and it involves the court hearing to approve the plan by the court.
Should My Spouse Also File Bankruptcy?
NO, either spouse can file bankruptcy without affecting the other. However, since the price for both spouse are the same, you might take advantage and clear both spouses’ debts,
Should I Be Behind on My Payments?
No, you can file bankruptcy at any time. However, if you’re current with your bills, you should consider other routes to settle your debts. However, bankruptcy is the straight forward way to handle your debts. You should consult with an experienced bankruptcy attorney.
Can I Keep One or Some of My Credit Card and Not List It So I Can Use it After Bankruptcy?
NO. Bankruptcy law requires you to list all your debts. Also, every credit card company will be notified, whether you list them or not. So, there is not much difference whether you list them or not.
Can I Give My Assets Away Before Filing Bankruptcy?
Generally, it is a bad idea to transfer your assets. Most assets are exempts in bankruptcy, but when you transfer it to another person, these exemptions would not be applied. Therefore, the trustee could freely take it from the person you transfer the asset to, especially if that person is your friend or family member. If the person you transfer property to is not you friend or family, the trustee could void the transaction if you did not receive the fair market value of the property. In my opinion, you should avoid any transaction at least one year prior to your bankruptcy. Also, you should avoid preferring one creditor over another one. For example you cannot repay your brother or other family members while you withhold payments to your credit card. The Bankruptcy Code requires that all similar type creditors should be treated equally. Thus, any type of preferential payment can be recovered by the Court.
Can a Bankruptcy Be Denied?
Sometimes. There are a number of grounds when your bankruptcy would be denied: failure to appear at hearings, failure to cooperate with trustee, failure to file documents.