- What is bankruptcy?
- Who can start a bankruptcy?
- Who will know that I filed?
- What is credit counseling?
- What is exempt property?
- What Laws Protect My Property From Being Taken By Creditors or The Bankruptcy Trustee?
- What is Equity?
- What is a Loan Modification and what is its relation to filing bankruptcy?
- What is liquidation?
- What is a joint petition?
- What is the means test?
- What is current monthly income?
- What are the different "chapters" in bankruptcy?
- What is an Automatic Stay?
- What is a 341 Meeting?
- Which chapter is right for me?
- Do I need an attorney to file bankruptcy?
- What are some common types of debts?
- How much are the court fees to file for bankruptcy?
- What happens after I file bankruptcy?
- What is the creditors' meeting? What can I expect to happen at the meeting?
- What is a reaffirmation agreement?
- What can I do if a creditor keeps trying to collect money after I have filed bankruptcy?
- What should I do if I cannot make my Chapter 13 payment?
- How many years will a bankruptcy show on my credit report? How long will it take before I can get credit?
- How do I get the bankruptcy removed from my credit report?
- How much do you charge for representing someone in Chapter 7 or Chapter 13? Will I be able to afford your fees?
- Can I speak with the Judge in my bankruptcy case?
- Where can I get information on credit counseling?
- Helpful Links
Bankruptcy is a legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of Title 11 of the United States Code (the Bankruptcy Code).
Any person, partnership, corporation or business trust may file a bankruptcy. If the debtor (person or entity who owes the money) files a petition to start the bankruptcy, it is a voluntary bankruptcy. If the creditors (people or entities to whom the money is owed) file a petition against a debtor to start the bankruptcy, it is an involuntary bankruptcy. If an involuntary case is filed, the debtor has a specific number of days in which to contest the petition and contend it should not be in bankruptcy.
Although your Bankruptcy documents are a matter of public record, no one will know but your creditors. Of course, if someone was to search Court records, they could get information on your case. However, only your creditors will receive a notice from the Court when your case is filed. Your employer, for example, is not notified unless your employer is also one of your creditors.
Generally refers to two events in individual bankruptcy cases: (1) the “individual or group briefing” from a nonprofit budget and credit counseling agency that individual debtors must attend prior to filing under any chapter of the Bankruptcy Code; and (2) the “instructional course in personal financial management” in chapters 7 and 13 that an individual debtor must complete before a discharge is entered. There are exceptions to both requirements for certain categories of debtors, exigent circumstances, or if the U.S. trustee or bankruptcy administrator has determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling.
Certain property owned by an individual debtor that the Bankruptcy Code or applicable state law permits the debtor to keep from unsecured creditors. For example, in some states the debtor may be able to exempt all or a portion of the equity in the debtor’s primary residence (homestead exemption), or some or all “tools of the trade” used by the debtor to make a living (i.e., auto tools for an auto mechanic or dental tools for a dentist). The availability and amount of property the debtor may exempt depends on the state the debtor lives in.
California is one of several states that "opted out" of the Federal Bankruptcy Exemptions under 11 U.S.C. Section 522. Simply put, these Federal exemptions are not usable in California. Instead of the Federal Bankruptcy Exemption System, California has chosen to allow its' residents to choose between 2 different sets of asset protecting exemptions in a bankruptcy filing. These exemptions are found in Sections 703 and 704 of the California Code of Civil Procedure.
To read more go to http://www.leginfo.ca.gov.
Equity is the value of a debtor’s interest in property that remains after liens and other creditors’ interests are considered. For example, if a house valued at $60,000 is subject to a $30,000 mortgage, there is $30,000 of equity.
A Loan Modification is a permanent change in one or more of the terms of a mortgagor's loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford. Loan Modification is a solution for a homeowner who is having financial problems and cannot pay mortgage payments on time but wants to remain in possession of the property. As such, a mortgage rate reduction is a pragmatic solution because it lowers monthly mortgage payments.
Filing bankruptcy formally stops all civil proceedings against a debtor. According to the Bankruptcy Code, creditors and lenders like banks and other financial institutions must suspend legal actions including foreclosures. Filing bankruptcy does not always stop or delay foreclosure because the lender can request the court to lift the automatic stay. Moreover, it does not necessarily permit a homeowner to remain in possession of the property unless deficiencies are paid to the lender. However, generally filing bankruptcy will delay a foreclosure procedure.
Liquidation is a sale of a debtor’s property with the proceeds to be used for the benefit of creditors.
A joint petition is the filing of a single petition by an individual and the individual's spouse. Only people who are married as of the date they file may file a joint petition. Unmarried persons, corporations and partnerships must each file separate cases. If you are an individual and have a business, you may not file a single petition for yourself and your business, each must be a separate bankruptcy case.
Section 707(b)(2) of the Bankruptcy Code applies a “means test” to determine whether an individual debtor’s chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtor’s aggregate current monthly income over 5 years, net of certain statutorily allowed expenses is more than (i) $10,000, or (ii) 25% of the debtor’s non-priority unsecured debt, as long as that amount is at least $6,000. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.
The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from non-debtors and income from the debtor’s spouse if the petition is a joint petition, but not including social security income and certain other payments made because the debtor is the victim of certain crimes.
Chapter 7 is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases are commonly referred to as "straight bankruptcy" or "liquidation" cases, and may be filed by an individual, corporation or a partnership. Under Chapter 7, a Trustee is appointed to collect and sell all nonexempt property and to use any proceeds to pay creditors. In the case of an individual, the debtor is allowed to claim certain property as exempt. Chapter 7 individuals may receive a discharge, which means that the debtor does not have to pay certain types of debts. Corporations and partnerships do not receive discharges. Consequently, any individuals legally liable for the partnership's or corporation's debts will remain liable. Therefore, individual bankruptcies may be necessary as well as the corporation or partnership bankruptcy. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.
Chapter 9 is only for municipalities and governmental units, such as schools, water districts and so on.
Chapter 12 offers bankruptcy relief to those who qualify as family farmers or family fishermen. There are debt limitations for Chapter 12, and a certain portion of the debtor's income must come from the operation of a farming or fishing business. Family farmers or fishermen must propose a plan to repay their creditors over a period of time from future income and it must be approved by the Court. Plan payments are made through a Chapter 12 Trustee who also monitors the debtor's farming or fishing operation while the case is pending.
Chapter 11 is the reorganization chapter available to businesses and individuals who have substantial assets and/or income to restructure and repay their debts. Creditors vote on whether to accept or reject a plan of reorganization which must be approved by the Court. In addition to the filing fee paid to the Bankruptcy Clerk, a quarterly fee is paid to the U.S. Trustee in all Chapter 11 cases. There is no debt limit under Chapter 11. However, only a Chapter 11 debtor that qualifies as a small business may request expedited treatment under Chapter 11. To qualify as a "small business," the Debtor must be engaged in commercial or business activities, other than the ownership of real property, and the total of secured plus unsecured debts must be less than $200,000.00. Due to the expense and complexity of Chapter 11, the decision to file a Chapter 11 petition should be made in consultation with an attorney.
Chapter 13 is the debt repayment chapter for individuals with regular income whose debts do not exceed $1,532,700. Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual's unsecured debts are less than $383,175 and secured debts are less than $1,149,525. See 11 U.S.C. § 109(e). These amounts are adjusted periodically to reflect changes in the consumer price index. This chapter is not available to corporations or partnerships.
Chapter 13 generally permits individuals to keep their property by repaying creditors out of future income. Chapter 13 debtor proposes a Repayment Plan which must be approved by the Court. The amounts set forth in the Plan must be paid to the Chapter 13 Trustee who distributes the funds for a small fee. Many debts that cannot be discharged can still be paid over time in a Chapter 13 Plan. After completion of payments under the Plan, Chapter 13 Debtors receive a discharge of most debts.
Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time.
Nevertheless, they must still make all mortgage payments that come due during the chapter 13 plan on time. Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on “consumer debts.” This provision may protect co-signers.
To read more click here.
An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.
The meeting of creditors required by section 341 of the Bankruptcy Code at which the debtor is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs. It is also called a creditors’ meeting.
You have a choice in deciding which chapter of the Bankruptcy Code will best suit your needs. The decision whether to file a bankruptcy, and under which chapter to file depends on the particular circumstances of the debtor. Also, considering your personal facts, comparing them to each chapter's requirements, and deciding which chapter to select, is considered legal advice. The decision whether to file a bankruptcy and under what chapter is an extremely important decision and should be made only with competent legal advice from an experienced bankruptcy attorney after a review of all the relevant facts of the debtor's case.
While it is possible to file a bankruptcy case "Pro Se", that is, without representation by an attorney, it is extremely difficult to do so successfully. Hiring a competent attorney is highly recommended. The Court is not able to give legal advice or help fill out forms. For more information on filing without an attorney click here.
A. Secured Debt
A secured debt is a debt that is backed by property. A creditor whose debt is "secured" has a right to take property to satisfy a "secured debt". For example, most homes are burdened by a "secured debt". This means that the lender has the right to take the home if the borrower fails to make payments on the loan. Most people who buy new cars give the lender a "security interest" in the car. This means that the debt is a "secured debt" and that the lender can take the car if the borrower fails to make payments on the car loan.
B. Unsecured Debt
A debt is unsecured if you have simply promised to pay someone a sum of money at a particular time and you have not pledged any real or personal property as collateral for that debt.
C. Priority Debt
A priority debt is a debt entitled to priority in payment, ahead of most other debts. A listing of priority debts is given, in general terms, in 11 U.S.C. Section 507 of Bankruptcy Code. Examples of priority debts are some taxes, and wage claims of employees. If you have questions deciding which of your debts are entitled to priority status, you should consult an attorney.
D. Administrative Debt
An administrative debt is also a priority debt and is one created when someone provides goods or services to your bankruptcy estate. The best example of an administrative debt is the fee generated by an attorney or another authorized professional in representing the bankruptcy estate.
The court fees to file for bankruptcy under different chapters may vary from time to time. Please refer to this link for more information.
The court issues a notice of bankruptcy to all creditors advising them of the filing of the bankruptcy, the case number, information regarding actions creditors may take, the name of the trustee assigned to the case (if filed under Chapter 7, 12, or 13), the date set for the Section 341 Meeting of Creditors, the deadline, if any, set for filing objections to the discharge of the debtor and/or the dischargeability of specific debts and instructions for filing a claim.
In a Chapter 7 case involving an individual debtor, the creditors generally have sixty (60) days from the first date set for the meeting of creditors to object to the discharge of the debtor and/or the dischargeability of a specific debt. If the deadline passes without any objections to the debtor's discharge being filed and the debtor has met all requirements for discharge, the court will issue the discharge order.
If any objections to the dischargeability of specific debts are filed, they will be heard by the court, but will not delay the granting of a discharge with respect to other debts. An objection to discharge or to the dischargeability of certain debts is considered a separate lawsuit (an adversary proceeding) within the bankruptcy and may result in a trial presided over by the judge assigned to the case. Corporate and partnership Chapter 7 debtors do not receive discharges. If there are no assets from which a dividend can be paid, the trustee will prepare a report of no distribution and the case will be closed. If there are assets that are not exempt, funds will be available for distribution to creditors. The court will set a claims deadline and notify all creditors to file their claims. The trustee will proceed to collect the assets, liquidate them and distribute the proceeds to creditors. When the assets have been completely administered, the trustee will prepare a final report and final accounting and the case will be closed.
In a Chapter 13 case, creditors are given an opportunity to object to the plan. If no objections are filed by creditors or the trustee, the plan may be confirmed as filed. Once the plan is confirmed, the trustee will distribute the proceeds of the debtor's plan payments to creditors until the debtor completes the plan or the court dismisses or converts the case. Upon completion of the Chapter 13 Plan, the trustee will prepare a final report, the court will issue a discharge order if the debtor has met all requirements for discharge and the case will be closed.
In a Chapter 12 case, creditors are given an opportunity to object to the plan. If no objections are filed by creditors or the trustee, the plan may be confirmed as filed. Once the plan is confirmed, the trustee will distribute the proceeds of the debtor's plan payments to creditors until the debtor completes the plan or the court dismisses or converts the case. Upon completion of the Chapter 12 Plan, the trustee will prepare a final report, the court may issue a discharge order if the debtor has met all requirements for discharge and the case will be closed.
In a Chapter 11 case, a debtor's conference is held with the United States Trustee's staff before the creditors meeting. At the debtor's conference, the United States Trustee will go over the responsibilities and restrictions on the debtor-in-possession, explain the quarterly fees and monthly operating reports, and generally discuss the financial situation of the debtor and the scope of the anticipated plan of reorganization. A disclosure statement must be filed with the plan and approved by the court before votes for or against the plan can be solicited. After the estate has been fully administered, the court will enter a final decree closing the case. A Chapter 11 estate may be considered fully administered and closed before the payments required by the plan have been completed.
A "meeting of creditors" is the single hearing all debtors must attend in any Bankruptcy proceeding. It is held outside the presence of the judge and usually occurs between twenty (20) and sixty (60) days from the date the original petition is filed with the court. In Chapter 7, Chapter 12 and Chapter 13 cases, the trustee assigned by the court on behalf of the United States Trustee conducts the meeting. In Chapter 11 cases where the debtor is in possession and no trustee is assigned, a representative of the United States Trustee's office conducts the meeting.
A reaffirmation agreement is an agreement by which a bankruptcy debtor becomes legally obligated to pay all or a portion of an otherwise dischargeable debt. Such an agreement must generally be filed within sixty (60) days after the first date set for the meeting of creditors.
The reaffirmation agreement must be filed on a specific form. If a reaffirmation agreement is filed without an attorney's declaration or affidavit, or creates presumption of undue hardship, a hearing is required. You must appear in person at the hearing. The judge will ask you questions to determine whether the reaffirmation agreement imposes an undue burden on you or your dependents and whether it is in your best interest. Since reaffirmed debts are not discharged, the bankruptcy court will normally only reaffirm secured debts where the collateral is important to your daily activities.
Reaffirmation agreements are strictly voluntary. They are not required by the Bankruptcy Code or other state or federal law. You can voluntarily repay any debt instead of signing a reaffirmation agreement, but there may be valid reasons for wanting to reaffirm a particular debt.
Since a reaffirmation agreement takes away some of the effectiveness of your discharge, legal counsel is advisable before agreeing to a reaffirmation. Even if you sign a reaffirmation agreement, you have a minimum of sixty (60) days after the agreement is filed with the court to change your mind or rescind. If your discharge date is more than sixty (60) days after the agreement is filed with the court, you have until your discharge date to change your mind. If you reaffirm a debt and fail to make the payments as agreed, the creditor can take action against you to recover any property that was given as security for the loan and you may remain personally liable for any remaining debt.
If a creditor continues to attempt to collect a debt after the bankruptcy is filed, the creditor may be in violation of the automatic stay. You should immediately notify the creditor in writing that you have filed bankruptcy and provide them with either the case number and filing date, or a copy of the petition that shows it was filed. If the creditor still continues to try to collect, the debtor may be entitled to take legal action against the creditor to obtain a specific order from the court prohibiting the creditor from taking further collection action and, if the creditor is willfully violating the automatic stay, the court can hold the creditor in contempt of court and punish the creditor. Any such legal action brought against the creditor will be complex and will normally require representation by a qualified bankruptcy attorney.
If the debtor cannot make a Chapter 13 payment on time according to the terms of the confirmed plan, the debtor should contact his or her attorney or the trustee by phone and by letter advising of the problem and whether it is temporary or permanent. Significant changes in the debtor's circumstances may require that the plan be formally modified. If the problem is permanent and the debtor is no longer able to make payments to the plan, the trustee will request that the case be dismissed or converted to another chapter. The determination of whether to modify, dismiss or convert a case requires the same kind of analysis as is needed for the initial decision whether to file bankruptcy and under what chapter. Therefore, the debtor should seek counsel from a qualified bankruptcy attorney before attempting to make such a decision. If the debtor delays making a voluntary decision and cannot make the plan payments, the court may dismiss the case.
The bankruptcy petition, schedules and plan are public documents and are available to the general public for viewing. Credit reporting agencies regularly collect information from the petitions filed and report the information on their credit reporting services. Bankruptcies normally will remain on your credit report for up to ten (10) years and may be taken into consideration by any person reviewing a credit report for the purpose of extending credit in the future. The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor depending on the type of credit requested.
The bankruptcy court has no jurisdiction over credit reporting agencies. The Fair Credit Reporting Act, 6 U.S.C. Section 605, is the law that controls credit reporting agencies. The law states that credit reporting agencies may not report a bankruptcy case on a person's credit report after ten years from the date the bankruptcy case is filed. Other bad credit information is removed after seven years. The larger credit reporting agencies belong to an organization called the Associated Credit Bureaus. The policy of the Associated Credit Bureaus is to remove Chapter 11 and Chapter 13 cases from the credit report after seven years to encourage debtors to file under these chapters.
The three main credit Reporting Agencies are:
P.O. Box 9558
Allen, TX 75013
Web site: www.experian.com
Attn: Public Records Department
555 West Adams Street
Chicago, IL 60661
Web site: www.transunion.com
P.O. Box 740241
Atlanta, GA 30374
Web site: www.equifax.com
You may contact the Federal Trade Commission, Bureau of Consumer Protection, Education Division, Washington D.C. 20580. The telephone number is (202) 326-2222 or at www.ftc.gov. The office can provide further information on re-establishing credit and addressing credit problems. For information on credit practices, contact (202) 326-3324.
Our fees are reasonable and vary depending on the complexity of each case. We will provide you with a quote at your initial consultation. In determining the fees to be charged, we take into account the complexity of your case and the amount of time we anticipate to spend in providing the necessary services. In Chapter 13, we may agree to include a portion of the attorney fees in your Chapter 13 Plan, thus reducing up-front costs, and apply to the Court for payment. Once you sign a retainer agreement, you can immediately refer all creditor calls to our office even before the case is filed. My law firm will try to work with you the best way we can to make debt relief affordable.
No. Federal law prohibits any contact with the Judge outside of the courtroom in order to preserve the impartiality of the Court and to prevent the appearance of any impropriety of preferential treatment of any party.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 launched a new era: With limited exceptions, people who plan to file for bankruptcy protection must get credit counseling from a government-approved organization within 180 days before they file. They also must complete a debtor education course to have their debts discharged.
The Department of Justice’s U.S. Trustee Program approves organizations to provide the mandatory credit counseling and debtor education. Only the counselors and educators that appear on the U.S. Trustee Program’s lists can advertise that they are, indeed, approved to provide the required counseling and debtor education. By law, the U.S. Trustee Program does not operate in Alabama and North Carolina. In these states, court officials called Bankruptcy Administrators approve pre-bankruptcy credit counseling organizations and pre-discharge debtor education course providers.
Please go to http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm for more information.
Federal Trade Commission: http://www.ftc.gov/bcp/index.shtml
U.S. Department of Justice: http://www.usdoj.gov/ust/eo/bapcpa
U.S. Bankruptcy Courts: http://www.uscourts.gov/bankruptcycourts.html
U.S. Bankruptcy Court for the Central District of California: http://www.cacb.uscourts.gov
Executive Office for U.S. Trustees: http://www.justice.gov/ust/eo/ust_org/office_locator.htm
U.S. Supreme Court: http://www.supremecourt.gov
California Courts Website: http://www.courts.ca.gov
U.S. Department of Housing and Urban Development: www.hud.gov
American Bankruptcy Institute: http://www.abiworld.org