Below you will find a series of frequently asked questions and concerns pertaining to the various aspects of bankruptcy:
Q: What is bankruptcy?
Bankruptcy is a legal process by which an individual who cannot afford to pay back the debts he or she owes can get a fresh financial start. By filing for bankruptcy, you can stop your creditors from pursuing payment on the debts you owe, at least until your debts are discharged or reorganized into a manageable repayment plan. An individual’s right to file for bankruptcy in Los Angeles is governed by federal law, and all bankruptcy cases in Southern California are handled by the federal court system.
Q: What does it mean to discharge a debt?
When a debt is “discharged” in bankruptcy, your legal obligation to repay the debt is eliminated, meaning you are no longer responsible for paying your creditor and your creditor is no longer allowed to take action against you to collect payment for the debt.
Q: Will all my debts be eliminated in bankruptcy?
Most unsecured debts are dischargeable in Chapter 7, Chapter 11 or Chapter 13 bankruptcy, but there are several important exceptions to this rule. Generally speaking, debts that are not dischargeable in bankruptcy include student loans (unless you can prove undue hardship), criminal fines and restitution payments, debts incurred by fraud, embezzlement or larceny, child support or alimony obligations, and most tax debts, among other non-dischargeable debts.
Q: Can I pick and choose which debts to include in my bankruptcy case?
No. When you file for bankruptcy in Los Angeles, you are required to list all of your assets and debts; you cannot choose to include some of your debts in the bankruptcy filing and continue paying others. Keep in mind that when you file for bankruptcy, there may be certain debts that are non-dischargeable, which you will be required to continue paying.
Q: Should I repay my credit card debt or file for bankruptcy?
If you have fallen behind on your credit card payments and you have a significant amount of debt, you may be considering what options you have in terms of debt consolidation or refinancing. However, it is important to note that these types of plans typically come with increased interest rates and extended repayment terms, which means you will be in debt for several more years and end up paying more over the life of the debt. On the other hand, a Chapter 7 bankruptcy filing can wipe out your credit card debt and other unsecured debts in as little as four months.
Q: What is a “cramdown” in Chapter 13 bankruptcy?
If you are filing for Chapter 13 bankruptcy in Los Angeles, using what is known as a “cramdown” can reduce the amount you owe to your creditors for certain secured debts. In a cramdown, the principal balance of a secured debt such as a car loan, investment property mortgage (but not the mortgage for a home that serves as your primary residence) or other personal property loans is reduced (crammed down) to the fair market value of the property the debt is secured by, regardless of how much is actually owed on the loan.
Q: Can I file for bankruptcy if I am being sued or if there is already a judgment against me?
Yes. Assuming that the debt in question is dischargeable, you can still get rid of the debt even if the creditor has already sued you for payment and the court has entered a judgment against you.
Q: What if my wages are being garnished?
Wage garnishment is one of the most common tactics creditors use to collect on unpaid debts. If you are already struggling with overwhelming debt, having a portion of your paycheck withheld to pay back the debts you owe to creditors can put you in an even more difficult financial situation.
Q: What is the difference between Chapter 7 and Chapter 13 bankruptcy?
There are many important differences between Chapter 7 liquidation bankruptcy and Chapter 13 reorganization bankruptcy, the most significant difference being the way your debts are handled. Chapter 7 bankruptcy is known as “liquidation” bankruptcy, and when you file for bankruptcy under Chapter 7, your nonexempt assets are liquidated, or sold, to pay back your creditors. Chapter 13 bankruptcy, on the other hand, is a “reorganization” of your debts into an affordable repayment plan that allows you to make manageable payments to your creditors.
Q: What is the bankruptcy means test and how does it apply to me?
The bankruptcy means test is a test used to determine eligibility for Chapter 7 bankruptcy and is intended to weed out high-income filers who can afford to pay back their debts under Chapter 13 reorganization bankruptcy. If your income is below the median income in California for a household your size, then you are most likely eligible for Chapter 7 bankruptcy. If you earn more than the median income, you will have to pass the means test, or show that you don’t have the financial means to pay back your creditors, in order to seek bankruptcy protection under Chapter 7.
Q: Where will my bankruptcy case be filed?
Your bankruptcy case will be filed in the federal district in which you have lived for the 180 days prior to your bankruptcy filing. For instance, if you live in Los Angeles, your bankruptcy case will be filed in the U.S. Bankruptcy Court for the Central District of California in Los Angeles. If you have recently moved, you will file in the federal district where you lived for the greater portion of those 180 days.
Q: How do I file for bankruptcy in Los Angeles?
Once you have decided to file for bankruptcy and determined which bankruptcy chapter is right for you, you can begin the actual process of filing for bankruptcy. In order to do so, you will need to take the following steps:
- Gather the necessary documents – The bankruptcy court will require certain information and documentation from you before your case can proceed, including valid identification, a list of your bank accounts, tax returns from the previous two years, proof of ownership for any valuable assets you own, proof of income, and any other documentation pertaining to your bankruptcy filing.
- Attend an approved credit counseling session – You will be required to attend a credit counseling session in the 180 days before you file for bankruptcy, during which you will go over your finances and determine whether bankruptcy is the best option for your financial situation.
- Consult a bankruptcy attorney – A knowledgeable bankruptcy attorney is a valuable asset in any bankruptcy case. Your attorney will help you fill out the bankruptcy paperwork, address any issues raised by your creditors, and help you successfully and smoothly navigate the bankruptcy process. If you have any questions about bankruptcy, an attorney who specializes in bankruptcy cases in Los Angeles is the person to ask.
Q: What is credit counseling?
Attending credit counseling through a court-approved service is a mandatory part of Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases in Los Angeles, and if you fail to attend credit counseling within the 180 days prior to filing for bankruptcy, your bankruptcy case could be dismissed. The purpose of budget planning and credit counseling is to help you and the bankruptcy court determine whether filing for bankruptcy is necessary based on your specific financial circumstances.
Q: How long will my bankruptcy case take?
Depending on the type of bankruptcy you file, your bankruptcy case could take anywhere from a few months to several years. Chapter 13 reorganization bankruptcy establishes a repayment plan for your debts to be paid off within either three years or five years, depending on your income, but with a Chapter 7 bankruptcy filing, you can eliminate your dischargeable debts in as little as four months.
Q: How much does it cost to file for bankruptcy?
The fee to file for bankruptcy under Chapter 7 is $335 and the fee to file for bankruptcy under Chapter 13 is $310.
Q: Will I have to go to court?
In most Los Angeles bankruptcy cases, you will only have to attend the “meeting of creditors,” during which you will meet with the bankruptcy trustee appointed to your case and any creditors who choose to attend the meeting. If any complications arise in your bankruptcy case, you may also have to appear before a judge at a hearing.
Q: What is an automatic stay?
As soon as you file for bankruptcy in Los Angeles, the “automatic stay” goes into effect, putting an immediate stop to collection calls from creditors and most other actions intended to collect on a debt, including wage garnishment, eviction, foreclosure or repossession proceedings, and debt collection lawsuits.
Q: Does the automatic stay always apply?
There are certain debts that are not affected by bankruptcy and in these situations, the automatic stay may not apply. This includes wage garnishment for child support or alimony and any other domestic support obligations.
Q: Can bankruptcy put a stop to creditor harassment?
Not only will the automatic stay that comes with a bankruptcy filing put an immediate stop to collection calls from creditors and other types of creditor harassment, if you are granted a discharge in your bankruptcy case, but the collection actions for any of the debts included in the bankruptcy case will also be eliminated along with the debts.
Q: Who will notify my creditors that I have filed for bankruptcy?
You must list all your creditors in your bankruptcy petition paperwork, and once the bankruptcy petition is filed, the court will notify your creditors that you have filed for bankruptcy, in which case your creditors must stop all collection actions against you. You may also choose to contact your creditors directly to let them know that you have filed for bankruptcy.
Q: How long after I file will the creditors stop calling?
As soon as your creditors or bill collectors become aware of your bankruptcy filing, they must immediately stop all collection efforts. It can take a couple of weeks for creditors to receive the notice that is mailed by the bankruptcy court after you file your bankruptcy petition, which is why some debtors choose to contact their creditors directly, to put a stop to their calls sooner.
Q: Will I lose my house if I file for bankruptcy?
You can usually keep your house and your car when you file for bankruptcy in Los Angeles, but it depends on the value of your assets and which chapter you file.
Q: What is a lien?
A lien is a legal claim against a property which gives the creditor, or lien holder, the legal right to take the property and sell it if you fail to repay your debt.
Q: Can bankruptcy remove liens against my property?
A bankruptcy discharge does not automatically remove liens on your property. However, in some cases, judgment liens and junior mortgage liens can be removed in bankruptcy, depending on the value of the property or asset, your exemptions, and under which chapter you file for bankruptcy.
Q: Can filing for bankruptcy stop foreclosure proceedings?
The automatic stay that goes along with a bankruptcy filing will typically put a hold on foreclosure proceedings, but this relief is only temporary and will eventually expire. It can sometimes be difficult to protect your home with Chapter 7 bankruptcy if you have significant equity that the bankruptcy trustee can use to pay back your creditors, but with Chapter 11 and Chapter 13 bankruptcy, if you have enough income to pay off your unpaid debts, catch up on back mortgage payments and stay current with future mortgage payments, you have the opportunity to stop the foreclosure of your home.
Q: Can I go to jail for not paying the debts I owe?
For the most part, you cannot be sent to jail for not paying your debts. However, in California, you can be arrested and sent to jail if you fail to appear at a debtor’s examination. A debtor’s examination, also known as an Order of Examination, takes place after a creditor has filed a lawsuit and obtained a judgment against you if the creditor is unable to determine what assets you have.
Q: Can I be fired from my job or denied employment because of a bankruptcy filing?
Although employers in California have the right to fire employees or reject job applicants for any reason, the Bankruptcy Code protects employees from any type of discriminatory treatment in the workplace associated with their bankruptcy filing.
Q: Can I transfer assets into someone else’s name before filing for bankruptcy?
According to bankruptcy law, any property or assets you transfer into another person’s name prior to filing for bankruptcy can be recovered as a “fraudulent transfer.” In California, the Uniform Fraudulent Transfer Act (UFTA) prohibits debtors from giving away their assets or selling them at a bargain price in the two years before they file for bankruptcy, whether they do so with the intention of defrauding their creditors or not.
Q: Can I own anything after filing for bankruptcy?
In addition to keeping any property that is considered exempt in bankruptcy, you can also keep anything you obtain after your bankruptcy case is filed. However, if you receive a property settlement, inheritance or life insurance benefits in the 180 days after your bankruptcy, and that money or property is not exempt, it may have to be paid to your creditors.
Q: Why file for bankruptcy?
A bankruptcy filing can have different benefits for different people and there are many reasons people decide to file for bankruptcy in Los Angeles. Perhaps they want to have certain debts discharged completely or need some extra time to pay back the debts they owe. Or they may want a break from incessant creditor calls or the opportunity to eliminate certain judgment liens if the liens are impairing an exemption. The best way to find out if a bankruptcy filing is the right move for you is to consult a knowledgeable Los Angeles bankruptcy attorney.
Q: What type of bankruptcy is right for me?
Filing for bankruptcy can be a powerful tool for debtors who are struggling with overwhelming debt they are having difficulty repaying, but it is important to understand the advantages and disadvantages of the various chapters of bankruptcy, so you can choose the chapter that best suits your needs.
- Chapter 7 (liquidation) bankruptcy is a good option for individuals with significant debt who want to have their unsecured debts discharged and start fresh with a clean financial slate. When you file for Chapter 7 bankruptcy, your nonexempt assets are liquidated to pay back your creditors.
- Chapter 13 (reorganization) bankruptcy is a good option for individuals with regular income who can afford to repay all or a portion of their debts over the course of three to five years. In order to qualify for a Chapter 13 bankruptcy filing in Los Angeles, you must have less than $419,275 in unsecured debts and less than $1,257,850 in secured debts.
- Chapter 11 (reorganization) bankruptcy is similar to Chapter 13 bankruptcy, but with one important difference – there is no limit to how much money the debtor can owe. Chapter 11 bankruptcy was originally intended for large corporations, but individuals who don’t qualify for Chapter 13 bankruptcy because they exceed the strict debt limits can now seek bankruptcy protection under Chapter 11 as well.
Q: What is a bankruptcy trustee?
A bankruptcy trustee is appointed in every Chapter 7 and Chapter 13 bankruptcy case filed in Los Angeles. In a Chapter 7 case, the trustee is responsible for taking control of the debtor’s assets, bringing the assets into the estate, and selling or distributing the assets to pay back the debtor’s creditors. In a Chapter 13 case, the trustee is responsible for collecting payments, letting the court know whether the debtor is meeting his or her obligations, and monitoring activity in the bankruptcy case. The trustee can also ask the court to increase the debtor’s payments to creditors if the debtor’s income increases, or ask the court to dismiss the case if the debtor has failed to meet his or her obligations.
Q: What are bankruptcy exemptions?
Bankruptcy exemptions are assets you can protect from creditors when you file for bankruptcy. In California, there are two sets of exemption laws that allow debtors to exempt certain assets and property in bankruptcy, including their home, vehicle, food, appliances, furnishings and clothing, among others.
Q: What are priority tax debts?
If you file for Chapter 13 bankruptcy, your repayment plan must take into consideration any priority debts, including federal and state income tax debts, allowing for payment in full over the course of the plan. Priority tax debts include any debts that are non-dischargeable, any taxes for which a lien has been filed, and any non-punitive penalties assessed within the previous three years.
Q: How can bankruptcy help me?
If you are struggling with overwhelming debt and you owe more than you can pay, filing for bankruptcy and having your debts discharged or restructured into a more manageable repayment plan may be a viable option for you. Many debtors in Los Angeles and throughout Southern California have filed for bankruptcy in order to take control of their financial situation and work their way towards a debt-free future.
Q: What happens if I have co-signers?
If you have a co-signer on your auto loan, mortgage loan or any other loan and you file for bankruptcy, the co-signer may be responsible for paying the debt.
Q: What will bankruptcy do to my credit?
A bankruptcy filing will remain on your credit report for ten years, but that doesn’t necessarily mean you won’t be able to obtain any credit during those ten years. In fact, filing for bankruptcy can be the first step towards rebuilding your credit.
Q: How will bankruptcy affect my divorce settlement?
Alimony, child support and other domestic support obligations are protected from discharge in bankruptcy, which means filing for bankruptcy will not release you from your duty to make these payments. There are certain exceptions to this rule, which is why it is always a good idea to hire an experienced bankruptcy attorney when considering filing for bankruptcy in Los Angeles.
Q: Will bankruptcy affect my utility services?
The electric company and other public utilities are not allowed to refuse or cut off service just because you have filed for bankruptcy. However, you may be required to pay a deposit for future service, and you will have to pay any utility bills that arise after your bankruptcy case is filed.
Q: Can filing for bankruptcy help me get my driver’s license back?
If you only lost your California driver’s license because of your inability to pay court-ordered damages resulting from an accident, you can get your license back by filing for bankruptcy.
Q: Does my spouse have to file for bankruptcy?
If you are married, you have the option of filing for bankruptcy jointly or by yourself. If you file by yourself, your spouse will still be liable for any debts you held jointly, such as debt from joint credit cards or a mortgage loan, and the fact that you discharged your debt may also show up on your spouse’s credit report. Unfortunately, if you file for bankruptcy individually, the automatic stay that protects you from collection actions by creditors will not extend to your spouse, which means creditors can continue contacting him or her about your joint debts. If most of your debts are shared, filing for bankruptcy jointly may be the best solution for you as a couple. Keep in mind that if your spouse decides to file for bankruptcy as well, you can double your bankruptcy exemptions.
Q: How can I get a bankruptcy case removed from my credit report?
The bankruptcy court has no control over the actions of credit reporting agencies. If you want more information about your credit report or to discuss how long a bankruptcy case will remain on your report, you will have to contact the credit reporting agencies directly.
Q: What about the stigma associated with bankruptcy?
There is a social stigma commonly associated with bankruptcy that keeps many people from even considering filing for bankruptcy, even if they are drowning in debt they can’t afford to pay back. This is despite the fact that, in many cases, filing for bankruptcy is the better alternative to enduring harassing creditor calls, wage garnishment and other disruptive and intrusive collection actions by creditors.
Q: Should I feel ashamed about filing for bankruptcy?
One of the biggest misconceptions people have about bankruptcy is that everyone will know about the bankruptcy filing and that will cause them to feel guilty or ashamed. In reality, unless you are a high-profile individual or you represent a major corporation, it is likely that only your creditors and anyone you tell will know that you filed for bankruptcy.
Q: Can I file for bankruptcy more than once?
There is no limit to how many times you can file for bankruptcy in Los Angeles. However, there are strict time limits to consider when it comes to having your debts discharged in bankruptcy.
- Chapter 7 to Chapter 7 – If you are granted a bankruptcy discharge under Chapter 7, you can’t pursue another discharge in a Chapter 7 bankruptcy case for eight years after the previous case was filed.
- Chapter 7 to Chapter 13 – If your first discharge was in a Chapter 7 bankruptcy case, you can’t pursue another discharge of your debts under Chapter 13 for four years after the date of the first filing.
- Chapter 13 to Chapter 13 – If your debts are discharged in a Chapter 13 bankruptcy case, you will have to wait two years from the date the first case was filed before pursuing another discharge in a Chapter 13 case.
- Chapter 13 to Chapter 7 – If your first discharge was in a Chapter 13 bankruptcy case, you must wait six years from the date the first case was filed before pursuing another discharge in a Chapter 7 bankruptcy case.
Q: Do I really need an attorney to file for bankruptcy?
Whether you are considering filing for bankruptcy under Chapter 7, Chapter 11 or Chapter 13, it is always a good idea to consult an experienced bankruptcy attorney to ensure that you are making the right choice based on your specific financial situation. At Resnik Hayes Moradi LLP, our bankruptcy attorneys have represented thousands of clients in a variety of bankruptcy cases, and we can help ensure that you understand all of the options available to you before making any final decisions about filing for bankruptcy.
Q: Can I represent myself in my bankruptcy case?
Filing for bankruptcy has long-term legal and financial consequences, which is why we always recommend retaining an experienced bankruptcy attorney when considering bankruptcy as a means of getting out from under overwhelming debt. That being said, it is your right to represent yourself in your bankruptcy case, if you so choose, which is called filing pro se.
Q: Does it matter what kind of attorney I hire?
You wouldn’t ask your plumber to fix an electrical problem in your home, nor should you put your bankruptcy case in the hands of an attorney who specializes in any area of the law other than bankruptcy. A lack of experience with bankruptcy law is not a valid excuse for an attorney being ill-prepared to defend your case and you don’t want to end up having your case dismissed because of mistakes made by your attorney.
Q: What if my bankruptcy case is dismissed?
If you fail to comply with the rules set forth by the bankruptcy code and the procedures required by the bankruptcy court, a trustee or creditor can file a motion to convert or dismiss your bankruptcy case. For instance, if you file for bankruptcy as a business debtor under Chapter 11, and you fail to provide the appropriate profit and loss statements documenting your business’ income and expenses, your case could be converted to a Chapter 7 bankruptcy and your business could end up being liquidated to pay back your creditors. If your bankruptcy case is dismissed, you will have to wait 180 days before filing another bankruptcy case, or you will be required to file a motion for permission from the court to file another bankruptcy case.