Frequently Asked Questions About Bankruptcy
When you file for relief under the bankruptcy code, you are given exemptions to protect a certain number of assets and leave them unreachable to the bankruptcy trustee and creditors. Fortunately for California residents, the California exemption is extremely friendly. Most debtors that file for bankruptcy in California are able to protect all of their assets and thus do not “lose” anything.
Once you file for bankruptcy relief and receive your discharge, you can immediately start rebuilding your credit. Bankruptcy remains on your credit for up to 10 years. As long as you rebuild your credit, you will have no problem getting credit much quicker than that. You will be able to apply for credit cards almost immediately after receiving your discharge, apply for auto loans immediately after receiving your discharge, and only have to wait 3-5 years to apply for a home loan.
Your spouse is not required to file bankruptcy with you if he/she chooses not to. This is completely up to you and your spouse whether you file by yourself or whether you file as a couple. If you end up filing on your own, the bankruptcy court will still need to take into consideration your spouse’s income and community property assets though. Also, you will likely need to have the non-filing spouse sign a spousal waiver if you own real property.
Recent tax debt is not dischargeable in a bankruptcy. Under certain circumstances, you can discharge old tax debt in a bankruptcy. In addition, a Chapter 13 bankruptcy could be a very beneficial tool for someone who has a high tax obligation because it provides a protected environment to repay the taxes in a 5-year period.
You are required to list everyone that you owe money to, whether you intend to pay them back or not. Your credit cards will become null and void after you file for bankruptcy. You cannot keep credit cards.
FACT #6: You cannot run up your credit cards before you file for bankruptcy. You cannot take out large cash loans right before you file for bankruptcy.
When you really look at your debts, its much cheaper to pay a Bankruptcy Attorney a flat one-time fee VS paying all your creditors over time. Additionally, if you don’t file, you face the risk of being sued and having to defend your case in a civil court, your wages being garnished at up to 25%, your bank accounts levied, and liens placed on your assets. Also, you will at some point have to deal with this debt and interests and penalties will have accrued. By spending a one-time payment NOW, you will avoid all these hassles. Your debt will be discharged in a few short months and you can start fresh with your finances.
There is not a minimum amount of debt that is needed to file for bankruptcy relief. Each case is different and speaking with a Bankruptcy Attorney would benefit you greatly.
By doing this, the Trustee has the ability to recover that money from your family member and distribute it to the other creditors in your case. This rule was implemented to prohibit debtors from treating one creditor better than the next. In the Court’s eyes, if you didn’t pay Visa the $10,000.00 you owe them, you shouldn’t be paying your cousin the $5,000.00 you owe him/her.
FACT #10: You cannot make any transfers of property prior to filing for bankruptcy. You cannot transfer Title of your car/home to a friend or family member before you file for bankruptcy.
This is an absolute NO-NO. It would be considered a fraudulent transfer and the Trustee can ask for that property. It will make your bankruptcy very difficult and your discharge may not go through. Do not take advice from your non-Attorney friends or family.
The general rule in the mortgage industry is you have to wait 3 – 5 years to apply. In the years between your bankruptcy discharge and home ownership, you can truly save for a small down payment or closing costs. Without all that debt, you should have some disposable income.
Income makes a big difference in which Chapter you have to file. But, your income and household size are reviewed and we try our best to fit you into a Chapter 7 bankruptcy. For example, a household size of 4 in California can make about 123,000 to qualify for a Chapter 7 bankruptcy.
The Bankruptcy Code allows for all your creditors to get an opportunity to question you at the hearing. However, 99.9% of the time, they never do. Most creditors are larger banks or lending institutions. They know that most debtors do not have any assets that are unprotected in a bankruptcy. Your Meeting of Creditors or Meeting with the Trustee is usually 5-10 minutes long.
FACT #14: Equity up to $600,000 is now protected in a bankruptcy. You can file bankruptcy even as a homeowner.
In California, you can exempt or protect a bit more than $678,391 of equity in your home. This is a recent change. In the past, you could only protect between 75-100K in a bankruptcy. Its rare for a Trustee to force you to sell your home, if the entire amount is protected. Its important to consult a Bankruptcy Attorney beforehand, so they can tell you exactly what is protected when you file. When we use the homestead exemption, that lowers the amount of what we can protect of your other assets.
Many people believe they either lose their car in bankruptcy or can stop paying and still keep the car. Your car is considered a secured debt, which means, you have to keep making payments if you want to keep your car post-bankruptcy. If you want to surrender your car, then that amount left on your car can be discharged in the bankruptcy along with all your other debt.
Debt Consolidation companies take a monthly payment from you and claim they are paying your creditors. That is not what actually happens every time. These companies hold on to your monthly payments and slowly settle out the debts for you over a period of years, possibly. But, guess what---you can be sued by your creditors during that time for non payment, even though you have been diligently paying the debt consolidation company. Bankruptcy is a one-time flat fee and it can discharge all your unsecured debts permanently. You would end up paying the debt consolidation company THOUSANDS more over several years and you wouldn’t even get any relief. If you can qualify for Chapter 7 bankruptcy, you should definitely choose that option vs trying to pay back all this debt. Its almost impossible to get ahead financially if you are paying back old debt for a substantial amount of time.
If you are being sued, generally you have 30 days to answer the lawsuit. If you ignore the lawsuit, it will turn into a default judgement. You will then have a money judgement on your record. This can result in them levying your bank accounts, garnishing your wages, and placing liens on your real property. Do not just hide from a process server or ignore a lawsuit. If you are served, contact a Bankruptcy Attorney and determine what the next steps are. If you qualify for Bankruptcy, the mere filing of the Bankruptcy will dismiss the lawsuit permanently.
If you are served with a Garnishment Order by your Employer, you have less than 10 days to figure out what to do. They will begin garnishing 25% of your pay. Most employers begin garnishing by the next pay period, which isn’t much time. You most likely will not get a waiver of exemption either. Bankruptcy may be your only option to stop this wage garnishment forever. Our office drafts and files petitions with the Federal Court quickly. Once we give you a case number, you can take that to your Employer and they are legally mandated to STOP your wage garnishment from occurring. Its called the Automatic Stay and its relief all debtors get once they file for bankruptcy.
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