While the lawyers of Flader & Hirji, LLP make these answers to Frequently Asked Questions (FAQs) available to you, please note that laws change frequently, which could change the answers to these FAQs. There is no substitute to getting a consultation with an attorney to discuss your specific matter. Take advantage of a Free Initial Consultation that the lawyers at Flader & Hirji, LLP (“F&H”) will provide to you by calling us toll free at (888) 412-9799 today. You will not be charged anything for the initial personal consultation to discuss your matter.
Q1. What is Bankruptcy?.
F&H A. 1. Bankruptcy is a legal proceeding that allows a person who is unable to pay his or her debts to obtain a fresh financial start by legally eliminating the person’s obligation to repay the debt. Federal law provides the right to file bankruptcy, and all cases are handled by the United States Bankruptcy Court. Once you file for bankruptcy, all of your creditors must immediately stop collection actions against you until those debts are sorted out by the bankruptcy court.
Q2. What does a Discharge in Bankruptcy mean?.
F&H A. 2. A bankruptcy discharge releases you from personal liability for certain specified types of debts. In other words, you are no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting your creditors from taking any form of collection action on discharged debts, including legal action and communications with you, such as telephone calls, letters, and personal contacts.
Please note, however, that while you are not personally liable for discharged debts, a valid lien that was placed on your property before you filed your bankruptcy petition (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will generally remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover your property secured by the lien. It is very important for you to notify your attorney of any liens that were placed on any of your property before your bankruptcy petition was filed so that your attorney can attempt to have that lien eliminated by the Bankruptcy Court.
Q3. How do you receive a Bankruptcy Discharge?.
F&H A. 3. Unless your creditors file objections against your discharge with the Bankruptcy Court, you will usually automatically receive a discharge.
Q4. Do you have the right to a Bankruptcy Discharge or can creditors object to the discharge?.
F&H A. 4. In Chapter 7 (Liquidation) cases, you do not have an absolute right to a discharge. An objection to your discharge may be filed by a creditor, by the trustee in the case, or by the U.S. trustee. Your creditors receive a notice shortly after your case is filed that provides them with certain information about your case, including the deadline for them to file an objection to your bankruptcy discharge.
In Chapter 13 (Reorganization) cases, you are usually entitled to a discharge upon completion of all payments under the plan that is approved by the Bankruptcy Court.
Q5. Under what circumstances may the court deny you a discharge in a Chapter 7 case?.
F&H A. 5. The court may deny you a Chapter 7 discharge for a number of reasons, including but not limited to: your failure to provide requested tax documents; your failure to complete a course on financial management; transfer or concealment by you of property with intent to hinder, delay, or defraud your creditors; a finding that you destroyed or concealed books or records, committed perjury or other fraudulent acts; your failure to account for the loss of assets; or a violation by you of a court order.
Q6. Can you receive a second discharge by filing for another Chapter 7 case after receiving a discharge in your first case?.
F&H A. 6. The court WILL DENY you a discharge in a later Chapter 7 case UNLESS the discharge you received under Chapter 7 or Chapter 11 was for a cased you filed MORE than 8 years BEFORE filing the new bankruptcy petition. The court will also deny you a Chapter 7 discharge if you previously received a discharge in a Chapter 12 or Chapter 13 case filed within 6 years before the filing of the second case, unless (1) you paid all “allowed unsecured” claims in the earlier case in full, or (2) you made payments under the plan in the earlier case totaling at least 70 percent of the allowed unsecured claims and your plan was proposed in good faith and the payments represented your best efforts.
Q7. How much are the filing fees you need to pay for bankruptcy?.
F& H A. 7. The filing fee for a Chapter 7 Bankruptcy is $335 and $310 for a Chapter 13 bankruptcy. The fees are the same regardless of whether you are single or married. In some cases, the filing fee may be waived if you cannot afford to pay it. These fees do not include any fees you will pay your attorney.
Q8. Is there a course I must take before I file for bankruptcy?.
F&H A. 8. You must take a credit counseling course from an approved agency for bankruptcy counseling within 180 days of filing your bankruptcy petition. See also Question 16 below.
Q9. Will my creditors stop harassing me?.
F& H A. 9. Yes. By law, all your creditors must stop their collection actions against you once your bankruptcy petition is filed. Creditors may not file or continue any lawsuits against you, may not issue wage garnishments on your paychecks, or even make telephone calls to you demanding payments.
Q10. Does my spouse have to file bankruptcy with me?.
F& H A. 10. No. You can file a bankruptcy petition without your spouse although you will have to disclose your spouse’s income and assets in the petition. Your spouse’s credit will not show that he or she filed a bankruptcy if they do not file with you. However, please note that in California, either spouse can contract for a debt without the other spouse’s signature on anything, and still obligate both spouses as it is a community property state. There are a few exceptions to that rule, including the purchase or sale of real estate; those few exceptions do require both spouse’s signatures on contracts. But the day to day debts, such as credit cards, do NOT require a signature from both spouses.
Q11. Who will know if I file for bankruptcy?.
F &H A. 11. Bankruptcy filings are public records. However, only your creditors listed on your petition, those who check public records, and those who run your credit report will normally find out that you filed for bankruptcy. The Credit Bureaus will record your bankruptcy and it will remain on your credit record for 10 years.
Q12. Can I keep my credit cards?.
F&H A. 12. It is up to your credit card company whether they will or will not allow you to keep the credit card they issued to you. If you are trying to discharge the debt you owe on a credit card, your credit card company will normally cancel the card. If, however, you reaffirm the debt, in which case you are agreeing to pay off that balance according to the terms of your agreement with the company, they may allow you to continue to hold and use the credit card. However, even if you have a zero balance the credit card company might decide to cancel the credit card.
Q13. Will I be fired if I file for bankruptcy?.
F&H A. 13. No. Federal law prohibits any employer from discriminating against you because you filed bankruptcy.
Q14. How much of my assets can I keep if I file for bankruptcy?.
F &H A. 14. Under California law, you are allowed to keep equity in certain assets, in order to provide you the basic items to aid in your fresh financial start. The amount you are allowed to keep may vary according to your age and other factors. Please call us toll free at (888) 412-9799 and schedule an appointment with the attorneys at Flader & Hirji, LLP for your FREE consultation so that we can discuss this issue with you in detail based on your personal circumstances.
Q15. What debts of mine will be eliminated by my bankruptcy filing?.
F&H A. 15. Most of your unsecured debts will be erased by you filing for bankruptcy. However, the following are some of the types of debt which are generally not eliminated in bankruptcy:
– child support;
– most fines and penalties owed to government agencies;
– most income tax debt will not be discharged;
– debts for personal injury or death caused by drunk driving;
– most student loans;
– mortgages and other liens on your real property which are not paid in the bankruptcy case (You will be released of your personal obligation on these debts but the liens will remain on your real property);
– debts you fail to list on your bankruptcy schedules
In a Chapter 7 bankruptcy, your federal income taxes owed will be eliminated only if all of these five conditions are met:
1. The IRS has not recorded a tax lien against your property.
2. You didn’t file a fraudulent return or try to evade paying taxes.
3. The liability is for a tax return (not a Substitute or Return) actually filed at least two years before you file for bankruptcy.
4. The tax return was due at least three years ago.
5. The taxes were assessed (you received a notice of assessment of federal taxes from the IRS) at least 240 days (eight months) before you file for bankruptcy.
Q16. What else must I do to complete my case?.
F&H A. 16. Prior to your discharge and the close of your bankruptcy case, you must complete an approved financial management course.
Q17. What is a Chapter 7 Bankruptcy?.
F&H A. 17. Chapter 7 bankruptcy, which is sometimes referred to as a “straight bankruptcy,” is a liquidation proceeding in which you turn over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to your creditors. You receive a discharge of all dischargeable debts. In most cases, you have no assets that you would lose, so a Chapter 7 bankruptcy will give you a relatively quick “fresh start”. Property which is not exempt is sold, with the proceeds of the sale used to pay your creditors.
Most chapter 7 cases are “no-asset” cases, which means that you don’t have non-exempt property for the trustee to sell. When you file your bankruptcy petition, you declare whether your case is “asset” or “no-asset.” The burden is on the trustee to change the designation.
Q18. What is a Chapter 13 Bankruptcy?.
F&H A. 18.Chapter 13 Bankruptcy is also known as a “reorganization” bankruptcy. Chapter 13 bankruptcy is where you propose a plan to pay off a certain portion of your debt over a period of three to five years. The Bankruptcy Court must approve your proposed plan. This type of bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also only an option for individuals who have predictable income and whose income is sufficient to pay their reasonable expenses with some amount left over to pay off their debts.
Q19. What is a Chapter 11 Bankruptcy?.
F&H A. 19. Chapter 11 bankruptcy is a form of bankruptcy reorganization available to individuals, corporations and partnerships. It has no limits on the amount of debt the debtor may have. It is the usual choice for large businesses seeking to restructure their debt.
The debtor usually remains in possession of its assets, and operates the business under the supervision of the court and for the benefit of creditors. The debtor in possession is a fiduciary for the creditors. If the debtor’s management is ineffective or less than honest, a trustee may be appointed.
A creditors committee is usually appointed by the U.S.Trustee from among the 20 largest unsecured creditors who are not insiders. The committee represents all of the creditors in providing oversight for the debtor’s operations and a body with whom the debtor can negotiate an acceptable plan of reorganization.
A Chapter 11 plan is confirmed only upon the affirmative votes of the creditors, who are divided by the plan into classes based on the characteristics of their claims, and whose votes are a function of the amount of their claim against the debtor.
If the debtor can’t get the votes to confirm a plan, the debtor can attempt to “cram down” a plan on creditors and get the plan confirmed despite creditor opposition, by meeting certain statutory tests.
Q20. Can I strip down liens on my property in a Chapter 7 Bankruptcy?.
F&H A. 20. No. You cannot strip down liens in a Chapter 7 case
Q21. Can I strip down liens on my property in a Chapter 13 Bankruptcy?.
F&H A. 21. In a Chapter 13 Bankruptcy case, you can strip down the liens of creditors for the portion that is unsecured. You used to be able to strip down junior mortgage on your personal home as long as those mortgage lenders were completely unsecured, meaning the present value of your home is equal to or less than the amount owed on your senior mortgages. However, recent case law has ruled against your ability to strip aware junior mortgages on real property. You may still strip liens on personal property. A separate motion must be filed in order to strip the liens on your property. Call us toll free at (888) 412-9799 and schedule a FREE consultation with the lawyers at Flader& Hirji LLP so that they can discuss the details of your matter with you.
Q22. What are Bankruptcy Exemptions?.
F&H A. 22. Exemptions are protections for the value of certain assets which you own or have an interest in. Therefore, if an asset is “exempt,” your creditors may not take that asset, unless its value exceeds the amount of the exemption.
In California, the Federal exemptions are not available to persons filing for bankruptcy. Instead, the state has adopted two sets of state exemptions. The debtor must choose one set of exemptions. He or she may not use both.
Under the first set of exemptions, which is codified in Section 704 of the California Code of Civil Procedure, and is sometimes referred to as “System 1,” a large homestead exemption is provided for. Therefore, this set of exemptions is normally preferred by people who own their own homes. In general, an exemption is provided for your residence up to $75,000 for a single person and up to $100,000 for a family if no other family member has a homestead. Larger exemptions are available if the debtor is over 65 or physically or mentally disabled.
Additional exemptions under System 1 apply to various types of insurance policies, health and disability benefits, various pensions, unemployment benefits, various personal property (including motor vehicles, appliances, furnishings, clothing and food), public benefits and tools of trade. Call us toll free at (888) 412-9799 and schedule your Free Consultation with the lawyers of Flader & Hirji, LLP today for more specific information.
The second set exemptions are codified in Section 703 of the California Code of Civil Procedure, and are sometimes referred to as “System 2.” Under this system, a smaller homestead exemption in the amount of $26,800 is available. However, any unused portion of this amount may be applied to any property. As with System 1, various exemptions apply to certain types of pensions, personal property, public benefits and tools of trade. Also, a “wildcard” exemption is available, which may be used to exempt any property of the debtor. The wildcard exemption in California is $1,425 plus any unused portion of the homestead (or burial) exemption, for a total maximum wildcard exemption of $28,225. Call us toll free at (888) 412-9799 and schedule your Free Consultation with the lawyers of Flader & Hirji, LLP today for more specific information.