Frequently Asked Questions (FAQ)
WHAT CAN YOU KEEP IN BANKRUPTCY?
Most people do not lose any of their belongings in bankruptcy. The end goal of bankruptcy is to regain your financial balance. Therefore, your basic necessities are protected in bankruptcy, so as to help you re-establish yourself.The equity in your home and most of your personal belongings will, in all likelihood, be protected in bankruptcy. The exemptions (the bankruptcy law which protects your assets) are very complicated and you should consult an attorney to maximize the protection that you are afforded under Bankruptcy Law.CAN TAXES BE DISCHARGED?
Contrary to common belief, income taxes can be discharged in bankruptcy provided that:
- The taxes are at least three years old.
- The tax returns must have been actually filed at least two years ago.
- Any assessment was more than 240 days ago.
- The debtor did not engage in any type of fraud or tax evasion.
CAN STUDENT LOANS BE DISCHARGED?
Student loans are not dischargeable in bankruptcy, except in cases where it would create an extreme hardship on the debtor to pay back the student loan.In order to qualify for a hardship discharge, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future. The debtor must apply before the discharge of the debtor's other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.CAN CHILD AND SPOUSAL SUPPORT BE DISCHARGED?
No.A Chapter 7 filing should have no effect on such collections.Although filing bankruptcy stops, or stays, all efforts to collect debts, the Bankruptcy Code excludes actions to collect child support or spousal maintenance from the stay unless the creditor attempts to collect from the property of the estate. In a Chapter 7 proceeding, property of the estate includes all possessions, money, and interests the debtor owns at the time he or she files. Money earned after the bankruptcy is filed, however, is not property of the estate. Since most child and spousal support is paid out of the debtor's current income, the bankruptcy should have little impact.A debtor under Chapter 13 must pay all domestic support obligations that fall due after the petition is filed. Failure to do so could result in dismissal of the case.Neither a Chapter 7 nor a Chapter 13 discharge affects future child or spousal support obligations. In other words, even at the conclusion of the bankruptcy proceeding, these on-going obligations remain.CAN PROPERTY SETTLEMENT AGREEMENTS BE DISCHARGED?
There is a possibility that a property settlement agreement can be discharged in bankruptcy. The law in this area is somewhat unsettled. WHO SHOULD CONSIDER BANKRUPTCY?
Anyone that is overwhelmed with financial problems should consider filing bankruptcy. Financial problems greatly affect your entire life causing some, if not all, of the following problems:- Physical reactions (ulcers, high blood pressure, insomnia).
- Problems within a marriage and family due to the stress of the financial situation.
- Negative affect on your job performance.
- Depression and a feeling of being overwhelmed.
Bankruptcy should be considered a prescription for those who are financially ill. Creditors can make you feel guilty and ashamed, but creditors are NOT on your side and have self serving motives. They forget that it is a long-standing tradition in the United States, most other countries, and in most religions to forgive debts and let a person get a fresh start.
WILL MY CREDIT BE RUINED?
Your credit is not hurt by the bankruptcy itself; what hurts your credit is that the debts are not paid. The way to rebuild your credit is to buy an inexpensive item on time and pay for it; then buy something else and pay for it, etc. Today there are many programs offered that assist you in re-establishing your credit. An automobile is one of the easiest items to buy after the bankruptcy is over. Check out the automotive section of the newspaper. You can maintain your bank accounts and all of your utilities.Bankruptcy will stay on your credit report for up to 10 years, but if you have a decent income, you will find credit. With over a million people a year filing bankruptcy, creditors would run out of customers if they refused to extend credit to everyone who has filed bankruptcy.HOW LONG WILL BANKRUPTCY APPEAR ON MY CREDIT REPORT?
A consumer credit report may include Chapter 7 and Chapter 13 bankruptcy information for ten years from the time the case is filed. One major consumer credit reporting agency is said to remove Chapter 13 information after only seven years, but it is not legally required to do so.Because both the Fair Credit Reporting Act, which controls what a credit-reporting agency may include in a consumer's credit report, and the Bankruptcy Code are federal law, the same rules apply in all states. There may be some differences, however, in relation to the more-than-seven-year information, since most of the relevant time periods or statutes of limitations are found in the individual states' laws.CAN I FILE BANKRUPTCY AGAIN?
You can file bankruptcy more than once. To file another Chapter 7 bankruptcy, there must be at least six years time from discharge to discharge. You can file a Chapter 13 bankruptcy at any time, so long as you intend to pay your creditors 100%. If you are going to be paying your creditors less than 100%, then it needs to be at least six years from your last discharge.WHAT DISCLOSRES MUST A COLLECTION AGENCY PROVIDE TO A DEBTOR?
Typically, a collection agency begins its efforts with an introductory letter. This letter usually contains the required legal disclosures, which include:- The amount of the debt,
- The name of the original creditor,
- The period of time in which the debtor may dispute the validity of the debt (thirty days), and
- The obligation of the collection agency to send the debtor verification of the debt if its validity is disputed.
In the original correspondence, the collection agency must also inform the debtor that it is attempting to collect a debt and that any information it gathers from the debtor or other sources will be used for that purpose. If this information is not included in the initial contact letter, the collection agency must provide it within five days.Most lawyers recommend that debtors request verification of the debt because, in that case, a collection agency may not resume collection efforts until the information is confirmed with the original creditor. The collection agency may not, whether by threatening to destroy the debtor's credit rating or by threatening to sue if payment is not received immediately, make a statement in the initial correspondence that overshadows the debtor's right to dispute the debt for thirty days.WHAT ACTIONS MUST A COLLECTION AGENCY AVOID?
Under the Fair Debt Collection Practices Act, a collection agency may not act in the following ways:- Third-party communications: The collection agency cannot contact third parties other than the debtor's attorney or a credit bureau for any reason other than to locate the debtor. Collection agents who contact third parties must state their names, and may only add that they are confirming or correcting information about the debtor. They cannot give the collection agency's name unless asked directly. They cannot state that they are calling about a debt. Collection agents may not contact a third party repeatedly unless they believe an earlier response was wrong or incomplete and that the third party has revised information. Further, collection agents cannot communicate with third parties by postcard or by correspondence that uses words or symbols that betray their collection motive.
- Debtor communications: Collection agents may not contact debtors before 8:00 a.m. or after 9:00 p.m., or at another inconvenient time or place. Collection agents also may not contact a debtor at work if he or she knows that the employer bans receipt of collection calls while on the job.
- Harassment or abuse: Agents cannot threaten or use violence against the debtor or another person. They cannot use obscene or profane language. They cannot publish a debtor's name on a blacklist or other public posting. Agents cannot call repeatedly or contact the debtor without identifying themselves as bill collectors.
- False or misleading statements: Agents may not lie about the debt, their identity, the amount owed, or the consequences for the debtor. They cannot send documents that resemble legal filings or court papers. Agents cannot offer incentives to disclose information.
- Unfair practices: Agents may not engage in unfair or shocking methods to collect, including adding interest or fees to the debt, soliciting post-dated checks by threatening criminal prosecution, calling the debtor collect, or threatening to seize property to which the agency has no right.
ARE THERE ALTERNATIVES TO FILING FOR BANKRUPTCY PROTECTION?
If the debtor's financial problems are only temporary, he or she may want to ask creditors to accept lower payments or that payments are scheduled over a longer period of time. Creditors may be receptive to these ideas if the debtor has been a prompt payer in the past, or if the specter of bankruptcy is raised, since creditors know that once a bankruptcy proceeding is initiated they will probably collect only a portion of what is owed. In addition, creditors may wish to avoid the difficulties of a court proceeding to collect on the debt, which can be time-consuming and expensive.Consumer credit counselors can also help creditors work out a repayment plan. Some of these advisors work for non-profit agencies, so they charge no fees. Many credit-counseling services charge a fee for their guidance, however, and it may not appeal to an already over-stressed debtor to add another debt to the stockpile.If the debtor's financial troubles are long-term or if the creditors will not agree to an alternative payment plan informally, bankruptcy may be the best way for the debtor to get out from under an insurmountable debt load. Bankruptcy can be the right option to enable debtors to make a fresh start.WILL A DEBTOR LOSE THEIR HOME BY FILING BANKRUPTCY?
One of the debtor's major concerns in a consumer bankruptcy is the thought of losing the family home. Although that is possible in some cases, loss of the debtor's home need not always result from a bankruptcy filing.If the debtor in a Chapter 7 liquidation bankruptcy is behind on his or her mortgage payments, the home could be lost. The mortgage lender in such cases usually asks the bankruptcy court to lift the automatic stay so that it can institute foreclosure proceedings, in which case the home will be sold and the proceeds used to pay off the debt. Whether a debtor who is not behind on mortgage payments will lose his or her house depends on how much equity the debtor has in the property and the amount of the state homestead exemption. If the amount of debt owed on the home is less than the home's market value, the debtor could lose the house unless the homestead exemption entitles the debtor to most of the equity. If you have not Homesteaded your real property it is something you should consider. CALIFORNIA CODES CODE OF CIVIL PROCEDURE SECTION 704.730704.730. (a) The amount of the homestead exemption is one of the
following:
(1) Fifty thousand dollars ($50,000) unless the judgment debtor or spouse of the judgment debtor who resides in the homestead is a person described in paragraph (2) or (3).
(2) Seventy-five thousand dollars ($75,000) if the judgment debtor or spouse of the judgment debtor who resides in the homestead is at the time of the attempted sale of the homestead a member of a family unit, and there is at least one member of the family unit who owns no interest in the homestead or whose only interest in the homestead is a community property interest with the judgment debtor.
(3) One hundred fifty thousand dollars ($150,000) if the judgment debtor or spouse of the judgment debtor who resides in the homestead is at the time of the attempted sale of the homestead any one of the following:
(A) A person 65 years of age or older.
(B) A person physically or mentally disabled and as a result of that disability is unable to engage in substantial gainful employment. There is a rebuttable presumption affecting the burden of proof that a person receiving disability insurance benefit payments under Title II or supplemental security income payments under Title XVI of the federal Social Security Act satisfies the requirements of this paragraph as to his or her inability to engage in substantial gainful employment.
(C) A person 55 years of age or older with a gross annual income of not more than fifteen thousand dollars ($15,000) or, if the judgment debtor is married, a gross annual income, including the gross annual income of the judgment debtor's spouse, of not more than twenty thousand dollars ($20,000) and the sale is an involuntary sale.
(b) Notwithstanding any other provision of this section, the combined homestead exemptions of spouses on the same judgment shall not exceed the amount specified in paragraph (2) or (3), whichever is applicable, of subdivision (a), regardless of whether the spouses are jointly obligated on the judgment and regardless of whether the homestead consists of community or separate property or both.
Notwithstanding any other provision of this article, if both spouses are entitled to a homestead exemption, the exemption of proceeds of the homestead shall be apportioned between the spouses on the basis of their proportionate interests in the homestead.
In a Chapter 13 proceeding, however, even if the debtor is behind on mortgage payments, if the wage-earner plan includes paying back any missed mortgage payments and current payments are paid when due as well, the debtor should not lose his or her home. If the debtor is current on his or her house payments, the home will not be lost if the debtor continues to make payments when due.If the debtor is a renter rather than a homeowner, and if the debtor is current in his or her rent payments, it is unlikely that the lessor would even become aware of the bankruptcy proceeding. If the debtor is behind, however, he or she could be evicted. Even after the automatic stay is triggered by the bankruptcy filing, the landlord is likely to ask the court to lift the stay on its behalf, and the court is likely to grant that request.DOES BANKRUPTCY DISCHARGE ELMINATE ALL DEBTS?
The rules on which debts are discharged, or eliminated, are different depending on which type of bankruptcy is filed. A Chapter 13 discharge affects only those debts provided for by the plan. Additional exceptions to a Chapter 13 discharge include claims for spousal and child support; educational loans; drunk driving liabilities; criminal fines and restitution obligations; and certain long-term obligations, such as home mortgages, that extend beyond the term of the plan.In a Chapter 7 proceeding, the following debts are not discharged:
Debts or creditors not listed on the schedules filed at the outset of the case;
- Most student loans, unless repayment would cause the debtor and his or her dependents undue hardship;
- Recent federal, state, and local taxes;
- Child support and spousal maintenance (alimony);
- Government-imposed restitution, fines, or penalties
- Court fees;
- Debts resulting from driving while intoxicated; and
- Debts not dischargeable in a previous bankruptcy because of the debtor's fraud.
In addition, the following debts are not discharged if the creditor objects during the case and proves that the debt fits one of these categories:- Debts from fraud, including certain debts for luxury goods or services incurred within sixty days before filing and certain cash advances taken within sixty days after filing;
- Debts from willful and malicious acts;
- Debts from embezzlement, larceny, or breach of fiduciary duty; and
- Debts from a divorce settlement agreement or court decree, if the debtor has the ability to pay and the detriment to the recipient would be greater than the benefit to the debtor.
WHAT HAPPENS IF MY SALARY INCREASES AFTER FILING A CHAPTER 13 WAGE EARNER PLAN?
The Bankruptcy Code requires that the debtor contribute his or her projected disposable income toward the plan payments for the duration of the plan. Although the code imposes this requirement only when the trustee or a creditor demands it, in reality the trustee always requires it, at least at the beginning of the plan. Whether changes in salary will change the payment plan depends on a complete consideration of all the circumstances.If the debtor's income changes after the case has been filed but before the court has confirmed the plan, making it binding on the creditors, the trustee will closely scrutinize the debtor's disposable income to make sure that the payments and the income are consistent and will incorporate any necessary changes into the plan. If the debtor's income changes during the duration of the repayment plan, changes in income may not necessitate any changes in payments. However, the trustee may ask that payments be adjusted if the debtor's income increases significantly. The trustee does not closely monitor the debtor's income, and it may actually be outside the scope of a trustee's duties to do so.The trustee will consider not only the salary increase, but also whether there has been a corresponding increase in disposable income, on which the payments are based. Disposable income is the amount of the debtor's salary that is left after deducting all reasonable living expenses. If the debtor's salary increases but so do his or her expenses, there may be no increase in disposable income and therefore no change in the payment plan. If there is a significant increase in disposable income, the trustee may ask for an increase in payments. In cases in which the plan extends over more than thirty-six months, the increased payments may actually reduce the length of the plan's term, so that the debtor has paid off the debts and receives a discharge sooner.THE BANKRUPTCY CODE USES SUCH CONFUSING TERMINOLOGY. WHAT IS MEANT BY SUCH TERMS AS "PREFERENCE" AND "FRAUDULENT CONVEYANCE"?
Preferences and fraudulent conveyances are two ways in which a debtor facing the prospect of bankruptcy may attempt to show favoritism to a particular creditor or close family member or associate, or even set aside some property for himself or herself to avoid losing it to the bankruptcy estate.A preference occurs when a debtor treats one creditor more favorably than a debtor treats the others. If a debtor has only $1,000, for instance, and owes that same amount to both Citi Bank and American Express, but the debtor pays all $1,000 to Citi Bank, that bank has received a preference. Bankruptcy law disfavors preferences if they are made for the benefit of a particular creditor and for a debt owed prior to filing bankruptcy, if the debtor is insolvent at the time of the payment, and if payment is made within ninety days before filing (or one year, if made to an insider like a family member or an officer of a corporate debtor). Creditors receiving preferences may be required to return the amount paid to the debtor's estate, so that it can be added to all the other assets and appropriately divided among all creditors.Fraudulent conveyances are another vehicle by which debtors may attempt to defraud creditors. The Uniform Fraudulent Transfer Act (UFTA) was enacted to remove any temptation the debtor may have to hide property before declaring bankruptcy, such as by giving it to a relative. Under the Act, any transfer of the debtor's assets within ninety days before filing bankruptcy (or two years if the transfer is to a family member, insider, or business associate) is carefully reviewed by the bankruptcy court. If the court concludes that the debtor was attempting to defraud creditors by selling property at a below-market price, for instance, the court can order that the property be turned over to the trustee. Anything sold for fair market value before the bankruptcy filing cannot, however, be recovered by the court under the UFTA.HOW DO I DETERMINE WHETHER A DEBT IS SECURED?
The best and perhaps the easiest way to find out whether a debt is a secured debt is to review the documents signed at the time the debt was incurred. If the debt is secured, the documents will say so and will describe the creditor's security interest, which is usually in the property that is the subject of the financing.Sometimes, however, the type of debt itself will suggest whether it is secured. The following types of debts are often secured debts, which means that if the debtor does not make payments on the debt when due, the creditor can take back the property that secures the debt, sell it, and apply the proceeds to pay off the debt. (If the sale price is not enough to cover the full amount owed, the debtor may still be liable for the remainder.)Home mortgages. Companies financing home purchases almost always require a mortgage on the house. If the borrower defaults on the mortgage payments, the lender can force a foreclosure, in which case the house is sold and the proceeds are used to pay of the debt.Motor-vehicle loans. When a person purchases a car on credit, the lender puts a lien on the car, which allows it to repossess the car if the borrower defaults (i.e., fails to make payments on time).Store purchases. Although many consumers are unaware of this, when they charge something that they purchase at the local department store, the store may retain a security interest in the item purchased based on the agreement that the consumer signed when he or she first opened the account. As a result, if the purchaser fails to pay according to the credit-card agreement, the store can take back the merchandise.Finance company loans. When a borrower obtains a loan from a finance company and is asked to list things that he or she owns, it is possible that the finance company will obtain a security interest in the items listed.SHOULD I LIST MY MONTHLY OBLIGATIONS, SUCH AS MY UTILITY BILLS, IN MY BANKRUPTCY CASE IF I AM CURRENT ON SUCH PAYMENTS?
Generally no. If the debtor is current on his or her payment of certain monthly obligations such as utility bills, there is no point in listing the utility company as a creditor. In fact, by listing it as a creditor, it might prompt the utility company to demand a deposit for future services.WHAT IS A "AUTOMATIC STAY"?
The filing of a bankruptcy petition operates as a restraining order against most pending or contemplated proceedings or actions by creditors or interested parties, including taxing authorities. Exceptions include actions in a marital dissolution proceeding to establish, modify or enforce child or spousal support, and criminal proceedings against the debtor by the state or federal government. If the debtor receives a summons or notice of action taken by a party in interest, notify Colton Legal Clinic so that a notice of the pendency of the bankruptcy proceeding can be forwarded to the opposing party. Note that some non-bankruptcy courts, despite the clarity of the United States Bankruptcy Code, are reluctant to recognize the existence of the automatic stay. It is therefore imperative that debtor contact Colton Legal Clinic's immediately upon receipt of a summons or a notice of a non-bankruptcy action.
Additionally, if the debtor receives any threats or harassment from pre-petition creditors, he or she should calmly inform the creditor of the existence of the bankruptcy proceeding, and be prepared to provide the creditor with the bankruptcy case number, the date the case was filed, the chapter under which it was filed, and the district in which it was filed. If the creditor persists in its threats or harassment, or merely has questions about the bankruptcy which the debtor is unable to completely answer, the debtor should provide the creditor with Colton Legal Clinic address and telephone number and instruct it to call Colton Legal Clinic for further information. The debtor is advised not to make any predictions, forecasts or guarantees to creditors or interested parties as to when creditors may expect a distribution in partial or full settlement of their claims, or how much money creditors may expect in partial or full settlement of their claims.Please note that the filing of a bankruptcy petition does not generally create a stay in actions in which the debtor is the plaintiff or moving party.Comprised from several Seasoned Bankruptcy Attorneys
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