When a debtor files for bankruptcy, immediately all of the debtor's creditors are prohibited from attempting to collect any debt that is included in the bankruptcy. The creditors are ordered to do this by what is called the "automatic stay." This helps give the debtors immediate relief and piece of mind because they are no longer receiving calls or letters from their creditors. Also, the most obvious benefit of bankruptcy is that it can either completely eliminate unsecured debt, or at least restructure debt into an affordable payment plan. However, this does not mean that the debtor has to give up all his possessions. Bankruptcy provides a way for debtors to retain real property and collateral if the debtor agrees to continue making payments on the collateral. In a chapter 13 case, the debtor may even be able to include those payments in the chapter 13 plan.
Qualifying for bankruptcy differs from state to state and can be complicated to determine. Some key factors when determining if a person is eligible for bankruptcy are the person's income, number of dependents, and assets, among other variables. There is a sort of calculator called "the means test" that was established to determine whether a person qualifies for bankruptcy and under which chapter to file. Often the biggest factor is owning too many assets for bankruptcy to be a good option. A debtor also cannot file for bankruptcy if the debtor has filed within the past two to eight years depending on which chapter of bankruptcy was filed. If you are considering filing for bankruptcy and want to know if you are eligible, it would be wise to speak to an attorney about it.
While there are many types (or "chapters") of bankruptcy, there are only two that apply for individuals: Chapter 7 and Chapter 13.
Chapter 7: The most common and sometimes considered 'true' bankruptcy is a Chapter 7. A Chapter 7 completely wipes out dischargable debts. With this option a person can be debt-free in as little as 3 months after the day of filing.
Chapter 13: This chapter of bankruptcy is also known as a debt restructuring plan. A Chapter 13 tends to be a better option for those with relatively high incomes or high value assets they want to protect. This option involves paying back your creditors over three to five years in what is called the Chapter 13 plan. At the end of this time, the remainder of the debt is wiped away much like in a Chapter 7.
When a bankruptcy case is filed it becomes public record; the debtor's name can be published by credit-reporting agencies. However, media sources typically have no interest in publishing these names unless they are well known public figures or celebrities. Chances are, most people will only know if you tell them.
Chapter 7: Employers are not usually notified when a chapter 7 case is filed.
Chapter 13: Employers are sometimes notified when a chapter 13 case is filed. Some courts require a debtor's employer to make payments to the chapter 13 trustee on the debtor's behalf. Some districts do not require a debtor's employer to make the payments as long as direct payments from the debtor are timely. However, The chapter 13 trustee may contact an employer to verify the debtor's income. If there are justifiable reasons for not informing an employer, it may be possible to make other arrangements to provide payment or information to the trustee.
The total amount it costs to file for bankruptcy varies greatly on a case-by-case basis. For simplicity's sake, a case can be divided into attorney fees and filing fees. The attorney fees heavily depend on the complexity of a bankruptcy case. A more complex case will require more paperwork and time to complete said paperwork. In a chapter 7 case, the attorney fees must be paid to the attorney before the case is filed. In a chapter 13 case, a portion of the attorney fees may be paid directly through the chapter 13 plan after filing. Furthermore, the filing fees also depend on which case is being filing. The filing fee for a chapter 7 is $306. In some circumstances, a debtor may be able to have the filing fee waived if they do not make sufficient enough income. If a filing fee cannot be waived, there is a change that it can be paid in installments also. The filing fee for a chapter 13 is $281.
No, both spouses do not have to file for bankruptcy. A person can file individually or joint with his or her spouse. If most substantial debts are only owned by one spouse, then it may be better to file individually without the other spouse. Or if a debtor is filing in a community property state, such as California, and all substantial debts are community debts, it may not be necessary to have both spouses file. However, if both spouses are liable for a debt and only one spouse files for bankruptcy, the creditor can still attempt to collect the debt from the non-filing spouse. If both spouses file jointly, only one petition has to be filed and only one filing fee is charged.
Chapter 7: If a debtor files for bankruptcy and intends to surrender a piece of collateral that had a cosigner, the creditor will try to collect the debt from the cosigner. If the debtor intends to continue making payments on the secured loan with the collateral, the creditor will not contact the cosigner. On the other hand, if a debtor is a cosigner on a loan, the debtor can surrender his or her interest in the loan and would no longer be held liable for the debt.
Chapter 13: If a cosigned consumer (non-business) debt is being paid in full in a chapter 13 bankruptcy, the creditor cannot collect the debt from the cosigner. However, if this debt is not being paid in full (only a percentage), the creditor may attempt to collect the unpaid portion of the debt from the cosigner when the case is completed. Keep in mind, this does not apply to cosigned business debts, even if the debts are to be paid in full in the chapter 13 bankruptcy plan.
Yes, you can still file for bankruptcy even if you have just moved. However, a bankruptcy case has to be filed in the bankruptcy court in the district where the debtor has lived or maintained a principal place of business for the greatest portion of the last 180 days. If you have lived in your new residence for less than 90 days, you would either need to file your case in the district of your previous residence or wait until you can file in the district where you are currently residing. It is also important to take into consideration that different states have different rules and exemptions. Talking to an attorney about your situation would help you determine which district's rules and exemptions would benefit you most.
Technically a bankruptcy can stay on your credit report for up to 10 years. However, many of our clients are able to fully recover—and in some cases improve—their credit score within a year after filing. You can rebuild your credit score by using credit, but using it wisely: never max out your available credit. Also, filing for bankruptcy will wipe away all your dischargeable debts making your debt-to-income ratio advantageously better than before you file. A good debt-to-income ratio can aid you in achieving that desirable boost in your credit score. Most of our clients have a better credit score a year after filing than it was at the time of filing because the old debts have a zero balance and the debtor has disposable income freed up from filing.
Chapter 7: The length of a chapter 7 case depends on whether or not the debtor has nonexempt assets for the trustee to collect. Usually a debtor's assets can be exempted and the trustee will label it a "No asset case." A no asset case generally takes 3 months to complete from the day of filing. However, if the debtor owns assets that fall outside of the allowed exemptions, the trustee may extend the length of the case in order to collect those assets. Most consumer cases with assets last about six months, but they can last quite a bit longer.
Chapter 13: From the day of filing, a chapter 13 case takes about 3 to 5 years to complete depending on the length of the plan. However, a debtor may be able to convert their chapter 13 case to a chapter 7 under the right circumstances.
Depending on the status of a case, a chapter 7 case can be converted into chapter 13 cases at the request of the debtor. However, this only applies if the debtor has not already converted the case from a Chapter 13. Likewise, a chapter 13 case may also be converted to a chapter 7. It is best to speak to an attorney to see if converting a case would be a good option.
The debtor should immediately notify his or her attorney of the new address. The attorney will update the client's record and file a Notice of Change of Address with the court which will notify the court, the trustee, and all necessary parties to update their records. Most orders and correspondences go through the mail, so it is very important that the debtor keeps his or her address updated. If not, an important order could be missed causing the case to be dismissed.
Chapter 7: All debtors have to appear in court at least once for a hearing called the meeting of creditors. The meeting of creditors generally occurs about 1 month after the case is filed. At this hearing, the debtor is placed under oath and examined by the chapter 7 trustee. A debtor's creditors may appear at the meeting of creditors to question the debtor also. However, the majority of the time, a debtor's creditors will not attend the meeting. Generally a meeting of creditors only lasts about 10 minutes once the debtor is placed under oath.
Chapter 13: Similarly to a chapter 7, the meeting of creditors also takes place in a chapter 13 about 1 month after the case is filed. The trustee will examine the debtor's case to see if the plan can be approved. If there are problems with the plan or other disagreements arise, debtors may have to appear for a hearing on the confirmation of the debtor’s chapter 13 plan. The confirmation hearing generally takes place 1 or more months later. It is possible that additional court appearances become required, but this tends to be the exception, not the rule.
After the meeting of creditors, also known as the 341 meeting, the trustee may contact the debtor regarding the debtor's property. The court may require the debtor to turn some property over to the trustee. In other cases, the debtor is ordered to provide information about their circumstances. If the debtor does not comply with the orders, his or her bankruptcy case can be dismissed, which means the case was unsuccessful and the debtor is essentially back to square one. However, if the debtor doesn't have excess property (outside of the allowed exemptions), and the case is deemed a "No asset case," they will not have any property to turn over to the trustee. Furthermore, the debtor needs to be sure that the post-filing debt education course as well as accompanying Form B23 are completed. Both the debt education certificate and Form B23 need to be filed with the court. This course can be taken after the day of filing, but if it is not taken 45 days after the day of filing, the debtor's case will close without being discharged.
When a case is discharged, it means that the court has released a debtor from the obligation to pay back their dischargeable debts (unless the debtor opted to retain a specific debt, such as a car and the associated payments). Dischargable debts are those that can be wiped away by bankruptcy. A discharge also orders creditors not to attempt to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. For a chapter 7 case, it generally takes about 3 months from the day of filing to receive a discharge. For a chapter 13 case, it could take 3 to 5 years. However, a debtor could elect to receive a partial discharge if they do not wish to complete his or her plan. This would mean their case could be discharged in less time, but there would be more outstanding debts. Not all debts are dischargeable either.
The most common debts that are almost never dischargeable (cannot be wiped out) are:
- Student loans
- Alimony, maintenance, or support
- Criminal charges and related debts
- Fines or penalties owed to the government
- Homeowner’s association fees (in some cases)
- Secured debts on a property the debtor opts to keep
- Certain retirement plans (tax-advantaged)
- Taxes (but only in some cases)
However, this is not a complete list, and exceptions apply to many of them. If a debtor has questions on whether or not a debt is dischargeable, he or she should seek the counsel of an experienced bankruptcy attorney.
Most courts will send a copy of the discharge to the debtor along with all the debtor's creditors through the mail. In addition, if a debtor is a client of Lincoln Law's, he or she will also receive a letter from Lincoln Law informing the client that his or her case has been discharged. In a chapter 7 case, the discharge typically is granted 3 months after the case is filed.
When a person files bankruptcy, the court orders the automatic stay to go into effect. The automatic stay prohibits creditors from attempting to collect a debt from the debtor. If a creditor attempts to collect a debt from a debtor after he or she has filed for bankruptcy, the debtor should give the creditor his or her bankruptcy case number. The debtor should also make clear records of any time a creditor calls and keep all letters a creditor sends after the filing date. If the creditor persists on collecting the debt, the debtor should give the creditor's information to his or her attorney. Any creditor who violates the automatic stay may be held in contempt of court and may be liable to the debtor in damages.
A Motion for Relief from Stay is filed against a debtor's case when a creditor wants to be granted permission to contact the debtor; thus, removing the Automatic Stay that is placed upon a debtor when filing for bankruptcy. A creditor could have a few reasons for filing this motion including wanting to continue the foreclosure or surrendering process on collateral that is intended to be surrendered or for wanting to repossess collateral for which a debtor has not made timely monthly payments.
Whether or not you need to go to the hearing scheduled for the motion depends on the answer to the following questions:
a. Are you giving up the property?
If so, then you don’t need to take any action. You don’t even need to call us. Just ignore the motion altogether.
b. Are you filing for Chapter 7 bankruptcy?
If so, you probably do not need to take any action. This creditor will automatically gain the power that it is requesting at discharge which is 90 days after filing date. Furthermore, the creditor cannot retake its collateral until after the hearing date on the front of the motion (3-4 weeks from now). The creditor isn’t gaining much time with this motion.
If you have some reason you really need the collateral for the period between the hearing and the discharge, you will have to pay at least a month’s regular payment to the creditor and $600 to Lincoln Law to attend the hearing and argue your case. If you would like to pursue this option, please set up a phone appointment with the attorney.
c. Are you filing Chapter 13 bankruptcy?
If so, and if you are not surrendering the property, then the creditor is alleging that you are behind on payments that came due after you filed your case. If you want to keep the property, the court will require that you begin making all of your regular payments and catch-up payments for a period of months. Please set up a telephone appointment with the attorney to discuss your ability to make catch-up payments.
Every case has a trustee assigned to it once it is filed. A trustee is a person appointed by the United States Court to examine a debtor's case. However, a trustee's job duties differ depending on if it is a chapter 7 trustee or a chapter 13 trustee.
A chapter 7 trustee examines the debtor at the meeting of creditors. He or she is also in charge of collecting the debtor's nonexempt property (if any) and pay the expenses of the estate and the claims of creditors. A chapter 7 trustee is also responsible for making sure a debtor performs the required duties in the case.
A chapter 13 trustee also examines the debtor at the meeting of creditors, but unlike a chapter 7 trustee, a chapter 13 trustee is responsible for collecting payments from the debtor, making payments to creditors in the manner set forth in the debtor’s plan, and administering the debtor’s chapter 13 case until it is closed.
The law requires the debtor to cooperate with the trustee in the administration of the debtor's case. If the debtor does not cooperate with the trustee, the case may be dismissed. A debtor is responsible for providing the trustee with 60 days worth of pay stubs, tax returns, and other financial statements that the trustee may require (different trustees require different statements). If a debtor is a client of Lincoln Law, the debtor is to provide Lincoln Law with these documents and Lincoln Law sends them to the trustee for the debtor. A debtor must also cooperate with the trustee when the trustee collects the debtor's nonexempt property. Furthermore, for a chapter 13 case, a debtor is required to send monthly payments to the trustee.
No, the debtor does not always have to turn over property to the trustee. In fact, half the time, the debtor won't have any nonexempt property for the trustee to collect. There are certain exemptions that differ from state to state that can protect up to a certain dollar value of a debtor's real and personal property. If all the debtor's real and person property are protected under the exemptions, the trustee will consider the case to be a "no-asset case." This means that the creditors will be advised that there is no available assets to pay the creditors with and the trustee will not have anything to collect. If the trustee later finds out that there are are nonexempt properties, he or she is able to change the case from a "no-asset case." That makes it very important that a debtor lists all real and personal properties on the bankruptcy schedules.
A person does not usually lose any possessions when filing for bankruptcy. Generally speaking, most of a debtor's possessions can be exempt in bankruptcy. However, if a debtor has nonexempt property, it may need to be turned over to the trustee. Furthermore, if a debtor has a loan out for a piece of collateral (e.g. mortgage, car loan, etc.), he or she can elect to reaffirm on that loan by signing what is called a reaffirmation agreement. If a debtor signs a reaffirmation agreement with a lender, he or she is agreeing to continue to make timely payments for their collateral in order to keep it. A debtor can only sign a reaffirmation agreement if it is in his or her financial ability.
A chapter 13 plan is created to restructure a person's debt into one monthly payment. In the plan, it states how much money the debtor will pay to the chapter 13 trustee, how long the plan will take, and how much of the money will be paid to each creditor. A chapter 13 plan must have court approval before being confirmed.
No. Generally, only priority debts (such as alimony, child support and taxes) must be paid in full under a chapter 13 plan. Most other debts only require the debtor to pay a percentage of their debts back as is reasonably affordable given their circumstances (assets being held, income, dependents, etc.). The balances of most debts that are not paid in full under a chapter 13 plan are discharged once the plan is completed. A chapter 13 plan can take three to five years to complete.
The amount of income that a debtor has to pay to the trustee monthly is calculated by what is called the Means Test. Typically, the debtor must use all of the disposable income that the debtor and spouse make. Disposable income is income received by the debtor and his or her spouse that is not reasonably necessary for the support of the debtor and the debtor’s dependents. It is important that the debtor be able to make the chapter 13 payments, otherwise the plan will not be confirmed or later on the case could be dismissed.
Most new debts that incur after a chapter 13 case is filed must be approved by the trustee before the debt incurs. For example, if it becomes necessary that the debtor buys a car, the debtor must have the trustee's approval before buying that car. The debtor may be able to pay these debts outside of the chapter 13 plan.
Debtors in a chapter 13 bankruptcy plan must begin making their payments to their trustee within 30 days after their case is filed with the court. Chapter 13 payments are required on a regular basis, typically every month. Some courts require chapter 13 payments to be made by the debtor’s employer, but this is often optional. The trustee will give instructions to the debtor on how to make the payment. In the Northern District of California, the debtor must make a money order with the case number written on it and send it by mail to the trustee's specified address.
There are a couple of options if the debtor is not able to make the chapter 13 payments for a period of time. The debtor may be able to modify the plan so that the payments either continue on when the debtor is able to make the payments, or lower the payments temporarily. If it seems as if the debtor will not be able to make the payments for an indefinite time, the case may be converted to a chapter 7 or dismissed.