Bankruptcy is a federal law
providing honest debtors with a tool to obtain relief
from debt and the pressures caused by financial crisis.
Following are what I consider the top 10 questions people
ask about bankruptcy, with brief explanations. For additional
questions and explanations, please download our
Questions
and Answers brochure below.
1. WHAT ARE THE DIFFERENCES BETWEEN CHAPTER
7, 13 AND 11?
The numbers refer to different chapters of the U.S.
Bankruptcy Code, a federal law. Chapter 7 is traditional
bankruptcy, where you get a discharge from your debts,
and don't have to pay them (you can file this type
of bankruptcy every 8 years). Chapter 11 is a bankruptcy
proceeding usually for businesses that want to stop
their creditors temporarily, while the business proposes
a plan to keep the business going and pay the creditors
something (all or part of the debts) in the future.
Chapter 11 attorney fees are very expensive. Chapter
13 is a bankruptcy proceeding for consumers and small
non-corporate businesses who, for various reasons,
need time to pay their creditors, and are able to make
monthly payments that will pay their debts over a 3
to 5 year span of time.
Needless to say, people usually try to fit their problems
into either Chapter 7 or Chapter 13.
2. WHAT CHANGES WERE MADE IN THE NEW BANKRUPTCY
LAW?
There were many changes to the new law, perhaps to
voluminous and complex to summarize here and many of
which may not apply to your particular case. A
couple of new provisions that effect all cases are:
| • |
the
requirement that all individuals seeking bankruptcy
relief must obtain credit counseling and a certificate
from an approved credit counseling agency before
filing bankruptcy, |
| • |
the
requirement that all individuals seeking bankruptcy
relief take a debtor education class after filing
bankruptcy in order to receive a discharge of
their debts |
| • |
all
individuals must have their income and expenses
evaluated against a means test to determine eligibility
for chapter 7 and chapter 13 bankruptcy. |
Changes were made to how auto loans are treated
in chapter 7 and chapter 13, and changes were also
made to what types of debts are dischargeable.
Many
of the changes may not affect your case. It
is important to discuss your particular situation
with an attorney to determine if any of these provisions
affect you.
3. IF I FILE BANKRUPTCY WILL
MY CREDIT BE RUINED FOR LIFE?
If you are considering filing bankruptcy, chances are your credit is already
ruined. Late payments, defaults, repossessions, foreclosures, judgments and bankruptcy
are all things that cause your credit score to drop. Credit reporting agencies
are allowed to report your bankruptcy for 10 years from the date it is filed.
However, your credit will not be “ruined” for
this long; most of my clients find they begin receiving offers for credit very
soon after filing, sometimes within 1 year. Many lenders are anxious to lend
credit to people emerging from bankruptcy because they know you don’t owe
any debt anymore and you’ve become a better risk.
4. WILL I LOSE MY PROPERTY?
No. In California, the law allows you to exempt
certain property from the reach of your creditors. As
long as you are within these exemptions, you will not
lose your property. Even if you have substantial
property, i.e. a large equity in your home, you may
still qualify for chapter 13 bankruptcy and still protect
your assets. During your bankruptcy consultation
we will review your assets to determine whether they
are exempt or not and advise you accordingly.
5. IF I AM MARRIED, DOES MY
SPOUSE HAVE TO FILE TOO?
No, both spouses are not required to file together by law. However, since California
is a community property state and the Bankruptcy Code makes all of the community
property of a married couple part of the “bankruptcy estate,” both
spouses should probably be involved in the bankruptcy case. While the bankruptcy
of one spouse could technically protect the non-filing spouse in a community
property state, these subtle distinctions are sometimes lost on creditors, and
they might continue to harass the non-filing spouse.
6. HOW MUCH MONEY DOES IT COST?
Fees vary depending on the extent of debt, the type
of debt, the assets of the debtor to be protected,
and any extra problems (such as foreclosure proceedings,
non-dischargeable debts, tax problems). The
fee I most often charge for a typical "consumer" Chapter
7 bankruptcy is $800.00, plus a Court filing fee
of $299.00. I usually require about 2/3 of
the fee to be paid in advance of filing ($500.00),
plus the filing fee ($299.00), with the balance of
the fee ($300.00) to be paid in three plus monthly
installments of $100.00 after the bankruptcy is filed.
But this fee can be less, as low as $600.00, and
it can be more, $1,000.00 or more, depending on the
facts. A "business" Chapter
7 case may cost from $1,000.00 to $2,500.00,
again, depending on the facts.
Chapter
13 fees are somewhat regulated by the Bankruptcy
Court. The maximum "consumer" fee
permitted by the court is $3,500.00, without having
to keep time records. The filing fee to the
court is $274.00. But this fee is usually paid
with a retainer in advance of filing the Chapter
13 petition of $674.00 or $774.00, and the balance
of the attorney fee included in the monthly Chapter
13 payments. So you just pay your retainer,
file the petition, and start your monthly Chapter
13 payment a month later (and that payment includes
all remaining fees and costs). Retainers to
stop foreclosure proceedings are higher, often $1,274.00,
and up, depending on how much of an emergency it
is.
Chapter 11 fees (usually
for businesses) are dramatically higher. Attorney
fees usually range from $10,000.00 to $15,000.00, with
a retainer of $10,000.00 usually required. This
office does not do Chapter 11 cases any longer because
most debtors cannot afford the retainer payment. However,
although you may think your case needs Chapter 11,
often Chapter 13 or Chapter 7 will do, at much lower
fees. You need an office conference to determine
if Chapter 11 is warranted, and in the event it is,
we will give you the names of some attorneys who do
Chapter 11 cases.
7. WILL FILING BANKRUPTCY AFFECT MY JOB?
The Bankruptcy Court will not automatically notify your
employer that you filed bankruptcy. If you file chapter
7, it is unlikely that your employer would ever find
out, unless a credit check is done after you’ve
filed. If you file chapter 13 and for some reason stop
making your chapter 13 payments, the Chapter 13 Trustee
may send a pay-over order to your employer to collect
your chapter 13 payments, otherwise, they will not receive
notice.
It has become more routine for prospective employers
to run credit checks on applicants; if you have bad
credit or have filed for bankruptcy, an employer may
consider this in evaluating you as a candidate.
8. HOW DO I GET STARTED?
You should make a complete list of your debts; names
and amounts of everyone you owe money to, including
creditors you plan to pay, such as taxing authorities,
auto loans, home loans and student loans and schedule
a consultation appointment. There is no charge at the
first appointment; if you decide you don’t need
bankruptcy, you do not pay any attorney fee, if you
decide hire us, the fee we quote compensates us for
the time spent at your first appointment. At the first
appointment we will review your debts, ask questions
about your assets and financial situation and assess
whether and what type of bankruptcy would help. If we
think you are a candidate for bankruptcy, we’ll
give you a fee quote and an information packet to complete.
If you decide you do want to file, you will need to
fill out the information packet and come back for another
appointment where you’ll retain us and we will
begin preparation of your case.
9. IF I AM BROKE, HOW CAN I AFFORD TO PAY?
If you are truly broke, and without income or assets,
you don't need bankruptcy. We don't have debtors' prisons
any longer, and you can't be put in jail for not being
able to pay your bills. The reason people file bankruptcy
is that they do own assets, such as wages, homes, furniture,
income tax refunds, bank accounts, automobiles, etc.,
and while they don't have the ability to meet their
creditors' demands, if they do nothing, the creditors
will use legal means to seize their assets, thereby
impairing their ability to meet their living expenses,
or causing them to lose their jobs (i.e., wage garnishments).
Usually the filing of bankruptcy relieves the strain
on their income, and with what's left, they are able
to pay an attorney fee out of that income. Some people
want to file bankruptcy just to stop the harassment
they are experiencing from the constant calls from creditors.
10. DO I REALLY NEED AN ATTORNEY?
If you hire an attorney, he is responsible for advising
you on the appropriate chapter of bankruptcy to file,
will represent you for the entire duration of the case
(unless you agree otherwise) and will deal with all
contacts from your creditors regarding providing case
information, reaffirmation agreements, return of collateral
and any other problems that arise during the case.
When you act as your own attorney, you must deal with
the Chapter 7 trustee, who is interested in taking assets
from you. The trustee gets paid from any assets he collects,
and debtors representing themselves make inviting targets.
What assets are exempt from the trustee’s claims
are subject to interpretation, and one of the reasons
you employ an attorney is to investigate what your assets
are (for example, accrued wages, personal injury claims,
income tax refunds, interests in real estate, or trusts,
or estates of deceased persons), and inform you whether
or not they will likely be exempt, so that you can make
an informed decision before you commit yourself to bankruptcy.
You must prepare a budget of income and expenses in
your bankruptcy schedules, and if this is done incorrectly,
it is subject to attack by the U.S. Trustee office to
dismiss your case as an “abusive” filing.
It is important to get this part of the petition right
the first time, and an experienced attorney may be necessary
to help you for obvious reasons.
Bankruptcy typing services make it clear that they are
not attorneys, and do not offer legal advice. But they
impliedly represent they know enough to file a bankruptcy
petition for you. They are asking you to pay them to
prepare a bankruptcy petition without taking any of
the responsibility for the preparation, because, after
all, they are not lawyers. You must weigh the risk of
losing an asset to the bankruptcy trustee or having
your case attacked as an “abusive” filing
without representation by an attorney, in addition to
having to deal with whichever creditors decide to contact
you after bankruptcy, against the difference in cost
between having an attorney and representing yourself.
