BANKRUPTCY (which chapter is right for you, 7 or 13?)
Chapter 7 bankruptcy is used to eliminate unsecured debt, such as credit cards, loans and medical bills, even some taxes. It does not discharge child support, spousal support, student loans, and certain taxes.
There are certain requirements that must be met in order for a debtor to qualify for a chapter 7 bankruptcy, such as income limits.
A debtor that has received a discharge in a chapter 7 bankruptcy is not eligible for another discharge in a chapter 7 case for 8 years.
A chapter 7 case begins with the you, the debtor (or your attorney) filing a petition with the bankruptcy court serving the area where you live or where the business debtor is organized or has its principal place of business or principal assets.
In addition to the petition, the debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and unexpired leases.
The following is also required:
A copy of the most recent tax returns or transcripts;
A certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling
Evidence of payment from employers, if any, received 60 days before filing
Subject to change, the court’s filing fee is $306 and must be paid upon filing. If a joint petition is filed, only one filing fee is charged.
In order for your attorney to complete your documentation, you must provide the following:
A list of all creditors and the amount and nature of their claims;
The source, amount, and frequency of your income;
A list of all of the your property; and
A detailed list of the debtor's monthly living expenses.
Automatic Stay (Protection from Creditors)
Filing a petition under chapter 7 "automatically stays" (stops) most collection actions against the debtor or the debtor's property. But filing the petition does not stay certain types of actions listed under 11 U.S.C. § 362(b), and the stay may be short lived in some situations.
The stay requires no additional judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments.
The bankruptcy clerk gives notice of your case to all creditors whose names and addresses are provided by you.
Between 21 and 40 days after the petition is filed, the case trustee (described below) will hold a meeting of creditors. During this meeting, both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding the debtor's financial affairs and property. If a husband and wife have filed a joint petition, they both must attend the creditors' meeting and answer questions.
The debtor is required to cooperate reasonably with the trustee and to provide any documents that he requests.
Married individuals must provide their spouses information regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse are required so that the court, the trustee and creditors can evaluate the household's financial position.
Protecting your Property (Exemptions)
Bankruptcy law allows an individual debtor to protect property from the claims of creditors because it is “exempt.” Under California law certain property is exempt and will not be confiscated. The debtor should take advantage of our free consultation to determine the exemptions available in California.
Chapter 13 is designed for individuals with regular income who need some time to pay their debts. Debtors are allowed to keep property and repay creditors, either fully or partially, over a period of up to five years.
In order to qualify under Chapter 13, your unsecured debts must be less than $383,175, and secured debts must be less than $1,149,525. (Amounts subject to change).
There are certain reasons why a chapter 13 may be unavailable for you; such as prior conduct, prior filings, or the lack of disposable income. Through your attorney, a repayment plan is proposed to make installments to creditors over the duration of the case.
During this time, the STAY as described in the previous section forbids creditors from starting or continuing most collection efforts. Chapter 13 contains a stay provision that even protects co-debtors; creditors are barred from collecting "consumer debts" from co-signers who are liable along with the debtor.
How Chapter 13 Works
Just like a Chapter 7, a chapter 13 case begins by filing a petition along with the schedules, statement of financial affairs and repayment plan. Subject to change, the filing fee is $281. A married couple may file a joint petition or individual petitions. Married individuals must present their spouse’s financial/ budget information whether they are filing a joint petition, individual petitions, or even if only one spouse is filing.
After your case is filed, a trustee is appointed to administer it. The chapter 13 trustee evaluates the case and collects payments from you to distribute to creditors.
You may use a chapter 13 to save your home from foreclosure. The stay stops the foreclosure proceeding and allows you to bring the past-due payments current over a reasonable period of time. However, you must file the petition before the foreclosure is completed.
The Lien Strip
You may also use a Chapter 13 to eliminate or “strip” from your home any junior liens such as 2nd Trust Deeds or Home Equity lines of credit. This requires a separate motion to be filed for you.
The Court Hearings
You are required to attend two hearings; a meeting of creditors and a confirmation hearing.
The meeting of creditors is scheduled between 20 to 50 days after the petition is filed. The debtor(s) must attend this meeting at which creditors may ask questions about your assets and financial situation.
At the confirmation hearing the bankruptcy judge will determine if the plan is feasible, and satisfies all Bankruptcy Codes. Creditors are notified of the hearing, and they may object to confirmation.
Within thirty days of filing the plan, the debtor must start making payments to the trustee. If the plan is not approved, the debtor can modify the plan, or convert the case to a Chapter 7.
In order to receive payments from your chapter 13 case, creditors must file their claims as follows: Unsecured Creditors - within 90 days after the first date set for the meeting of creditors; Governmental units: within 180 days from the date the case is filed.
The Chapter 13 Plan
You must file a repayment plan no more than 14 days after the petition is filed. You must then begin payments according to your plan within 30 days of the filing of your case. The trustee distributes funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims. And once the court confirms the plan, you must make the plan succeed. If you fail to make the payments due under the confirmed plan, the court may dismiss the case or convert it to a chapter 7.
The court may also dismiss or convert your case if you fail to pay any post-filing child or spousal support obligations, or fail to make required tax filings.
The Chapter 13 discharge
A chapter 13 debtor is entitled to a discharge upon completion of all payments under the chapter 13 plan with certain requirements. The discharge releases the debtor from all debts provided for by the plan or disallowed, with limited exceptions.
Creditors are barred from initiating or continuing any collection action against the debtor because of the discharge.
Debts not discharged in chapter 13 include: home mortgages, alimony or child support, certain taxes, most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and restitution or a criminal fine included in a sentence on the debtor's conviction of a crime, debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions by the debtor that cause personal injury or death to a person will be discharged unless a creditor timely files and prevails in an action to have such debts declared non-dischargeable. The range of discharged debts is wider in a chapter 13 than a chapter 7.