Is Bankruptcy the Best Choice for Me?
Will I have to give up all my assets? What can I keep?
Generally, you may file a bankruptcy and retain all of your personal belongings, including your house, your cars and all household goods because California has very generous exemptions. We will make sure that all of your personal belongings are protected. If you owe more on your car than the car is worth, the bankruptcy court will not sell your car, because after sale there would be no money left over to make a distribution to your creditors. The same goes for your home and personal property. Even if your property is worth more than what is owed on it, usually we can use the state bankruptcy exemptions to protect these items. You may be more at risk of losing property if you don't file bankruptcy, because creditors can sue you and, upon obtaining a judgment, attach your bank accounts, garnish your wages and lien your property.
Will I lose my house even if I'm current?
No. We will not file your case as a Chapter 7 if there is any risk of that. Such a risk only arises if your equity in your house exceeds your homestead exemption (which can vary from $50,000 to $150,000).
Can I ever get credit again after bankruptcy?
Although bankruptcy may legally be reported to your credit report for up to 10 years, you can begin to reestablish your credit immediately. Remember that "credit" is your ability to borrow money. Lenders consider many factors while determining whether to loan you money, but most importantly, they consider your debt-to-income ratio. You are probably visiting this site because you already have more outstanding debt than you have the ability to pay. So, arguably, you do not have credit.
Filing eliminates most, if not all of your debts, therefore reducing your debt-to-income ratio, potentially improving your ability to borrow money in the future. Some financial institutions actively solicit business from people who have filed. Lenders are in business to make money by lending you money and charging you interest. Lenders know that once you have filed, you will not be able to file again for another 8 years.
Many of our clients have purchased cars immediately upon receiving their discharge orders. Many lenders have programs that provide for post-bankruptcy borrowers to obtain home financing within a year or two after a discharge. Many of our clients even receive solicitations for unsecured credit cards almost immediately upon receiving their discharge. You would be well advised to not accept all these offers.
Will my landlord/boss/neighbors know?
The only parties that receive notice of the bankruptcy are your creditors, the bankruptcy court and the IRS. Your employer will not be notified of the bankruptcy unless your employer is also a creditor. Your landlord may be notified if you are in an unexpired lease because he/she would not be permitted to pursue you for any subsequent lease payments should you break the lease. The bankruptcy is public record, so anyone who wants to find out could determine that you had filed. Generally, however, only you, your creditors and the IRS will know about the bankruptcy, which will remain on your credit report for up to ten years.
What's the difference between Chapter 7 and Chapter 13? How do I know which chapter to file?
Chapter 7 is the kind of bankruptcy where you are discharged of the responsibility to pay all your dischargeable debts. You don't pay them and you get to start over again. Chapter 13 is ordinarily for people with extra money left over at the end of the month that can pay something toward their debts over the next 3-5 years. You only pay what you can afford, with no interest, and the rest is discharged when you've completed your plan. You may also be able to pay less than what you owe for a vehicle you've owned for more than 2-1/2 years.
Other reasons for filing Chapter 13 include (1) you have non-exempt assets you want to retain and keep out of the hands of a Chapter 7 Trustee, (2) you are behind on some secured debt payments and you need time to catch up on those arrears (stop a foreclosure or repo, e.g.), or (3) you filed Chapter 7 less than eight (8) years ago and cannot yet file again.
If your family income is less than the median income in California for your family size, you will likely qualify for Chapter 7 automatically. If not, you may still qualify for Chapter 7 if you can pass the "means test", which subtracts all your reasonably necessary living expenses (limited by IRS guidelines) from your take-home income(s). If there is virtually nothing left with which to pay creditors anything , you may still qualify.
Does my spouse have to file bankruptcy with me?
If all or most of the debts are in your name only, your spouse may not have to file and he/she should not be affected by your bankruptcy. Creditors usually cannot pursue a non-filing spouse, unless he or she is legally a co-debtor on the debt. Additionally, the bankruptcy should not be reflected on the non-filing spouse's credit report.
Can I keep some credit cards?
Your ability to retain a credit card is entirely up to the issuer of the credit card. If you have a balance owed on that card at the time of filing, that debt is dischargeable and the creditor will close the account immediately. If your balance is zero, however, that creditor does not need to be listed/notified. When they eventually learn of the bankruptcy (via their periodic review of your credit) it will be their decision whether to allow you to keep the card.
Can I still file bankruptcy under the new law?
Of course! There has been much doom and gloom written about the bankruptcy means test under the new laws and how much more difficult it's going to be to file Chapter 7. It's true that there are more hoops to jump through under the new laws and it's true that the bankruptcy means test will result in some people having to file chapter 13 instead of Chapter 7. However, for the vast majority of filers, Chapter 7 is still available with very little extra effort because the means test only applies to debtors with income in excess of the median income in California for their family size (about $5,000/mo for a couple, for example).
Do I have to list all my debts?
Yes, you are supposed to.
Will the Trustee come to my house?
No . but he may send someone to appraise it, or another substantial asset in your possession (car, truck, etc.), if there is evidence to suggest that we may have undervalued it (or concealed it).