Frequently Asked Questions
Here are some frequent questions I get from Clients.
1. Most clients in chapter 7 in the Bay Area keep all of their money, property, and assets in chapter 7. This is because California property exemptions usually cover the general necessities of life. Most chapter 7 cases allow the debtors to wipe out their debts and keep all of their assets. After your initial consultation, you will know whether your assets can be protected. You will know this before your case is filed, so there are no surprises.
2. Chapter 7 stops creditor harassment, phone calls, and collection letters from the time the case is first filed.
3. You can keep your car if you keep making the payments.
4. Chapter 7 will stop wage garnishments.
5. Chapter 7 will stop collection lawsuits.
6. You only have to go to court one time. This is a brief hearing called a Meeting of Creditors. This is a brief meeting where the trustee asks you a few questions to verify the information in your schedules. Creditors almost never show up. The meeting is scheduled about one month after your case is filed.
7. You have to take two courses online, about one hour each. The first one is called Credit Counseling. The second is called Debtor Education or Financial Management. After each class you receive a certificate of completion that must be filed with the court. The Credit Counseling certificate must be done before the case is first filed. Debtor Education is for after the case is filed.
8. The entire chapter 7 bankruptcy process is only three months long from the time your case is filed, until you receive a discharge of your debts.
9. You cannot strip second mortgages in chapter 7.
10. You cannot cure mortgage defaults in chapter 7.
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1. You can stop foreclosure and catch up on late mortgage payments in a chapter 13 repayment plan.
2. You can stop foreclosure and get time to apply for a loan modification.
3. Chapter 13 will stop creditor harassment, phone calls, and collection letters from the time the case is first filed, and will stop wage garnishments and collection lawsuits.
4. You can get back your car that was recently repossessed and pay the car loan in your plan. It is often possible to reduce the amount you pay on the car loan down to the current value of the car, wiping out any amount you owe on the loan that is more than the car is worth. It is also possible in many cases to reduce the interest rate to a reasonable rate, between 3 and 6%.
5. You can pay back taxes at 0% interest, without penalties.
6. You keep all of your money, assets, and property in chapter 13 because the trustee never takes it.
7. You can strip junior mortgages or judgment liens if your home is worth less than the amount owed on the senior mortgage liens.
8. You will be in a repayment plan for three to five years.
9. Most chapter 13 plans pay less than 5% to general unsecured creditors, such as credit cards. In other words, these debts are generally discharged without payment just as in chapter 7. You are only required to pay back what you can afford each month, which is determined by the means test calculation. However, if you have assets that are worth more than the amounts allowed to exempt or protect, then you may have to pay an equivalent value to your creditors in the plan. This primarily occurs when there is substantial equity in a home above the homestead exemption.
10. You have to take two courses online, about one hour each. The first one is called Credit Counseling. The second is called Debtor Education or Financial Management. After each class you receive a certificate of completion that must be filed with the court. The Credit Counseling certificate must be done before the case is first filed. Debtor Education is for after the case is filed.
1. Don't wait until it is too late. Come speak to a bankruptcy lawyer early on, before things become a crisis. There are many things that can be done before a bankruptcy is filed that will increase the benefit you get from filing chapter 7, with regard to your income, debts you can discharge, and protection of your assets. Timing and planning are very important aspects of chapter 7, and you need a lawyer to guide you through the process leading up to bankruptcy. Waiting too long to see an attorney can cause you to lose out on many benefits.
2. List all assets. Tell your bankruptcy attorney absolutely everything. If the trustee finds out about an asset that was not listed, then they will take it to sell and pay your creditors. It is very difficult to fight to keep assets that were not disclosed. This is especially important regarding any potential cause of action you have, which means any potential lawsuit you might file against anyone for any reason, such as personal injury, wrongful mortgage lender misconduct, wage claims, and employment discrimination claims.
3. Make sure your attorney knows the exemption statutes and correctly applies them.
4. Make sure you live in the house that you are claiming for your homestead exemption.
5. If you are a real estate agent you must carefully plan the timing of filing your chapter 7 case with the advice of your attorney. Don't file chapter 7 while you have any open escrows or pending sales. The income of real estate agents is unique, and is treated as an asset for purposes of chapter 7, and must be treated with the utmost care. This is similar for an insurance agent.
6. Do not pay back any money owed to family members within one year. These transfers are called preferences, and the trustee can sue your family members to get back the money you paid them.
7. If your income is seasonal, plan ahead with your bankruptcy attorney to find the best time to file your case so that your qualification for chapter 7 or 13 can be properly calculated. This takes great expertise in the means test calculations.
8. Don't transfer title to any asset to another person before filing the case. Do not take your name off title to a house or car without first talking with your bankruptcy attorney about it. Transfers like this are looked on as fraudulent in bankruptcy, and can have the consequence of losing that asset, even if the asset could have been protected if you had kept it in your name.
1. Don't wait to the last minute to file your case to stop a foreclosure sale. Timing is important.
2. Don't try to file your own case without an attorney to stop a foreclosure sale. This can make it more difficult and expensive for an attorney to fix later.
3. Don't take the advice of bankruptcy paralegals or mortgage foreclosure consultants, nor let them fill out bankruptcy paperwork for you. They almost always get it wrong, and it causes more harm than good. This is because the cases are almost always dismissed, and filing new bankruptcy cases after that results in reduced protection under the automatic stay. The Bankruptcy Automatic Stay is what protects your house from foreclosure during the case. In your first bankruptcy case, the Stay is automatic, and exists for the whole case, which is typically 5 years. In the second bankruptcy case pending within 12 months, the Automatic Stay is only good for the first 30 days, unless you file a special motion to extend the Stay for the rest of the case, and that motion must be filed and resolved before the 30 days is up. In the third bankruptcy case pending within 12 months, there is no Automatic Stay, and you must file a special motion to have the Stay imposed for the duration of the case. Many people lose their homes by filing multiple bankruptcy cases following the bad advice of mortgage foreclosure consultants and paralegals.
4. Make your first Bankruptcy Plan Payment before the first meeting of creditors. Your first bankruptcy payment is due within 30 days of filing your case, even though it may take several months to confirm your plan, and even though the payment may change.
5. File all your tax returns for the last 5 years. This is required. Also, in your bankruptcy plan you must pay your back taxes owed for the most recent 3 years, and therefore you need to know how much you owe so your plan payment can be properly calculated.
6. Don't file chapter 13 within a month or more of financing a new car loan. If you finance the purchase of a new vehicle before filing chapter 13, make sure the financing is completed and you have made at least one or two monthly payments to the financing company before you file the bankruptcy, or it could cause the financing to fall through, and result in the loss of the car.
1. Don't try to file your own civil lawsuit in state or federal court without an attorney to stop a foreclosure sale. This can make it more difficult and expensive for an attorney to fix later.
2. Don't wait to the last minute to call an attorney. If you call an attorney less than ten days before a foreclosure sale, you run a great risk of not having enough time to get a temporary restraining order (TRO) to stop the sale in state court. If you wait too long and don't give your attorney time to get you a TRO, you may be left with bankruptcy as your only option to stop the sale. This may be very problematic if you have not previously consulted with a bankruptcy attorney and understand whether you qualify and what it may or may not be able to do to resolve your situation.
3. Read every document you get in the mail. Don't ignore it put it aside. Read it, and call an attorney if you don't understand it.
4. Closely monitor foreclosure sale dates. Lenders and servicers will often set foreclosure sale dates, but then shortly before the scheduled date they will postpone it for a month or two. This can happen repeatedly, and you don't want to lose track and have the house sold when you don't expect it. There are certain notice requirements under the law, but lenders don't always follow them.
5. If you have an existing civil case against your lender, make sure you or your attorney is pursuing discovery by demanding documents and following up to get them. I often have clients come to me late in their civil case during a motion for summary judgment or facing trial, and there has not been any discovery done in the case. This makes it extremely difficult or maybe impossible to prove the case.
6. Keep proof of your loan modification applications that you submit to the lender, including proof that you faxed it.
7. Write down notes of your phone calls with your lender, including who you talked to, and what was said.
8. If you think your mortgage servicer is over charging you for fees or interest or escrow for taxes and insurance, don't stop paying hoping to resolve the dispute before sending more payments. Don't pay a reduced amount based on what you think the payment should be. This almost always leads to serious defaults and makes it much more difficult to fix the problem. Don't give the lender an excuse to claim your loan is in default.
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