Bankruptcy FAQ
20 Questions Frequently Asked About Bankruptcy
Please click a question for the answer:
- Will I lose my home, car, or personal possessions?
- When will my creditors stop calling?
- Do I have to list all of my assets?
- Can I transfer assets before I file for bankruptcy?
- Can I leave out creditors?
- Must both spouses file for bankruptcy?
- What are the different types of bankruptcy?
- Can a bankruptcy change the terms of my mortgage?
- If I want a loan modification, should I try for it before, during, or after a bankruptcy?
- Should I file for bankruptcy now or later?
- Do I have to go to court?
- How will a bankruptcy affect my credit report?
- How long will a bankruptcy show on my credit report?
- Is there life after bankruptcy?
- What are my rights as a landlord if a tenant files for bankruptcy?
- My lease states that a bankruptcy filing terminates my rights. Is this true?
- Can I still operate my business in bankruptcy?
- How will bankruptcy affect my business?
- How does a bankruptcy end?
- How do I start the process?
1. Will I lose my home, car, or personal possessions?
Generally, the answer is NO. When an individual or married couple files for bankruptcy relief, all of their assets become property of the bankruptcy estate.
For most people, their house (primary residence) comes first. Normally, if you want to keep your primary residence (and can afford to do so), you can. Plus, some or most of your equity may be protected. A single person, under age 65, can protect up to $75,000 of equity. Married couples can protect up to $100,000 of equity, and a person or couple over age 65, or with disability, or 55 years of age or older with limited income can protect $175,000 of equity in a bankruptcy. However, in order to be protected, the homestead exemption must be established and certain steps taken prior to the bankruptcy filing. The same holds true for other assets, which if not properly exempted, can be lost in bankruptcy.
Other assets such as ordinary household goods and furniture, appliances, clothing and jewelry can be protected through the use of exemptions. Other items receive different treatment and protection, including vehicles, life insurance policies, qualified retirement plans, and IRAs or SEP IRAs.
Through careful pre-bankruptcy planning, the attorneys at Jaurigue Law Group can minimize or eliminate the risk that any assets will be lost by virtue of a bankruptcy filing.
2. When will creditors stop calling?
Creditors usually stop calling as soon as you can give them the name and phone number of your bankruptcy attorney. Once your bankruptcy papers (called a “petition”) are filed, an automatic restraining order, called a “stay” is imposed. This prevents all creditors from taking any further action to collect a debt. All creditors will receive a notice directly from the court within about 10 days from the filing, instructing the creditors as to the bankruptcy filing date, case number, and other relevant information and deadlines. If a creditor willfully violates that stay, they can be sanctioned.
3. Do I have to list all of my assets?
YES, including those in other states or countries.
4. Can I transfer my assets prior to filing for bankruptcy?
If you transfer assets to a friend or relative, you must receive fair value, otherwise the transaction can be voided and may be considered a fraudulent transfer. You cannot transfer assets in order to cheat your creditors out of their claims, which might be able to be paid through the sale of such assets. You are, however, entitled to transfer assets into property which may be legally exempted from the claims of certain creditors. This is a key area in which the attorneys at Jaurigue Law Group are well versed, and can properly advise you before your bankruptcy is filed. Also, payments to creditors which favor one creditor at the expense of another may be voided as a “preference.” Under the Bankruptcy Code, all similar type creditors are to be treated equally. So, for instance, if you borrowed money from a friend and want to pay it off before you file bankruptcy, you can’t, because it would be considered a preferential payment.
No, all debts must be listed in a person’s bankruptcy papers. You may not want to include a particular creditor, such as a relative, friend, or credit card company whose card you want to keep. However, you must include all of your creditors. You are committing fraud if you do not include all persons to whom you owe, or may owe money. Incidentally, if you have a credit card that does not have a balance due on it, it need not be listed. Many times, these zero balance credit cards can be used after the bankruptcy is over to re-establish credit.
Back to top 6. Must both spouses file for bankruptcy? NO. One or both spouses can file, individually or together. California is a community property state, so this depends partially on whose name the assets are held in. It often makes more sense for spouses to file together. The attorneys at Jaurigue Law Group assist our clients on a case-by-case basis, to determine how to maximize the preservation of their assets through bankruptcy. 7. What are the different types of bankruptcies? There are three different types of bankruptcy available to most individuals, and two types for businesses. We refer to them as “Chapters” because each has been created under a different chapter of the Bankruptcy Code. Chapter 7 Chapter 13 In a Chapter 13, you may be able to get rid of 2nd or junior liens on your real property if the value of your home is worth less than you owe on your first mortgage. Chapter 11 8. Can a bankruptcy change the terms of my mortgage on my primary residence? As a general rule, a bankruptcy will not affect the terms of a mortgage on your primary residence. A Chapter 13 bankruptcy allows a person to repay delinquencies over a three or five year period, but it does not change the terms of your mortgage. However, because this area of the law is complex, you should always consult an attorney to discuss this issue. 9. If I want a loan modification, should I try for it before, during, or after a bankruptcy? A loan modification may be available either in lieu of, or before a bankruptcy – and sometimes even after a bankruptcy. The decision of when to file for a loan modification depends on your particular financial situation, and is not one to be made lightly. This question and its answer dovetails into the one immediately below this. 10. Should I file for bankruptcy now or wait until later? The decision of when to file a bankruptcy case is a critical one. At Jaurigue Law Group, our bankruptcy lawyers know that the optimal time to file is based on a number of circumstances. We carefully assess all factual and legal issues of each client on a case-by-case basis in order to ensure the best outcome. Because of our careful and analytical approach, we can make recommendations which serve each client’s best interests and help them achieve their goals. In a Chapter 7 bankruptcy, you must attend a hearing called the “Meeting of Creditors,” or the 341(a) hearing. All creditors get notice of this hearing, can attend, and are allowed to ask you questions during the examination (although most don’t because these matters are handled by your attorney prior to the hearing.) The hearing is not held in court before a judge, but is held before the trustee who is administering your case for the court. In a Chapter 13 proceeding, in addition to the hearing before the trustee, depending upon the facts and circumstances of your case, you may have to appear before the court at one or more confirmation hearings. 12. Will a bankruptcy affect my credit report? Yes. A bankruptcy filing is a derogatory credit item. In our vast experience as attorneys representing people with severe financial problems, however, we have found that this question is simply the wrong question to ask, because nearly all people who consult a bankruptcy lawyer already have a large amount of debt, are way behind on their obligations, or have judgments or tax liens recorded against them. As a result, their credit rating has already taken a big hit. It is unlikely that any lender or leasing company will advance credit to such people due to their current financial circumstances. So, while your credit will be affected, the discharge you receive in bankruptcy will be the catalyst for you to begin improving your credit. 13. How long will a bankruptcy show on my credit report? 14. Is there life after bankruptcy? Yes. The credit market is much more competitive than in the past. If you are employed and have income, and have maintained current payments on your vehicle or home loans through the bankruptcy process, you may be invited to apply for new credit shortly after your discharge. In some cases, some credit card companies may offer you a chance to keep a current card by agreeing to repay some or all of your current balance. You cannot file another Chapter 7 Bankruptcy for eight years. At Jaurigue Law Group, we have never had a repeat bankruptcy client (but many have come back to us to handle other legal matters of theirs). In addition, real estate brokers and lenders tell us that even after receiving a discharge in bankruptcy, many people still qualify for loans to buy new homes. This is especially true if they have a sizeable down payment and a good payment history after the bankruptcy. 15. What are my rights if a tenant files for bankruptcy? If a tenant files bankruptcy, your ability to enforce your rights is limited, and subject to court approval. At Jaurigue Law Group, we advise landlords to contact us immediately upon learning that a tenant of theirs has filed for bankruptcy relief. Through early intervention, the landlord is often able to better protect his/her rights. It is important for your attorney to monitor the bankruptcy case closely, to meet all applicable deadlines and to timely file a proof of claim. 16. My lease states that a bankruptcy filing terminates my rights. Is this true? NO. Nearly all leases contain such a provision, and that a bankruptcy filing constitutes a default under the lease and terminates the tenant’s rights. However, such provisions are not enforceable. The bankruptcy filing has no impact on your rights under the lease. 17. Can I still operate my business in bankruptcy? The answer depends upon which type of bankruptcy you file. A Chapter 11 bankruptcy filing allows business operations to continue after the bankruptcy is filed. Chapter 11 is available to both individuals and to businesses. Our firm has experience and expertise in filing Chapter 11 bankruptcy for individuals as well as for businesses. Chapter 11 is most appropriate for individuals who have significant debt problems but also have significant equity in assets, such as their home or their business, which they wish to preserve. For businesses, Chapter 11 is intended to enable a transition from pre-bankruptcy to post-bankruptcy operations. A business in bankruptcy does not pay its pre-bankruptcy creditors until the court permits it to do so (usually many, many months later), so cash flow often improves immediately. In Chapter 7, a business is liquidated and operations do not continue. 18. How will bankruptcy affect my business? This depends on your type of business. Trade creditors are often less willing to provide credit to a company once a bankruptcy is filed. But, trade creditors are usually willing to provide new credit because they are entitled to priority status as a result of post-bankruptcy sales. At Jaurigue Law Group, our lawyers will devise strategies designed to help maintain your relationships with suppliers. In a Chapter 11 bankruptcy, a company has additional administrative tasks, such as the opening of new bank accounts, and providing a profit and loss statement and cash report on a monthly basis to the Office of the United States Trustee. Of course, there is also the burden imposed as a result of legal fees incurred in connection with a Chapter 11 case. Our firm can and will devise a creative way of easing this burden for our clients. 19. How does a bankruptcy end? Most, but not all debts are dischargeable (legally terminated) in bankruptcy. There are two categories of exceptions to the general rule. First, there are statutory exceptions that preclude a discharge. These include obligations to pay child and/or spousal support, student loan obligations, damages arising from a drunk driving conviction, or recent income taxes (less than three years old.) The other category is for “bad act” debts, or those where a creditor can prove dishonesty, including fraud or misrepresentation. A normal Chapter 7 bankruptcy takes about 120 days from the date that the case is filed until the discharge is received. At this point, most consider the bankruptcy final. A Chapter 13 case requires monthly payments to the trustee from future income for a fixed period of time (usually 36 to 60 months) and the discharge is usually received within six months after the last payment is made. In a Chapter 11, the business or individual “exits” from bankruptcy by confirming a plan of reorganization. The plan establishes new contracts between the business and its creditors. For example, if a bank loan requires monthly payments of principal and interest at a rate of 8%, all due and payable in three years, the bankruptcy plan may provide for interest-only payments every six months, with a final balloon payment in seven years. 20. How do I start the process? Call or e-mail Jaurigue Law Group for an appointment. We will evaluate your particular needs, requirements and timing. We’ll go over the facts of your particular situation and ask you questions. We will answer all of your questions, and discuss alternatives with you. Then, when we have a clear understanding of your situation, we will give you our opinion, as well as discuss any problems we see. We’ll also discuss our services with you. We will tell you what we can do for you and explain how the fees and costs work. We’ll also explain our “Client Bill of Rights,” which is our way of ensuring that you receive great service and satisfaction. Every client is different and every case is different. We will tell you what we think is best for you under your circumstances. This way, you’ll understand exactly where you stand, whether you decide to use our office or not. As a result of this consultation, you will know what to expect in the coming weeks and months, and you will have the information you need to be able to make informed decisions about your case. You’ll leave our office more knowledgeable, and more confident about the future.
Chapter 7 is often referred to as “straight bankruptcy” and is the most common bankruptcy filed by both individuals and businesses. Your assets are protected by exemptions, free from the claims of creditors (except mortgages and secured debts). If there are any assets that cannot be exempted, they are sold and the proceeds divided among your creditors. However that rarely occurs. An individual’s debts are then discharged (legally terminated), and you get the “fresh start” that is guaranteed every citizen under the law.
Chapter 13 allows you to pay some or all of your creditors off in monthly installments over time (usually three to five years). A payment “plan” is prepared which allocates how much money will be paid to your creditors each month. This plan is submitted to the Bankruptcy Court and the Chapter 13 Trustee (the court-appointed lawyer who supervises your bankruptcy) for approval. To qualify for Chapter 13, your unsecured debts must be less than $360,475 and your secured debts must be less than $1,081,400. Chapter 13 is used most often when you are behind on your mortgage payments and you do not have the ability to bring the payments current in the next few months. It allows the past-due payments to be paid in installments over 36 or 60 months. Also, if you have considerable assets which could be lost in a Chapter 7, a Chapter 13 permits you to keep all your assets because, over time you will be paying your creditors the value of these assets.
Chapter 11 is similar to a Chapter 13 in that it also reorganizes debts by submitting a repayment plan to the court. This chapter is used when debts exceed the dollar limits of a Chapter 13 (such as when you have a number of property mortgages.) Chapter 11 is more complex (and hence costly,) but does offer greater flexibility. Businesses and high net worth individuals usually file under Chapter 11.
A bankruptcy will stay on your credit record for 7 to 10 years. We can suggest ways that clients can begin to rehabilitate their credit immediately after the bankruptcy filing.
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