Frequently Asked Questions
Bankruptcy is a proceeding in which you have a fresh financial start if you cannot pay your debts. However, filing for bankruptcy is a huge decision. Sacramento Bankruptcy Lawyer can guide you in determining whether it is the best option for your financial situation. We recognize that you have numerous questions and have compelled some frequently asked questions to help you make informed decisions. While the answers you find could dispel some myths, they cannot replace seasoned Roseville legal representation.
As of August 2023, every filer pays $313 and $338 as filing fees in Chapter 13 and Chapter 7, respectively. However, you can pay less in Chapter 7 should the bankruptcy court grant you a fee waiver. You will also pay between $50 and $75 for debt management and credit counseling programs.
If you seek legal representation, you can pay your attorney fees upfront.
No. You are obligated to pay for it.
However, in rare cases, you can discharge your student loan through an Adversary proceeding in your bankruptcy case.
Receiving a bankruptcy discharge eliminates your responsibility to repay the debt.
Nevertheless, you should remember that the mortgage firm has your home’s lien. That means you should continue making monthly payments to keep the house.
While you have to testify at the meeting of creditors, the Federal Bankruptcy Court has since moved the hearings to telephonic hearings instead of in-person hearings. You will be given a phone number to call for your hearing and a specific code to enter. You will then be connected to a live conference.
In most cases, you will go to court for a “meeting with creditors,” proceeding to meet with the creditor(s) who choose to come and the bankruptcy trustee. You will answer questions concerning your financial situation and bankruptcy paperwork during the meeting.
You can also appear before the judge if you dispute a debt or when a complication arises.
A filer can bring their bankruptcy case to court after residing in the state for more than 180 days. Nevertheless, you should live in the Golden State for over 730 days before taking advantage of its exemptions.
Unlike other states, California does not allow filers to choose between federal and state bankruptcy exemptions to keep their assets in bankruptcy. The state also has two state exemption systems, and you should select the exemption that suits you best.
Below are the most common 704 exemptions (System 1):
- Homestead exemption — A filer can exempt personal or real property you live in when bringing their bankruptcy case, including stock cooperative, condominium, planned development, mobile home, community apartment, or boat, up to six hundred thousand dollars.
- Motor vehicle exemption — You can exempt your motorcycle, truck, or car’s equity up to $3,625.
- The law provides that pension and retirement benefits, including public retirement benefits and private retirement plans and benefits, are exempt.
- Personal injury and wrongful death damages.
- Cemetery and burial plots.
- Student financial aid.
- Health or disability insurance benefits.
California 703 exemptions (System 2) allow you to protect only assets listed in the bankruptcy case. Common exemptions include the following:
- Homestead exemption — Homestead exemption is $31,950 for any personal or real property used as your residence.
- A filer can exempt $6,375 of equity in your motor vehicle.
- Wildcard exemption — A filer can protect $1,700 and any used homestead exemption or burial toward any asset they choose.
- Child support and alimony.
- Health aids.
- Animals, books, crops, musical instruments, household appliances, clothing, and appliances up to eight hundred dollars per item.
- Disability benefits.
Here are some actions you can take when a debt collector or your creditor takes legal action against you:
Verify If Your Debt is Correct
You should not assume that your debt is correct because the firm has filed a complaint in court. It is a common phenomenon for debt collectors to mistakenly sue a person. The lawsuit could also feature incorrect details, like late payment information, and sometimes they could be fraudulent.
The Consumer Credit Protection Act allows you to ask for debt verification, provided you send a written request.
Consult a Lawyer
Next, you should seek skilled legal representation. The attorney will answer the complaint, develop a defense, negotiate a settlement, and represent you in bankruptcy court.
Respond to the Lawsuit
You have thirty days to respond to the summon. Do not ignore the lawsuit. Instead, review your available options and select what suits you best. Some responses include the following:
- Settling your debt.
- Consult a credit counselor who can help you develop a debt management plan to clear the debt over a few months.
- Go to court if you do not owe the loan, the debt is time-barred, or you have a strong defense.
- If your creditor is suing you for a defaulted debt that you cannot afford to pay, bring a bankruptcy case.
When filing for bankruptcy, you must list your credit cards, even those with no balance. The California bankruptcy court will then inform your creditors that you filed for bankruptcy, and creditors could deny you borrowing privileges.
Excluding debt is not optional when filing for Chapter 7 bankruptcy. California bankruptcy laws require debtors to write down their debt on the bankruptcy paperwork.
After filing for bankruptcy, your contracts, including secured car loans, credit cards, and leases, will be canceled. Due to the automatic contract cancellation, credit card companies must cancel your cards because they cannot enforce ongoing obligations without a contract.
When filing for bankruptcy, part of the paperwork you should submit is a Statement of Financial Affairs (SOFA). You must provide information about your financial dealings on the form, including the following:
- Businesses under your name.
- Financial history, including your previous bank accounts.
- Civil cases you are party to.
- Property a creditor has foreclosed or repossessed.
- The property you have transferred or sold.
- Property you are keeping for another person.
- Gifts to friends, loved ones, and religious organizations.
If you give out a property before filing a bankruptcy case, you should reveal it in your bankruptcy paperwork. The bankruptcy trustee could take measures to recover the property you transferred if the transfer happened within two (2) years before you filed for bankruptcy.
If you file for Chapter 7 or Chapter 13 bankruptcy, the United States Trustee appoints a bankruptcy trust to administer your case. The bankruptcy’s duty varies depending on whether it is a Chapter 7 or Chapter 13 case. However, in both types, the trustee evaluates your bankruptcy petition, examines fraud, and tries to maximize the money your unsecured creditors will receive following your bankruptcy.
Here is what could likely happen if you transferred property to a loved one to prevent the bankruptcy trustee from selling it for your creditors' benefit:
- The trustee could ask for the property to be returned or payment of the value of the car.
- The trustee will file a deceitful transfer civil case to recover the property if an agreement is not reached.
Most fillers prefer Chapter 7 because it does not require them to repay their creditors. However, others choose Chapter 13 because it offers options that Chapter 7 does not, making it better.
Here are some typical reasons you could prefer Chapter 13:
- Your income exceeds the Chapter 7 means test.
- You can pay your arrears over three to five years if you are behind on your mortgage payments and want to keep your house.
- You can stop a collection action like a wage garnishment while paying off your tax bill and other non-dischargeable debts in your repayment plan.
- You can keep your non-exempt property that the trustee can sell in Chapter 7.
According to the United States Bankruptcy Code, you should meet the criteria below to qualify for Chapter 13 bankruptcy:
- You are not a business entity — Only those filing jointly and individuals can bring a Chapter 13 bankruptcy case. While, as a business owner, you cannot bring in your business name, you bring in your name for the debts you are liable for.
- Your prior bankruptcy bars you — You do not qualify if you discharged debt in Chapter 7 within the previous four years or in Chapter 13 within the last two years. You have to wait for the requisite period to elapse.
- The court has not dismissed your case within the last six months. The bankruptcy judge can dismiss the case if you violate a court order or request that the judge dismiss your case after your creditor asks to lift an automatic stay.
- You have filed your income tax returns for the last four years.
- Your proposed repayment plan pays all required debts, including secured and priority debts.
- You have enough income to repay your debt.
- You have satisfied the credit counseling requirement — You must provide the court with a certificate of proof proving you completed debt counseling 180 days before filing for Chapter 13 bankruptcy.
You must pass the mean test to file a Chapter 7 bankruptcy case. The test only applies to higher-income filers. That means you are exempt from taking the test and can file Chapter 7 if your income is below the California median.
To determine your mean test, you start by determining whether your current monthly income is less or more than California’s median income for your family size. Monthly income is the gross income earned over the last six (6) months before filing your bankruptcy petition multiplied by two.
If you earn less than the median, you pass. Nevertheless, you do not automatically fail the test and have another chance to be eligible if you make more than the median.
Next, you should deduct the permitted monthly expenses from your current expenses to get your monthly disposable income. You do not qualify for Chapter 7 if your disposable income is higher. Instead, you should pay the disposable income to your lenders through a Chapter 13 repayment plan.
Some homeowners can fail to keep up with their mortgage payment plan because of losing a job, sickness, or a reduced income during the previous year. If you are facing home foreclosure, you should review the available options to maintain your home ownership. One alternative is filing for bankruptcy to halt your home’s foreclosure. Involving a bankruptcy attorney alleviates the anxiety and stress of foreclosure.
The California foreclosure law requires you to acquire a Notice of Default. The notice states that you have defaulted per the loan contract terms. Before the mortgage firm proceeds to foreclose your home, it must wait three (3) months to issue you a Notice of Sale Date. The Notice of Sale Date indicates the date your home will foreclose. The date should be 21 days from when you received the Notice of Sale Date.
California Chapter 7 bankruptcy can temporarily halt your home closing if the mortgage firm requests a foreclosure court order due to your late payment. Chapter 13 bankruptcy allows you to repay your mortgage arrears in a monthly repayment plan, allowing you to retain homeownership.
If you are legally married, you could file for bankruptcy without involving your wife or husband. However, you can choose to legally file jointly. If you are married and plan to file without your partner, retaining a qualified and skilled bankruptcy attorney can help you file for bankruptcy without negatively affecting your spouse.
Filing bankruptcy without your spouse protects your partner due to the bankruptcy stay and discharge injunction. Typically, one spouse filing for bankruptcy could be the best action plan. However, if your significant other has huge debts, it is advisable to file jointly so that you can start rebuilding your creditworthiness.
Before a bankruptcy petition, a creditor can take up to 25 percent of a debtor's net pay. After filing a bankruptcy case, the wage review is sometimes halted, and the creditor collection will likely no longer have a claim against you.
The court closes during all federal holidays and occasionally in California for district-wide training or other related functions.
The federal holidays include the following:
- New Year’s Day.
- Martin Luther King Jr.’s Birthday – Third Monday of January.
- President’s Day – Third Monday of February.
- Memorial Day – Last Monday of May.
- Independence Day – July 4.
- Juneteenth Independence Day – June 19.
- Labor Day – First Monday of September.
- Columbus Day – Second Monday of October.
- Veteran’s Day – November 11.
- Thanksgiving Day – Fourth Thursday of November.
- Christmas Day – December 25.
There are several bankruptcy forms, including the following:
- Petition package — This is a collection of documents to begin a specific bankruptcy proceeding.
- Petition — This is the formal request document when filing for bankruptcy, and the bankruptcy petition has critical information relating to a debtor, including the contact details, lawyer, bankruptcy chapter type, and signature.
The court and bankruptcy trustees will require 30 more bankruptcy records and documents after you file your petition. The paperwork helps them understand how to handle debtors and their monetary situation. These bankruptcy documents include the following:
- Schedules.
- Exhibits.
- Statements.
- Summary.
- Disclosure.
- Verification.
- Declarations.
- Notice.
- Debtor’s Certification.
- Venue Disclosure (Chapter 11 bankruptcy only).
- Plan (Chapter 13 bankruptcy only).
You must understand the California bankruptcy proceedings, making it essential to create ample time to collect the appropriate information and finalize your petition package paperwork before filing for bankruptcy. Your bankruptcy lawyer can also guide you.
The Bankruptcy Code is a collection of statutes that govern the legal rights and obligations of people, trustees, businesses, and lawyers who are parties to a bankruptcy petition. Parties discussing different rights and responsibilities during a bankruptcy case can often cite these legal statutes.
After you bring a bankruptcy case, a court imposes an automatic stay directive against specific creditors who seek to begin or keep taking legal action against you or your property. California Bankruptcy Code Section 362 addresses the automatic stay.
A person cannot receive a bankruptcy discharge in a Chapter 7 case if they received one under a Chapter 7 case brought in the previous eight (8) years or a Chapter 13 case brought six years ago. They cannot receive a Chapter 13 discharge if they discharged their loan under a Chapter 7 case brought four years ago or Chapter 13 brought in the previous two years.
You could bring your bankruptcy case and discharge your debt without time restrictions if the court did not discharge you in your previous bankruptcy case.
Obtaining an automobile loan or a mortgage can be challenging after the court finalizes your petition. However, by restoring your creditworthiness, your options improve with time. For example, obtaining a secured credit card or installment loan can be an excellent place to start.
A bankruptcy petition lowers your credit rating and can remain on the credit score in public for several years. It stays on your credit report for ten (10) years and seven (7) years if you file Chapter 7 and Chapter 13 bankruptcy, respectively.
Nonetheless, how it affects your credit rating depends on your monetary situation before filing the case.
Some measures you can implement to restore your credit rating include the following:
- Staying up to date on your utility bills.
- Borrowing what you can repay.
- Obtaining a new secured credit card.
Note that bankruptcy filing boosts your credit score more than it hurts it.
The goal of both Chapter 13 and Chapter 7 is to discharge debts. The main differences are eligibility requirements, how long the bankruptcy takes, which property you can keep, and whether you should repay the debt.
In Chapter 7, you do not have to repay your debt. The bankruptcy trustee will take non-exempt assets, sell them, and distribute the sale proceeds to your creditors.
On the other hand, you should bring a three-to-five-year repayment plan with the court to pay a portion or all your debts. You will receive a discharge once you complete the program.
After filing for bankruptcy, your creditors should cease collection attempts against you, and they cannot do the following:
- Contact you at work or home.
- Foreclose your home.
- Repossess your vehicles.
Bankruptcy aims to discharge your debts or create a repayment plan to repay all or part of the debts. By filing a bankruptcy petition, you can:
- Safeguard your property from debt collectors.
- Remove liens on a property obtained through debt.
- Acquire relief to stop repossessions, utility shutoffs, garnishments, attachments, eviction, and foreclosure.
Having a significant debt is unbearable. It is devastating enough to manage the loans, but trying to find a remedy without understanding your options can worsen the matter. If you are contemplating bankruptcy, you have several questions. Sacramento Bankruptcy Lawyer understands every case is unique and can analyze your finances and advise you accordingly. We can gladly answer your question if you need more clarification or feel we should have discussed it.
Take your initial step towards financial relief by calling our Roseville legal office at 916-800-7690 to schedule a free, confidential consultation today.
