What is Bankruptcy?

Lawyers usually refer to any proceeding under tile 11 of the United States Code as a bankruptcy proceeding.  The whole process usually starts when a debtor, someone who owes money, files petition with the bankruptcy court asking for protection from creditors. The goal of the bankruptcy system is to give each debtor a fresh start so that they can once again resume being a productive member of the economy.  The constitution specifically provides Congress with the power to make bankruptcy laws.  The founding fathers were concerned that America not become a place where debtors became virtual slaves to their creditors or be thrown in the debtors prisons found in Europe.

What is Chapter 7 bankruptcy (liquidation)?

A Chapter 7 bankruptcy is sometimes called a liquidation.  All of your non-exempt property is turned over to the Chapter 7 trustee who sells it and uses the money received to pay your unsecured creditors on a pro-rata basis.  You can then receive a discharge and get a fresh start.

What is a Chapter 13 bankruptcy (reorganization)?

A Chapter 13 bankruptcy is often called a personal reorganization.  The focus of a Chapter 13 bankruptcy is the reorganization plan, which you and your attorney will create.  In the reorganization plan you lay out your budget and show how much extra money you have left over each month to pay off your debts.  This money is called disposable income.  You then promise to pay this amount each month for a period of time (usually 3 to 5 years).  If you make your payments as promised, you will receive a discharge of your eligible debts. In order for the reorganization plan to be approved by the court your creditors must receive more from you under your plan than they would if you liquidated under Chapter 7.  Proper budget planning is essential to a successful Chapter 13 bankruptcy. 

The benefit of a Chapter 13 over a Chapter 7 is that you can discharge some debts not dischargable under Chapter 7 and you can keep more, if not all of your property.

What is exempt property?

Exempt property is all the property you do not have to give to the trustee to help pay off your creditors. What is exempt depends on both federal and state law.  In California, the value of the property you can keep as exempt varies according to the type of property you are asking about. Proper exemption planning is an important part of personal bankruptcy.

What is a discharge?

If you successfully complete your Chapter 7  or your Chapter 13  you will receive a discharge of your eligible debts.  This will mean you are no longer legally obligated to pay the discharged debt.

What debts are eligible for discharge?

Not all debts can be discharged in bankruptcy.  Examples include alimony and child support debts as well as judgments for personal injury that resulted from driving under the influence.  Some debts, like judgements for fraud,  can only be discharged if you successfully complete a Chapter 13 plan but not under Chapter 7. Choosing which bankruptcy is right for your debts is an important step.

Can I keep my property?

In a Chapter 7 a debtor is able to retain exempt property.  All remaining property is turned over to the Chapter 7 trustee who sells it and uses the money to pay your debts.  Proper exemption planning and advice is critical if you want to keep all the property you can under the law.

What about my car?

People need cars in San Diego, and losing your car can be devastating blow.  There are ways to file bankruptcy and keep your car, but you have to plan for it and do it right.

What about my house?

Bankruptcy is about giving debtors a fresh start and it would not be much of a fresh start if you found yourself out on the street.  So the bankruptcy system does have ways to protect your home.

Bankruptcy is often used by homeowners as a tool to prevent foreclosure.  By filing a bankruptcy petition you can stop a incomplete foreclosure proceeding.  But you need to be serious about reorganizing or otherwise dealing with your debts.  A haphazard filing can do more damage in the long run.

Even if you decide to liquidate some of your equity can be protected and under certain circumstances you can keep on living in your home.

What about my business?

Businesses and their owners can file bankruptcy but it is tricky to determine which kind is the right kind.  Filing the wrong kind of bankruptcy for your situation can leave you with nothing.  Sometimes the only people who benefit at all are the creditors’ attorneys.  Early planning can make everything work smoothly.  Even if you never file, the peace of mind from knowing your options and understanding the system can help you focus on running your business and getting it back on track.

What if I am a creditor?

At first blush you may think that you will never see any money, and that could be true.  But sometimes there are grounds to lift the automatic stay and get your collateral now.  Or maybe the debtor has hidden assets to uncover to satisfy your debt.  Just as important are all those deadlines that you must not miss if you want to keep your claim alive.  If you are a creditor, don’t give up just because someone files bankruptcy, but do get some help.

What is the automatic stay?

When a debtor files a bankruptcy petition the court issues an order that stops all creditors from taking any action against the debtor’s property.  Since this happens automatically when the petition is filed and it “stays” all action against the debtor, it is called the “automatic stay.”  Violating the automatic stay is serious an can lead to penalties.  Any action done in violation of the stay is also void.  But one can get relief from the stay and even retroactive relief.  Knowing how and when to seek the relief is important.

Will I have to go to court?

All debtors have to appear at a meeting of creditors called a 341(a) hearing.  The trustee and any creditor can ask you questions about your property, your debts and your employment.  Your attorney should be there and should help you prepare for the questions before the hearing.  Helping you with the 341(a) hearing is one of the big jobs you for which you pay your attorney.

Can I keep my bankruptcy private?

No.  A bankruptcy filing is a matter of public record.  The public purpose of bankruptcy requires a full and fair disclosure of your financial situation.

What about attorney’s fees?

I offer all clients a free half hour initial consultation.   After that, the attorney’s fees for debtors are quite reasonable but vary according to the complexity of the case and whether it is a Chapter 7 or 13 proceeding.

 Chapter 7 fees are usually paid up front, and sometimes Chapter 13 fees are paid through the reorganization plan.  We can also take your fees on installment.  In general, debtors pay a flat fee for certain set of services.  We then can make arrangements for additional services for more complex or rare items on both a flat fee or an hourly basis.

If you are a creditor, we offer services for a flat fee in many simple matters, while more complex cases are usually handled on an hourly basis.

In addition there may be other fees charged by the court or the trustee, which we can explain in person.

Disclaimer

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