1. Do the answers to the following questions constitute legal advice?
No. These are general questions and general answers for general situations in the state of California only. In no case do the following answers constitute legal advice or create an attorney-client relationship between the reader and the Law Office of Vernon L. Ellicott. Please contact us for answers to specific questions about your case.
2. What is the difference between a chapter 7 and chapter 13?
a. In Chapter 7, you can only keep certain property. You discharge (or cease to be legally liable) for all unsecured debt; i.e., debt that is not secured by property such as a house or car. No payments are made to the unsecured creditors, but you have to keep paying for the secured debts such as homes or cars. Chapter 7's usually last less than 6 months, and are much less expensive than Chapter 13's.
3. What is a Chapter 11?
A Chapter 11 is a type of bankruptcy for individuals who do not qualify for Chapter 13’s or for businesses. You pay back part of what is owed over a three-year period. This is a good option for a business affected by the COVID-19 and which needs to catch up on lease or vendor payments. Unfortunately, Chapter 11’s are very, very complicated and much more expensive than Chapter 13’s.
4. Do I have to go to court?
You have to attend a ' 341(a) Meeting of the Creditors in all chapters. These usually last less than one hour, but are longer in Chapter 11’s and 13's. You must also attend a confirmation hearing in a Chapter 13, which can last all day.
5. What happens when I go to court?
a. In the ' 341(a) Meeting of the Creditors, some creditors may show up and ask about the property you bought from them. There is a trustee who reviews your bankruptcy petition and determines if you have any assets to give the unsecured creditors in Chapter 7's. I often intervene on my clients' behalf with creditors at these meetings. Much more information is required in a Chapter 13 ' 341(a) Meeting of the Creditors.
b. In the Confirmation Hearing, the Chapter 13 trustee tells the judge whether or not you have made all the plan payments and I argue with the trustee and the judge about whether or not your plan will be confirmed. That means that the plan is accepted and no creditors can later object or try to change it. It also means that if you complete the three years under the plan, that all unsecured debts are discharged.
6. Do I really need an attorney?
a. For Chapter 7's, that depends on your experience in reading forms, interpreting the U.S. Bankruptcy Code, and talking under pressure. For most people, the answer is yes. Attorney=s do more than fill out the forms. They also attend the Meeting of the Creditors, negotiate with the creditors there and in their office, advise clients about offers to take or reject, and give legal advice in general. A paralegal can fill out the forms, but cannot represent the client or give legal advice about how to fill out the forms, or what the law says about your particular situation.
b. I do not see how anyone can do a Chapter 11 or 13 without an attorney. Chapter 13 trustees are difficult to work with and the process is very complicated. Chapter 11’s are even more difficult and corporations must be represented by an attorney.
7. How much does it cost?
a. How much are your minimum monthly payments on your credit cards? In many cases, my services cost less than your minimum monthly payments.
b. You can always find someone to prepare a bankruptcy petition for less, but it costs more to correct a problem than to avoid it in the first place. The age old saying, "You get what you pay for" is very true in paying for bankruptcy services. In most cases the difference between a competent bankruptcy attorney and a paralegal or attorney who only occasionally files a bankruptcy petition is a few hundred dollars, not much considering the risk and amount of work done by a competent bankruptcy attorney.
c. You can make payments towards my fees in some cases.
8. Will I lose my house or car?
Not if you keep making all your payments on them. Keep in mind that people often file Chapter 13's to keep their house when they are behind in house payments. In that case, you must make your house payments and the plan payments to keep your house.
9. Can I keep a credit card?
Usually not. There are some instances where you can keep a credit card, but you will want to discuss each situation with me. Remember, most people file bankruptcy because of credit cards, so why would you still want one?
10. Do both my wife and I have to file together?
No. Sometimes only one spouse files, but that is an exception. You may be able to file without your spouse if you have been married a short time or have all the debt in your name alone. Your spouse will be involved in a Chapter 13 whether their name is on the petition or not.
11. I operate a small business. Can I keep my business?
Yes, but this is usually a good reason to file a Chapter 13. You can lose your business in a Chapter 7, depending on the value of the business. The new Small Business Debtor Bankruptcy laws enacted in 2020 may help small businesses recover.
12. How long do bankruptcies take?
a. In a Chapter 7, you attend the ' 341(a) Meeting of the Creditors approximately one month after I file your bankruptcy petition. You then receive the discharge about three months after that.
b. In a Chapter 13, you attend the ' 341(a) Meeting of the Creditors approximately 45 days after I file your bankruptcy petition. The Confirmation hearing may be between 7 and 45 days after the ' 341(a) Meeting of the Creditors, depending on where your petition is filed. Once your plan is confirmed, you make your payments for five years and then receive the discharge.
c. In a Chapter 11, you attend a status conference and must file a Chapter 11 plan. You then make payments towards some of the debt for three to five years.
13. Will anyone come to my home or office?
Rarely. Occasionally if you run a business, the trustee may send out an appraiser or accountant to look at property or records. This is rare. I have never had anyone come to my clients' homes to look for property.
14. When should I file bankruptcy?
a. Before you take money out of your retirement, pension, IRA's or 401k plans. You can protect these funds from creditors and you should not use them to live on. If you can't pay your bills, leave the retirement funds for retirement and file bankruptcy.
b. You should also file before you are so deep in debt that you are borrowing from one credit card to pay another.
c. Here is a rule of thumb I use to determine if people should file: Do not file if you owe less than $10,000 in unsecured debt it is not worth it. If your credit card debt equals 25% of your gross annual income, then you can probably pay the credit cards off over several years with hard work and discipline. If your credit card debt equals 33-50% of your gross annual income, then you are so financially tight that you are probably barely making it. You are just making the minimum monthly payments and anything, even new tires, has a very big effect on your finances. If so, you are a candidate for a bankruptcy. Do not take retirement funds out to pay credit cards. If your credit card debt equals 60-100% of your gross annual income, then is it not a question of whether you will file bankruptcy, but when. You are borrowing from credit cards to pay the minimum monthly payments. You are probably facing judgments and lawsuits and receiving nasty telephone calls from creditors. Call me immediately to get relief. In any case, if you are facing a judgment or wage garnishment, then bankruptcy should be considered.
15. Can I discharge taxes or student loans?
a. Taxes are a very complicated issue. Some can be discharged, some cannot. Dis-chargeable taxes must be from tax returns you filed at least three years ago. There are other rules which also apply. Do not attempt to discharge taxes without consulting an experienced bankruptcy attorney.
b. Most student loans are now not dis-chargeable. There are exceptions, but they are rare.
16. I am behind on my house payments. Can bankruptcy help me?
a. Very much! In a Chapter 13, you force the lender to accept your payments and allow you to repay the amount you are behind over a 3 year period. Of course, you have to be able to make both the house payment and the plan payments. If you are out of work or had a pay cut, Chapter 13 is not likely to help you with the mortgage. I can calculate your payments fairly quickly in my office.
b. A Chapter 11 can also help a business owner with their house payments when they are behind.
c. Timing is very important in a foreclosure. I can stop a foreclosure right up to the day of sale, but why wait so long? Remember, the lender must give you a 90 day notice of foreclosure followed by a 20 day Notice of Sale before the lender can sell your home. Do not ignore the lender's notices! Read them carefully and bring them to my office with you.
17. A creditor is threatening to take my wages, can they do that?
They can take 25% of your take-home pay. Filing bankruptcy can stop the wage assessment and probably wipe out the creditor's claims entirely.
17. How does bankruptcy affect my credit?
a. It hurts your credit, but if you are reading this, chances are your credit is already bad. Bankruptcy draws a line in time when you start to rebuild your credit. When your bankruptcy is over, you can tell people that your credit was bad, but you've been rebuilding it since the bankruptcy. Just don't get behind on anything again!
b. Most people have difficulty obtaining credit within one year of the bankruptcy. You can buy a car at a high interest rate with 20% down. After one year, things get easier, as they do after two years. Many mortgage lenders will grant you a loan at their lowest interest rates four years after the bankruptcy.
c. Bankruptcies stay on your credit reports 7 to 10 years.
17. Can you stop creditors from calling me?
Yes! No creditor may contact you in any way after I file your bankruptcy petition. I often intervene with creditors prior to filing the bankruptcy petition so the creditors stop calling anyway.
Thousand Oaks Office
Certified Family Law Specialist*
(*State Bar of California),
Also Licensed in Texas.
We are a debt relief agency. We help people file for Bankruptcy relief under the United States Bankruptcy Code.