Law Offices of Adam D. Woolsey

FREQUENTLY ASKED QUESTIONS

1. Will I lose My House, Car and Everything Else if I File bankruptcy?
2. Will I be Able to Rent, Buy a Car or Get a Loan After I File?
3. Is Filing bankruptcy Unethical/Immoral and Can I be Discriminated Against for Filing?
4. When Will the Creditor Harassment Stop?
5. Does my Spouse Have to File with Me?
6. How Long is the Proceeding and how long is it on my Credit?
7. Can public utility fees be discharged?
8. Can Student Loans be discharged?
9. Can Taxes be discharged?
10. What is the Meeting of Creditors?
11. Can I file bankruptcy even though I make more than the median state income?
12. How Much Will it Cost and What Information is Required to File?

1. Will I lose My House, Car and Everything Else if I File bankruptcy?

 

No. Generally, you may retain all of your personal belongings, including your house, your car and all household goods.

A debtor filing bankruptcy in California can choose between 2 different menus, of exemptions, generally referred to as the "federal" and "California" exemptions. These exemptions include, for example, equity in an automobile, a homestead, basic household furniture and furnishings, certain interests in jewelry, tools of the trade, life insurance policies and retirement plans, disability payments, personal injury causes of actions, and other exemptions.

Exempted items are typically valued at their current fair market value, and not their original purchase price. Also, the value of an item is reduced by the amount of any loan (secured claim) that may exist against said item. If there are no objections to the debtors claim of exemptions within 30 days after the completion of the meeting of creditors, the exemptions are typically allowed (approved) as a matter of course. Finally, if you file Ch. 13 you may be able to keep all of your assets.

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2. Will I Be Able to Rent, Buy a Car or Get a Loan After I File?

Almost certainly, Yes.  In fact, Filing bankruptcy may actually improve your ability to rent and borrow money in the future.

First, lenders often allow a debtor to re-affirm the debt to keep assets.

Second, filing bankruptcy eliminates most, if not all of your debts, therefore reducing your debt-to-income ratio. Although your credit score will drop, your debt-to-income ratio may improve significantly.  Since the debt-to-income ratio is one of the key factors in a lender’s decision making process, many lenders actively solicit business from people who have recently discharged debt in bankruptcy.

Third, financial institutions know that once you have filed, you will not be able to re-file for 6 years. Thus, filing may actually improve your ability to rent and borrow money in the future.

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3. Is Filing bankruptcy Unethical/Immoral and Can I be Discriminated against if I File?

When you can’t please everyone, you simply must fulfill your primary duty to your family and yourself. The Bankruptcy Code contains an "anti-discrimination" provision, stating that government units and private employers may not discriminate against a person solely because that person has filed bankruptcy or was insolvent.

In our current global economic crisis, times are tough. Although United States Bankruptcy Laws are there for a reason, many Christians and other persons of faith often struggle with feelings of guilt that creditors will not be repaid. Some feel that they have failed by not being good stewards with their money. Still, others believe that scripture condemns bankruptcy.

In fact, America was not exclusively founded on the Judeo-Christian principle of fiscal responsibility, but also loan forgiveness. There is a strong public policy behind allowing debtors a ‘Fresh Start’. All competing policies have been resolved in the Bankruptcy Code and are supervised by a Federal Judge. Further, the ‘Fresh Start’ policy is reconcilable with traditional Judeo-Christian principles. The Bible and Torah expressly granted a debtor permission to file bankruptcy when it stated: "At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the LORD's release" (Deuteronomy 15:1-2).

Old and New Testament concepts on the burden of debt, forgiveness and equity, conclude that bankruptcy is an available option to persons of faith in these harsh economic circumstances. There were over 1 Million bankruptcy filings in 2008 and filings are on the steady rise due to job losses, medical bills and foreclosures brought about by the current global economic crisis.

When you can’t please everyone, you simply must fulfill your primary duty to your family and yourself. All laws, including bankruptcy laws, are designed with that purpose (e.g. The Homestead Act).

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4. When Will Creditor Harassment Stop?

 

Immediately after you hire us.  You will be assigned a number and may refer all creditor calls to your Attorney. Your Attorney will keep in contact with you every step of the way.

Upon filing a bankruptcy petition, there is an ‘automatic stay’ that uniformly stops collection actions against the debtor or his property, and requires the creditor who wants to continue enforcing state law rights to get permission from the bankruptcy court. Tell me More about Question 4.

Tell me More about Question 4. Usually within 1 to 2 weeks after the filing, the court clerk will send out a ‘Notice of Commencement of Case’ to all listed creditors, the debtor and the debtor’s attorney. That notice provides a myriad of important information, including the official notice of the case, case number, description of the ‘automatic stay’, date set for the meeting of creditors, deadline for filing complaints objecting to the discharge, the identity of the debtor’s lawyer, the identity of the bankruptcy trustee, and the deadline for the filing of claims with the court. Typically, creditors are given 90 days from the filing within which to object to the debtors discharge or a particular debt’s dischargeability.

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5. Does my Spouse Have to File With Me?

No.  Creditors usually cannot pursue a non-filing spouse, unless he or she is legally responsible for the debt. The bankruptcy should not appear on the non-filing spouse’s credit report, however, it occasionally does.  If all or most of the debts are in your name only, your spouse may not have to file. Note, however, that if you file together you may be able to double your exemptions.

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6. How Long is the Proceeding and How Long is it on My Credit?

Generally, the proceeding lasts under six months.  The fact that a debtor has filed bankruptcy can appear on credit reports for 10 years. Note that if the debtor was delinquent in his bill payments, then he may have already had bad credit prior to the bankruptcy. A debtor is entitled to receive a discharge in bankruptcy once every 6 years.

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7. Can Public Utility Fees be Discharged?

Public utilities, such as the gas and electric company, are not permitted to discontinue service because of a bankruptcy filing. However, if the utility bill is included in the bankruptcy and not paid, then the utility has the right to demand that the debtor pay a deposit within 20 days to ensure the continuation of service. Sometimes, the utility company’s requested deposit is several times the amount of the bill. Thus, it often makes sense for a cash-strapped debtor to simply pay the bill.

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8. Can Student Loans be Discharged?

 

Generally, student loans are non-dischargeable and the exceptions are narrow and rarely applicable. However, a debtor may be able to get minimal relief from student loan debts through the use of Chapter 13 bankruptcy, in limited circumstances. Through the use of a Chapter 13, you may be able to consolidate your student loan debt, along with any other outstanding bills, and arrange an interest free repayment plan. This will prevent garnishments and harassment and collection efforts.

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9. Can Taxes be Discharged?

Generally, older income taxes (taxes more than 3 years old) can be wiped out but newer income taxes (taxes less than three years old) cannot.

Tell me more about question 9.  The Test for wiping out income taxes in Chapters 7 and 11 include whether:

• There was no willful tax evasion by the debtor.
• The tax is not based on a fraudulent return
• The tax return was due more than 3 years prior to the filing
• The tax return has been on file for at least 2 years prior to the filing
• The tax has been assessed for at least 240 days prior to the filing

A debtor/employer can wipe out the employer’s portion of older, but not newer, payroll taxes. The dischargeability of state and local, such as sales and use taxes, will depend upon their true nature, i.e., whether they are excise or withholding taxes. The trust fund portion of payroll taxes is generally not dischargeable.
In Chapter 13, income taxes can be wiped out if the return was due more than 3 years prior to the filing, and was assessed at least 240 days prior to the filing. In some cases, the tax may be dischargeable even if not assessed prior to the filing.
A priority tax can also be a secured claim, if the entity has duly recorded a tax lien. If a priority tax claim has secured status as well, then in a Chapter 13 as well as Chapter 11, the claim would be entitled to interest. Also, even if a tax is otherwise non-priority, and therefore dischargeable, the tax entity has the right to enforce its lien rights.

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10. What is the Meeting of Creditors?

The debtor is required to attend a meeting of creditors. The meeting typically is held about 1 month after the filing of the bankruptcy, and is conducted by the trustee for the case rather than the bankruptcy judge. The debtor is put under oath, and the creditors have the right to ask the debtor about the debtor’s assets and liabilities. It usually lasts about half an hour and in most cases, creditors do not bother to appear and the questioning is done by the Trustee. Tell me more about question 10.

Tell me more about question 10. In most instances, the meetings are quite brief, and often limited to the debtor simply confirming that the bankruptcy papers contain a true and accurate listing of all of his assets and debts. If complications arise, such as litigation with a creditor or the trustee, the debtor may have to attend a court hearing or additional examinations, and he will receive such notice from the court or his attorney.

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11. Can I file bankruptcy Even Though I Make More Than the Median State Income?

Yes, but you may not be eligible for Chapter 7 (pure liquidation). You may still be eligible for Chapter 13.  The distinction lies in the fact that, in Ch. 13, a portion of your future earnings over the course of the next 3-5 years will be liable for paying a portion of your past debts. Tell me more about question 11.

Tell me more about question 11. Chapter 13, is the debt repayment chapter for individuals with regular income whose debts do not exceed $1,347,550 ($336,900 in unsecured debts and $1,010,650 in secured debts), including individuals who operate businesses as sole proprietorships. It is not available to corporations or partnerships. Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future income.

The Chapter 13 debtor files a "plan", which provides for repayment of debts over a 3-5 year period. Most Chapter 13 plans provide for only a partial repayment of debt.   The plan is usually a form, one page in length.

The court appoints a Chapter 13 trustee, whose job it is to receive payments from the debtor, and to disburse funds to creditors. The Chapter 13 trustee acts as a disbursing agent, and not as a liquidating trustee. The debtor remains in possession of all of his property, exempt and non-exempt. Upon completion of payments under the plan, the debtor typically receives a discharge of his debts, even if he has paid less than 100% of the debt, with some exceptions. The first payment under the plan is due 30 days from the date the plan was filed.

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12. How Much Will it Cost  and What Information is Required to File?

Costs vary by the complexity of your case, the number of creditors and type of recent financial activity (look back rules). Generally, however, the total fee is usually around $1,500.
The minimal information to complete your Petition will include (most of this information can be obtained by authorizing our Attorneys to request a credit report for $35):

• Total Gross Income for year to date (current pay stub) and the years 2006, 2007 and 2008 (if possible)
• Last three years addresses and dates of occupancy 
• Each creditor’s name, address (with city, state, zip), account number, balance, date incurred (open date) 
• Each collection agency's name, address (with city, state, zip) 
• Year, Make, Model, VIN, License #, Color, and Market Value, mileage for each vehicle 
• Copies of court hearings, judgments, or agreements regarding the debts and pending lawsuits 
• Current income information, employer’s name, address, and start date
• Current monthly expenses 
• All bank account information, bank name, account number, balance on the day of filing 

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