Filing for Bankruptcy in California: A Simple Guide
Most people encounter financial challenges at some point in their lives. If you are facing insurmountable financial difficulties because of an unexpected illness, injury, job loss, or other problems, bankruptcy could be a good choice. Filing for bankruptcy protection might help you find a way out of crushing debt and provide you with a new start.
Here is some information about the two most popular types of consumer bankruptcy in California, their processes, and how to prepare for them from experienced bankruptcy attorney Ike Shulman.
How Does the California Bankruptcy Process Work?
In California, bankruptcy follows a process controlled by federal law instead of state law, so the process of filing for bankruptcy in California is the same as it is if you file for protection in any other state. The bankruptcy process voids contracts between you and your creditors, which helps to provide you with a fresh financial start.
While the overall process is the same in all states, California laws control the property you can exempt from the bankruptcy estate. There are also some key things you will need to know about filing, which we will discuss later in this article.
Chapter 7 vs. Chapter 13: Which Is the Right Chapter for You?
The two most common and popular types of consumer bankruptcy are Chapters 7 and 13. Here is how they differ so that you can determine which might be the better option for your financial situation.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most popular type of consumer bankruptcy for a few reasons. When you file for Chapter 7 bankruptcy, the process only takes a few months. Chapter 7 is a liquidation bankruptcy, which means your non-exempt assets will be sold by the trustee to repay a portion of what you owe. If your assets consist only of items that you can claim exempt from liquidation, this type of bankruptcy might be the best choice. Once your debts are discharged, you will not have to pay most creditors anything else, and many Chapter 7 filers in California can exempt most if not all of their property. Some debts, however, may not be discharged, including support obligations and recent tax debts.
If you have non-exempt assets, however, you might lose them. For example, if you have substantial equity in your home exceeding your homestead exemption, your house might be at risk. California law does provide a significant homestead exemption, which in 2022 can be as high as $626,400, depending on how high the median home value is in your county. Chapter 7 bankruptcy also doesn't include a payment plan to allow you to catch up on your mortgage or auto loan, so you might lose your home or vehicle if you are behind on your payments at the time that you file.
There is also an income test for eligibility to file chapter 7. If your income is substantially higher than the median income for a family of your size in California, you may not qualify, so you will want your attorney to carefully review this issue with you.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy involves a repayment plan through which you will pay a portion or all of what you owe to your creditors over three to five years. While you will have to repay your creditors something, there are a number of benefits to filing for Chapter 13 protection. You can keep all of your assets while also being able to catch up on your mortgage or auto loan and save them. If you need additional time to repay a non-dischargeable debt such as back taxes, you can use Chapter 13 to force a payment plan and have more time to catch up. However, your budget must show that you have the means to pay the monthly Chapter 13 payments.
California Bankruptcy: Will it Eliminate Your Debts?
In a Chapter 7 bankruptcy, most unsecured debts will be discharged a few months after you file your petition, including medical bills, credit card balances, past-due utilities, personal loans, and others. If you want to give up a car for which you have an auto loan you can no longer afford, bankruptcy can also get rid of that debt by surrendering the car.
Some debts can't be discharged, however. Some examples of non-dischargeable debts include child support, spousal support, recent tax debts, and student loans in most cases. You will need to check the types of debt that you owe to decide whether filing bankruptcy will be worthwhile for you.
California Bankruptcy Steps
Using a checklist for bankruptcy in California can help you to track your progress and prepare. Here is a checklist of steps to use to guide you through the process.
Bankruptcy Checklist
- Learn the differences between Chapters 7 and 13.
- Review your debt types to determine whether they can be erased in bankruptcy.
- Determine which property you can keep and which you might lose in bankruptcy.
- Determine whether you qualify for Chapter 7 or Chapter 13.
- Cease paying your dischargeable debts, excluding car loans you want to keep.
- Gather your most recent financial documents.
- Take the required pre-filing credit counseling course.
- Fill out and file your bankruptcy paperwork with the Bankruptcy Court.
- Turn in your financial documents.
- Attend the 341 creditor's meeting.
- If you file Chapter 13, make the required payments on time under your plan.
- Complete the debtor education course and file your certificate.
- Receive the discharge of your debts.
For all of these steps, it is advisable to have an experienced bankruptcy attorney guide you. Many bankruptcy attorneys offer an intial free consultation, so you should take advantage of that opportunity before embarking on this serious step.
Property You Can Keep When You File for Bankruptcy in California
While the bankruptcy law is the same across the country, the amount of assets you can protect by claiming them exempt differs state by state. In California, filing for bankruptcy doesn't mean that you'll lose everything. Instead, the state allows you to claim exemptions for certain types of property. Exempted property won't be counted as a part of the bankruptcy estate and won't be sold by a bankruptcy trustee.
If an exemption doesn't cover a type of property, you'll either lose it if you file for Chapter 7 bankruptcy, or you can keep it while paying for it through your repayment plan in Chapter 13. All bankruptcy filers are allowed to protect their retirement accounts, including 401(k), 403(b), SEP IRA, SIMPLE IRA, money purchase, and profit-sharing plans. As of April 1, 2022, defined benefits, Roth IRA, and traditional IRA plans are also protected up to a total of $1,512,350.
California's Bankruptcy Exemptions
In California, you can choose between two separate asset lists for exemptions, but you can't mix and match the two lists.
Homestead Exemption
California's homestead exemption protects some of the equity in your principal home. Under one set of exemptions, which is often referred to as Section 704 exemptions, you can exempt real property or personal property in which you live, including a house, condominium, stock cooperative, boat, planned development, or a community apartment up to a value of $626,400 in equity, depending on your county’s median home value.
Under the other set of exemptions, which is often referred to as Section 703.140(b) exemptions, there is no specified homestead exemption, but you can protect up to for personal or real property used as your primary residence is $33,650 in equity, as of April 1, 2022.
Motor Vehicle Exemption
Under California's Section 704 exemptions, you can claim $3,625 in equity in your vehicle. California’s Section 703.140(b)(2) allows you to exempt up to $6,375 of the equity you have in a motor vehicle. Both of these numbers will increase to $7500 on bankruptcy cases filed on or after January 1, 2023, under a new law recently passed.
Household Goods Exemption
Under Section 704 an unlimited amount is allowed for necessary household goods. However, Section 703.140(b)(2) only allows you to exempt household goods individually valued up to $800.
Wildcard Exemption
There isn't a wildcard exemption available under Section 704. However, Section 703.140(b)(2) provides a wildcard exemption that allows you to exempt any amount of the $33,650 you didn't use to protect home equity.
There are also many other exemptions available in California. Your bankruptcy attorney can help you understand which exemptions might apply in your case.
Avoiding Exemption Issues
Be careful when you claim exemptions for your property. The trustee will review what you have claimed. If the trustee disagrees, they maay try to informally resolve the problem. However, if an informal resolution doesn't work, the trustee can file an objection with the court, and the judge will determine whether or not you can exempt the property. If you intentionally make inaccurate statements about your property, it could be considered fraud. Bankruptcy fraud is treated seriously and can result in up to 20 years in prison and a fine of up to $250,000.
How Do You Qualify for Bankruptcy in California?
There are time restrictions between filing for bankruptcy when you have filed in the past. If you haven't filed for bankruptcy before, you won't need to worry about it. However, if you have filed in the past, the specific waiting period that might apply will depend on which chapter you filed under before and the Chapter under which you plan to file this time.
There are also specific qualifications you will need to meet to file for either Chapter 7 or Chapter 13.
To qualify for Chapter 7, your income is measured and compared with families of the same size in California, and then is measured against your allowed living expenses. This is often described as the “means test”. If you make too much, you may not qualify for chapter 7 but still will normally qualify for chapter 13.
If you want to file for Chapter 13, you will need to earn sufficient income to make payments under your plan. You will need to pay whichever is larger:
The total value of your non-exempt property
Your disposable income, calculated under the bankruptcy “means test”.
Hire a California Bankruptcy Lawyer
While you are not required to hire a bankruptcy lawyer to file a bankruptcy petition, doing so is almost always a good idea. Bankruptcy cases can be complex and difficult for many people to comprehend. A bankruptcy attorney at the Shulman Law Office can help you to determine the chapter that would make the most sense for you, determine when it will be the right time to file, help you select the correct set of exemptions for your assets, and help you avoid serious problems that could result in the dismissal of your case or other negative consequences.
The great news about filing a bankruptcy petition is that the court will issue an automatic stay to your creditors once you file a petition. The automatic stay will stop almost all creditors from making further attempts to collect on your debt. To learn more about bankruptcy and your options, contact the Shulman Law Office today for a free and confidential case evaluation at 408-297-3333.
12 Ways a Bankruptcy Attorney Assists With a Chapter 13 Case
While Chapter 13 bankruptcy can be a great way to handle unmanageable debt, many people are confused by the process and the roles of their bankruptcy lawyers. If you file for Chapter 13 in San Jose, your bankruptcy attorney will do multiple things to help you with the process and prepare you for both the repayment plan and your life after receiving your discharge. Your attorney will advise you throughout the process and help you complete the necessary paperwork.
Here are 12 ways a bankruptcy attorney assists with a chapter 13 case:
1. Assessing the best strategy to address financial difficulties
When you meet with your bankruptcy attorney at the Shulman Law Office, he will want you to bring in a list of all of your debts and assets. Your lawyer can then analyze the types of debts you owe and their total amounts so that he can determine the most appropriate strategy to address your financial circumstances. The nature of your debts will help to determine whether Chapter 13 is the best option or if you should instead consider filing Chapter 7 bankruptcy.
2. Help you to create a workable budget
If you and your lawyer determine that Chapter 13 bankruptcy is the best option, you will be proposing a repayment plan that will last for three to five years. During this period, you will pay your priority debts and some of your unsecured debts. Having a budget in place can help you make your payments to the bankruptcy court while also meeting your living expenses. Learning to live on a budget can also help you in the future after you have successfully completed your repayment plan and have received a discharge of your remaining debts.
3. Evaluate the validity of secured debts and value them
Secured creditors have security interests in the property secured by their liens. For your secured debts, your attorney will examine them to determine their validity and whether they are avoidable. Your lawyer will also evaluate their value and take any necessary steps to protect your interest. Some liens might be avoidable in Chapter 13 bankruptcy through lien cramdowns or lien stripping.
If you have any secured interests that might be eligible for a cramdown or lien stripping, your attorney might file a motion with the bankruptcy court. For example, if you have owned your vehicle for a long enough period before filing for bankruptcy, your lawyer might be able to secure a lien cramdown in which what you owe is reduced to your car's value in exchange for you paying the reduced amount in a lump sum. Junior mortgages and liens against your home might also be stripped if you are underwater in your home, rendering them unsecured.
4. Help you create a workable and acceptable repayment plan
Creating a repayment plan for your debts is a central task of Chapter 13 in San Jose. Your attorney will help you draft a Chapter 13 plan that will meet your needs while also being acceptable to the court. In your repayment plan, you must plan to repay your priority debts and demonstrate to the court that you are making your best effort to repay your non-priority unsecured debts. Your attorney can help you understand what must be repaid and how to propose a plan for your non-priority unsecured debts that is more likely to be accepted by the court.
5. Prepare the pleadings and Chapter 13 bankruptcy forms
Filing for Chapter 13 bankruptcy will require you to file multiple forms and pleadings. Your bankruptcy attorney can help by properly drafting all of the required pleadings and forms. This is crucial for helping you to avoid critical errors that could result in problems in your case once your paperwork is filed.
6. Filing the pleadings and Chapter 13 forms with the bankruptcy court
Once you have completed the required pre-filing credit counseling course, and your attorney has drafted all of the relevant forms and pleadings, he will then file them for you with the U.S. Bankruptcy Court together with your certificate of completion of the credit counseling course, your required schedules, and your proposed repayment plan. Filing the petition and supporting documents with the court will then trigger the automatic stay, preventing your creditors from engaging in further collection activities while your bankruptcy case is pending. The automatic stay can offer immediate financial relief by stopping collection lawsuits, garnishments, and other types of collection activities.
7. Attending the required hearings
Several weeks after you file your Chapter 13 bankruptcy case, you and your attorney will be required to attend the 341 meeting of creditors. During this meeting, you will meet with the trustee assigned to your case. Creditors can attend if they choose and question you, but they frequently do not. At the 341 meeting, the trustee will look over your forms, identification, supporting documents, and proposed repayment plan and will ask you questions about them. Your attorney will appear with you at this meeting and help you with answering any questions you might be asked.
Creditors can file objections to your proposed plan by filing an opposition with the bankruptcy court. If a creditor files an opposition with the court, a hearing will be scheduled. At this hearing, your attorney can present arguments about why the court should reject the opposition and confirm your plan.
If no objections are filed, the court will schedule a confirmation hearing. At this hearing, the judge will decide whether or not your plan should be approved. If your plan is confirmed, you will then continue making your payments as called for by your plan for the requisite period.
In addition to the 341 meeting and confirmation hearing, there might be other court hearings scheduled in your case, depending on its complexity. If any other hearings are necessary, your attorney will attend them with you and fight to protect your interests.
8. Help you to secure the court's approval of your Chapter 13 plan
Your repayment plan is key to your Chapter 13 case. Through your repayment plan, you can make affordable payments to the bankruptcy trustee in your case. If your plan is approved, the trustee will then distribute the payments you make to your creditors. Your plan must provide for full repayment of your priority debts unless a creditor agrees to treat the priority debt differently or you plan to use all of your disposable income to repay your domestic child or spousal support obligations over five years. For your secured debts, your plan must either provide for you to continue making your payments, or you can surrender your secured property. Finally, your plan must show that you are making your best effort to repay your unsecured debts by planning to devote any disposable income you have left after paying for your family's living expenses. Your attorney can help you create a plan that should both meet your needs while also being acceptable to the court.
9. Review all creditor claims and object to improper claims
After your attorney files your Chapter 13 petition, all of the creditors listed in your schedules will be notified by the bankruptcy court and can file claims. Other creditors might also submit claims in your case. For any claims that are filed, your attorney will carefully review them and file objections to any improper claims that might be filed. He will then attend any hearings scheduled by the court for objections.
10. Make modifications to your plan if needed to deal with changed circumstances
After your plan has been approved, and you have been making your payments as agreed, events might occur that change your circumstances. For example, if you get divorced, have a major vehicle repair, or lose your job, you might have trouble making your Chapter 13 repayment plan payments. In these types of situations, your attorney might suggest that you file a motion asking the court to modify your plan. If your circumstances change before your plan is confirmed, your attorney can file an amended plan with the court to reflect your changed circumstances. If your circumstances change after your plan has been confirmed, your attorney will file a motion to modify your plan to a more affordable payment.
11. Help you overcome legal obstacles during your case
A variety of different legal obstacles might arise during your Chapter 13 case. Whenever you encounter obstacles in your case, your attorney will work hard to help you overcome them so that your Chapter 13 case can be successful.
12. Help you secure a discharge
Once you complete your Chapter 13 repayment plan, your attorney will help you secure a discharge of any remaining unsecured debts. You will then be free of the burdens you previously faced from unmanageable debt and can then move forward with your life with a fresh financial start.
Contact a Chapter 13 attorney in San Jose
If you are struggling under the weight of overwhelming debt and are unsure of what to do, bankruptcy might be the right option. At the Shulman Law Office, our experienced and knowledgeable bankruptcy lawyer can help you to decide the best approach to managing your debt and whether Chapter 13 or Chapter 7 might be a good option. Call us today to schedule a free consultation at 408-297-3333.
Is it Possible to Rent or Buy a Home After Filing Chapter 13 Bankruptcy?
Is it Possible to Rent or Buy a Home After Filing Chapter 13 Bankruptcy? Most people in California will encounter financial difficulties at some point in their lives, including job losses, periods of unemployment, or serious illnesses that cause their levels of debt to swell to unmanageable levels. When people are unable to repay their debt, they might consider filing for Chapter 13 bankruptcy to allow them to restructure their debts through a repayment plan lasting from three to five years.
Chapter 13 bankruptcy is a different type of personal bankruptcy than Chapter 7 and does not involve the liquidation of assets. However, a bankruptcy trustee will oversee the repayment plan and must approve any plan to take on new debt during the repayment period. In some cases, a person who is in a Chapter 13 repayment plan might undergo circumstances that lead him or her to want to rent or purchase a new home. Here is some information about the factors that might influence whether or not you can rent or buy a home during Chapter 13 bankruptcy.
Factors considered by prospective landlords
Landlords consider several factors when deciding whether or not to accept an application for a rental apartment or home, including the following:
- The applicant's available income
- The applicant's employment history
- Status of the bankruptcy case
- When the bankruptcy was filed
- Your credit history
In Chapter 13 bankruptcy, you cannot take on any new debt, including a lease, without first getting written approval from the trustee or the bankruptcy court judge. If you want to incur new debt, you will need to first ask for permission to avoid jeopardizing your Chapter 13 bankruptcy case. Once you have approval, you can then enter into a lease to rent a home.
Many landlords understand that people who go through bankruptcy will not be able to discharge new debts for several years after they receive their discharges and might not especially consider your being in bankruptcy a bad thing. A prospective landlord may be more likely to want to make sure that you have enough money to pay your rent in addition to your payments to the bankruptcy trustee. To demonstrate that you are a reliable tenant, you might want to show several years of receipts showing that you have paid your current rent on time.
The stability of your job will also be important. To be approved for Chapter 13 bankruptcy, you also had to demonstrate that you had enough income to make your plan payments. A landlord will similarly be interested in seeing that you have stable employment and might look at how long you have worked at the same job, your past employment history, and your pay rate. You will want to show a prospective landlord that you have sufficient discretionary income from your employment to pay rent as well as your Chapter 13 plan payments.
Some landlords are hesitant to rent to tenants who are currently in a Chapter 13 repayment plan. If you have to take time to get the lease approved by the bankruptcy court, the prospective landlord might not want to wait.
The filing date of your bankruptcy case will also be important. The more time that has passed since you filed your Chapter 13 petition, the less impact your bankruptcy case will likely have on your ability to rent a new home or apartment. Showing a prospective landlord that you have made all of your Chapter 13 payments on time as well as your current rent, utility bills, and other expense payments might help.
When you apply for a lease, the landlord will likely pull your credit report to check for evictions, repossessions, judgments, defaults, and late payments. If it looks as if you are still struggling to pay your expenses, a landlord is unlikely to approve your application. However, if you can show that you have kept current with your repayment plan and have not been late on your other obligations, your application to rent a new home might be approved.
Buy a home after filing Chapter 13 bankruptcy
Since a Chapter 13 repayment plan is overseen by the trustee and the bankruptcy court, you must get court approval before you can take out a new loan, including a mortgage. The bankruptcy court will only approve a request to take out a new mortgage if it makes financial sense for you. If you have enough income to fund your Chapter 13 bankruptcy plan, this might make Chapter 13 a better option if you also want to purchase a home as soon as you can.
Mortgage loans after filing for Chapter 13 bankruptcy
The best types of mortgages you can take out after filing for Chapter 13 bankruptcy are government-backed mortgages, including FHA loans, USDA loans, and VA loans. Conventional mortgages will be harder to get after you file for bankruptcy. Both government-backed mortgages and conventional mortgages will require you to complete a waiting period after filing your Chapter 13 petition before you can purchase a new home. The lender will be able to see the date you filed for bankruptcy when it checks your credit reports.
Government-backed mortgages
FHA loans are insured by the Federal Housing Administration for purchasing new homes. If you default on an FHA loan, the government will pay the lender. However, the lender can still foreclose on your mortgage if you default.
The FHA will not approve an FHA loan for people who have received a Chapter 7 discharge within the past two years, and some individual lenders might have longer waiting periods. However, people who file petitions for Chapter 13 bankruptcy can be approved for FHA loans before their bankruptcy discharge. FHA loans have a waiting period of one year after a person files a petition for Chapter 13 bankruptcy.
However, you will need to find a lender who is willing to extend credit to you and then seek written approval from the bankruptcy court before taking on the new debt required to buy a home. The court will consider the mortgage payment versus your current rent payment to determine whether or not the new mortgage makes financial sense for you.
VA-backed mortgages
If you are a military veteran or the spouse of a deceased veteran who died as a result of his or her service, you might be eligible for a VA-backed loan, which is guaranteed by the Department of Veterans Affairs. Before you can be approved for a VA-backed loan after filing for Chapter 13 bankruptcy, you will have to wait at least one year from your filing date.
USDA-backed mortgages
If you are interested in purchasing a new home in a rural area, you might be eligible to apply for a USDA-backed mortgage. A USDA-backed mortgage has a waiting period of three years after a Chapter 7 discharge or one year after a Chapter 13 discharge, so you cannot take out this type of mortgage while you are still in repayment on your Chapter 13 plan.
However, if you have extenuating circumstances, you might be able to apply for a USDA-backed loan after completing one year of timely payments in your Chapter 13 plan. These circumstances must have happened within the 12 months preceding your filing date and can include such things as a temporary illness or job loss that caused the financial circumstances resulting in your bankruptcy.
Conventional mortgages
Freddie Mac and Fannie Mae are private companies that underwrite conventional mortgages and some government-backed loans, and they have their own requirements for extending loans to prospective homebuyers. Both companies frequently require buyers to purchase private mortgage insurance to protect against default on conventional loans.
Fannie Mae will not allow lenders to extend mortgages to people who have had a Chapter 7 bankruptcy discharge within the past four years. The waiting period for a Chapter 13 bankruptcy is two years after a discharge or four years after dismissal. Extenuating circumstances, including high medical bills, divorce, and job loss might shorten the waiting period. Freddie Mac's requirements are the same as Fannie Mae's.
Credit score requirements
Ultimately, the waiting period that might be required by different agencies might not be the most important factor. Instead, your credit score will be a critical factor in whether or not you will be approved for a mortgage. The credit score requirements vary between lenders and loan types. For example, the FHA requires a minimum credit score of 500. If your score is at least 580, a smaller down payment will be required.
VA loans do not have minimum credit scores. However, lenders that offer FHA-backed or VA-backed loans can set their own requirements, and most require borrowers to have a minimum credit score of at least 620. This makes it important for you to take steps to improve your credit score after you file for Chapter 13 bankruptcy while you complete the waiting period.
If you want to get a USDA-backed loan, you will want to try to improve your credit score to at least 640. The application process for a USDA-backed mortgage is streamlined for borrowers with credit scores of 640 or higher. If your score is less than 640, your lender will scrutinize your credit history to determine whether or not you are an acceptable risk.
Fannie Mae's minimum credit score for approval is 620. However, if you want to get an adjustable-rate mortgage instead of a fixed-rate loan, the minimum acceptable score will be 640. Freddie Mac's credit score requirements are the same as Fannie Mae's.
Get Help From an Experienced Chapter 13 attorney San Jose Today
It is not impossible to rent or buy a home after filing a Chapter 13 petition. Since you will obtain debt relief through bankruptcy, it can help to speed up the process of improving your credit and your ability to purchase or rent a new home. However, it will be important for you to get approval from the court before entering into a new lease or purchasing a new home with a mortgage. To learn more about your options after filing a Chapter 13 petition, call The Shulman Law Office for a free consultation at (408) 297-3333.
What Not to Do Before Filing a Chapter 13 Bankruptcy in California
Dealing with the weight of unmanageable bills can be overwhelming. If you are facing significant financial pressure, you might be tempted to file for bankruptcy protection as soon as possible without planning. However, knowing what to avoid before filing for Chapter 13 bankruptcy is critical for helping the process to proceed more smoothly. Here are some tips about things to avoid before you file for Chapter 13 bankruptcy protection.
Don't file for Chapter 13 bankruptcy too soon.
If you've filed for bankruptcy in the past, you will want to know the rules for when you are eligible for a discharge under a second bankruptcy. While a Chapter 13 bankruptcy can allow you to receive a discharge of certain remaining unsecured debt balances after you complete a repayment plan, you can only receive a discharge in bankruptcy at specific intervals. If you file a Chapter 13 bankruptcy too soon after a previous bankruptcy, you will not be able to receive a discharge in the second case. Here are the intervals for when a second Chapter 13 can be filed to receive a discharge at the end of your repayment plan:
- If the prior bankruptcy discharge was granted in Chapter 7, 11, or 12, four years from the filing date of the previous bankruptcy case
- If the prior bankruptcy was a Chapter 13, two years from the filing date of the previous case
While you are waiting between bankruptcy filing dates, you might also face other problems that you will want to resolve before filing. For example, if you are accumulating significant medical debt because of an illness, it might be a good idea to wait to file for a new Chapter 13 bankruptcy so that it will include all of your accumulated debt.
Don't wait too long to file for Chapter 13 bankruptcy protection.
In some cases, it is advantageous to file a petition for bankruptcy as fast as possible. For example, if you are facing foreclosure, have a wage garnishment, or are in danger of having your vehicle possessed, filing quickly might free up some money to pay your bills.
If a creditor has filed a lawsuit against you, you will want to talk to a bankruptcy attorney at the Shulman Law Office. Your lawyer will analyze the complaint to determine if it contains an allegation of fraud. If it does, filing for bankruptcy quickly rather than waiting might make sense. If the creditor receives a judgment against you for a fraud allegation, the debt will unlikely be considered dischargeable in bankruptcy.
After a creditor secures a judgment against you, the judgment will give the creditor lien rights. This allows the creditor to levy your bank accounts, seek a wage garnishment, file a repossession for your vehicle, or foreclose on your home. Filing for Chapter 13 bankruptcy might end further collection activities, including the lawsuit, so that you can have more time to catch up on your payments.
In some cases, it might be a good idea to file a Chapter 13 bankruptcy even when you haven't reached the end of the waiting period to receive a discharge. The bankruptcy code does not contain a provision preventing you from filing a new bankruptcy case soon after an earlier one. However, filing a second Chapter 13 bankruptcy case immediately after a Chapter 7 will not result in a discharge.
When you file a Chapter 13 immediately after receiving a Chapter 7 discharge, it is sometimes referred to as a Chapter 20 bankruptcy. This can make sense if you have certain priority debts that you need more time to catch up on and that are not dischargeable. For example, if you have priority debts like child or spousal support arrearages, federal income tax debt, or are in danger of foreclosure, filing a Chapter 13 bankruptcy after receiving a discharge of your non-priority debts can make sense. You can use the repayment period in the Chapter 13 case to catch up on your payments and avoid other problems.
Do not take early distributions from your retirement account to pay debts.
Most types of retirement accounts are protected in bankruptcy. You should never take early distributions from your retirement to pay debts that would likely be included in your bankruptcy estate.
If you do, you will be using funds that would likely be protected. Taking an early distribution before reaching age 59 1/2 from your retirement account can also result in early withdrawal penalties from the IRS and other tax issues. If you are facing mounting bills that you cannot pay, it is a much better idea to talk to an experienced bankruptcy lawyer at the Shulman Law Office instead of taking money from your IRA or 401(k).
Do not provide incomplete, false, or inaccurate information.
When you are filling out your bankruptcy schedules, you might be tempted to leave out information about certain debts, income sources, assets, expenses, or financial history. However, you are required to provide complete and accurate information. If the bankruptcy court finds that you knowingly left something out or provided false information, you could face harsh criminal penalties, including up to 20 years in prison and a fine of up to $250,000.
If you fail to file all of the required documents, the court could dismiss your bankruptcy case or require you to file more documents to correct your paperwork and pay additional fees. Failing to name a creditor means that the creditor might not be included in your plan. Your bankruptcy lawyer can help you to ensure that your forms are completed correctly to avoid potential problems.
Do not accrue new debt.
You should avoid accruing new debt during the 90 days before you file for bankruptcy unless you had no other choice for paying for necessities. The creditor could object to your bankruptcy plan and argue that you committed fraud by taking out the loan without intending to repay it. Do not make luxury purchases with your credit cards or apply for loans within 90 days of filing your petition.
Do not transfer, sell, or hide assets.
When you fill out your bankruptcy paperwork, you will have to give information about any assets that you own. You might be tempted to transfer some of your assets to family members or friends or try to hide them. You should never do this. If you do, the bankruptcy court could dismiss your case. You might also face criminal prosecution. If you did sell some assets to pay your basic expenses, you will simply need to explain your transactions and supply any documents to support the reasons.
Do not fail to disclose anything.
When you file for Chapter 13 bankruptcy, transparency is required. Make sure to disclose everything to help your case proceed more smoothly and to avoid potential problems. After you fill out your paperwork, you will have to sign your petition and declare that you have provided complete and accurate information under penalty of perjury. If the court thinks that you attempted to defraud it, you could face criminal prosecution. If you have any questions about your bankruptcy schedules or forms, don't hesitate to reach out to your attorney at the Shulman Law Office for help.
Do not make preferential payments.
The bankruptcy court has a 90-day clawback period for general creditors and a one-year clawback period for friends and relatives. If you have loans that you have repaid during these time periods, the bankruptcy court might consider the payments you made to creditors within 90 days or friends and family members within one year of the date you file your bankruptcy petition, the trustee can reach back and undo these payments. Bankruptcy is meant to place your creditors on an equal footing for fairness. Payments made preferentially to certain creditors over others may be considered to be preference payments and undone by the court. You do not want the bankruptcy trustee to file an adversarial proceeding against a close family member or friend to get the money you paid to them back.
Do not file for bankruptcy protection when you are expecting an inheritance or settlement within a year.
If you anticipate receiving an inheritance, lawsuit settlement, or another windfall soon, you should think about waiting before you file for bankruptcy. Once you receive the money, you might no longer be bankrupt. If you are in this type of situation, you should talk to a bankruptcy attorney at the Shulman Law Office to learn about the options you might have.
Do not fail to file your income tax returns.
Under the IRS rules, you are required to file all of your tax returns for tax periods ending within four years of the date you file for Chapter 13 bankruptcy. If you haven't filed all of your returns, you should go ahead and file any that are missing before you file for bankruptcy.
If you owe taxes, they can be included in your bankruptcy estate and repayment plan. The repayment plan can give you time to catch up on what is owed. Tax debts are priority debts, meaning they will not be discharged in bankruptcy. However, having up to five years to catch them up can be helpful. Even if you have returns from longer than four years ago that you have not filed, you should file them so that all tax debts can be included in your repayment plan. The statute of limitations for the IRS's ability to collect on tax debts does not start running until an assessment is made. This means that the statute of limitations for collections will not begin running until you file any missing tax returns.
Get help from the Shulman Law Office
Deciding to file for Chapter 13 bankruptcy is a big decision. If you are thinking about filing for bankruptcy protection, you should speak to an experienced bankruptcy lawyer at the Shulman Law Office to learn about your options. We can review your case and explain the type of bankruptcy that might work the best for you and other potential options to resolve your debts. Schedule a free consultation by calling us at 408.297.3333.
What are the Upsides and Downsides of Filing for Bankruptcy?
Many Californians are struggling with unaffordable levels of debt. While many people qualify to file for bankruptcy, some never do. For some people, filing for bankruptcy is the best solution to managing their debts. Deciding if you should file for bankruptcy will depend on your financial circumstances and the potential ramifications. An experienced bankruptcy attorney at The Shulman Law Office can help you to determine whether bankruptcy is the right choice for your situation. Knowing the upsides and downsides of filing for bankruptcy can help you to decide if and when you should file a bankruptcy petition.
What are the upsides to filing for bankruptcy?
Filing for bankruptcy offers multiple benefits for people who are unable to afford their payments. Some of these advantages provide good reasons for people to consider filing for bankruptcy.
Issuance of an automatic stay
When you file a bankruptcy petition, the bankruptcy court will issue an automatic stay. This is an injunction that prohibits your creditors from engaging in any further collection activities. The stay does not eliminate your debt, but any debt collection activities will be suspended until the stay is lifted or your bankruptcy case is over. The automatic stay will end letters and calls from debt collectors, wage garnishments, foreclosure proceedings, creditor lawsuits, and repossessions.
If one of your creditors continues to engage in debt collection activities after the automatic stay has been issued, your bankruptcy attorney can file a motion with the bankruptcy court to hold the creditor in contempt of court. The court can then force them to stop trying to collect on the debt and order them to pay a fine and possibly pay damages to you.
An automatic stay in a bankruptcy case will not stop tax audits, criminal proceedings, child support, alimony, or efforts to collect the debt from cosigners. If you previously filed for bankruptcy during the last year, you can ask the court to extend the initial automatic stay. However, if you have filed for bankruptcy several times during the past year, the automatic stay will have to be ordered by the court.
Ability to discharge debts
While some types of debts are non-dischargeable in bankruptcy, others can be discharged. When a debt is discharged, it ends your obligation to repay it. When your bankruptcy case is over, the creditor for a discharged debt may not resume collection activities. Dischargeable debts include many types of unsecured debts, including medical bills, credit card debt, and personal loans. Secured debts will not be discharged, however. There are also certain types of debts that cannot be discharged in bankruptcy, including back child support and alimony, student loans, certain types of taxes, criminal restitution, and others.
Bankruptcy exemptions
California has two bankruptcy exemption systems that you can choose from. Exempt property is not included in your bankruptcy estate and cannot be sold by the trustee to repay your creditors. The exemptions let you keep the exempted property after you file for bankruptcy. Some exemptions apply to specific types of assets while others apply to property worth up to a specific dollar amount. Other exemptions can be applied to anything that you own. Bankruptcy exemptions help you to save some of your property during and after your bankruptcy case.
Surprising improvements of credit scores
When you file for bankruptcy, it will make your credit score fall and will remain on your credit history for seven to 10 years. However, many people who file for bankruptcy see score improvements once their debts are discharged. They can then begin to rebuild their credit and enjoy a fresh start. However, even if bankruptcy is the right option for you, understanding the consequences is also important before you file.
What are the downsides of filing for bankruptcy?
While filing for bankruptcy offers some benefits, there are also some disadvantages that you should consider. Knowing the downsides of filing for bankruptcy can help you to know what to expect.
Immediate drop of your credit score
When you file for bankruptcy, your credit will be immediately impacted. The bankruptcy will stay on your credit record for seven years if you file for Chapter 13 bankruptcy or 10 years if you file for Chapter 7 bankruptcy. Having a bankruptcy on your credit record can make it more difficult to get a mortgage or other loan for several years.
Losing your credit cards
When you file for bankruptcy, your credit card companies will likely cancel your cards. After your debts are discharged, you may receive credit card offers. While these can help you to rebuild your credit after bankruptcy, they will likely carry high rates of interest and annual fees.
Losing some types of property
While California has exemptions available for some types of property, not all property can be exempted. If you have high-value property or non-exempt assets, the bankruptcy trustee might seize them to sell and repay your creditors.
Some debts can't be discharged
Some types of debts cannot be discharged in bankruptcy. These include most student loans, certain tax debts, alimony, child support, and criminal restitution. Your obligation to repay these debts will continue after you receive a discharge of your dischargeable debts.
Cosigner liability
If you had a cosigner for a personal loan and file for bankruptcy, the creditor can still pursue your cosigner for payment. His or her liability to repay the debt will not be erased because of your bankruptcy. You should tell a cosigner that you intend to file for bankruptcy before you do. He or she will also be notified by the bankruptcy court after you file.
Stigma
Some landlords and prospective employers ask about bankruptcy cases. If you apply for a job or an apartment after you file for bankruptcy, it can hurt your chances.
Talk to an experienced bankruptcy lawyer today
The decision to file for bankruptcy is complex. Understanding the upsides and downsides of bankruptcy is important so that you can make a more informed choice. If and when you should file for bankruptcy will depend on your financial circumstances. To learn more about whether it is the right decision for you, contact the Shulman Law Office in San Jose today by calling us at 408-297-3333.
What is Chapter 7 & Chapter 13 Bankruptcy?
What is Chapter 7 & Chapter 13 Bankruptcy?
Hi, this is Ike Shulman of Shulman Law Office. Bankruptcy is provided for in the United States Constitution and is a way for honest folks who find themselves in impossible debt situations to cancel, or “discharge,” most debts in order to get a fresh start. Bankruptcy requires only that you act honestly and make full disclosure of your assets and debts.Read more
What Assets Can I Protect If I File Bankruptcy?
What Assets Can I Protect If I File Bankruptcy?
Hi, this is Ike Shulman of Shulman Law Office. Exemptions help you determine how much of your property you get to keep when you file for bankruptcy. Exemptions play different roles depending on whether you are filing a Chapter 7 or Chapter 13 bankruptcy. Exemptions allow you to keep a certain amount of assets safe in bankruptcy, such as an inexpensive car, professional tools, clothing, and a retirement account.Read more
Can Bankruptcy Stop Creditors From Garnishing My Wages, Taking Money From My Bank Account?
Can Bankruptcy Stop Creditors From Garnishing My Wages, Taking Money From My Bank Account?
Hi, this is Ike Shulman of Shulman Law Office. If you fall behind on your debts, your creditors might sue you and try to garnish your wages. This can make it impossible for you to pay other bills, or even pay your rent or mortgage. Should you find yourself in this situation, filing for Chapter 7 or Chapter 13 bankruptcy may be the best option for you.Read more
Can I Save My Home From Foreclosure In Bankruptcy?
Can I Save My Home From Foreclosure In Bankruptcy?
Hi, this is Ike Shulman of Shulman Law Office. Yes, you can save your home from foreclosure in bankruptcy. Chapter 7 can only temporarily stop a foreclosure, and does not resolve the underlying problem of catching up on back payments. In a Chapter 7 case, home lenders can fairly quickly ask the court for permission to complete a foreclosure sale. Read more