Shulman Law Office provides clients with effective legal representation in cases involving bankruptcy proceedings. Federal law allows individuals to petition for bankruptcy in situations where they face crushing debt. However, in order to qualify to file for bankruptcy protection, you must be willing to honestly disclose all of your property and liabilities.

#1: What Is Chapter 7 & Chapter 13 Bankruptcy?

These are the two types of bankruptcy that are most commonly used by individual debtors. Both Chapter 7 Bankruptcy and Chapter 13 Bankruptcy are defined under federal law in specific terms, so legal services are essential when navigating the bankruptcy system. Both of these chapters allow people to have certain debts that can’t be paid eliminated through the bankruptcy process.

To qualify for bankruptcy protection, the petitioner must disclose all of their assets and debts, as well as their income and expenses. Other financial information must also be accurate and truthful. This is required by the bankruptcy laws in order to qualify.

Chapter 7 is also known as liquidation bankruptcy because the non-exempt assets will be liquidated in order to pay off debts owed to creditors. However, this chapter also contains a provision for claiming exempt assets, which can be kept by the debtor. Once your exempt (protected) assets are defined, the bankruptcy trustee will liquidate any non-exempt assets. These funds will be used as payment to your creditors.

Chapter 13 is also called reorganization bankruptcy. This requires the debtor to fill out paperwork which is similar to that necessary when filing for Chapter 7, but you also need to propose a repayment plan. Chapter 13 allows you to retain your assets under the conditions of your repayment plan. This plan will take from 3 to 5 years in order to repay a portion of the original debt. The exact amount to be repaid is determined on a case-by-case basis.

Some items that can affect the total repayment amount include the following:

  • Debtor’s income
  • Type of debt owed
  • Value of non-exempt assets

After the bankruptcy process is finished, most debtors enjoy a fresh start in their financial lives. This can be the right solution for people with overwhelming debt, but it’s important to speak with a bankruptcy attorney to make sure you do it correctly and with a full understanding of all of your rights.

#2: What Assets Can I Protect if I File for Bankruptcy?

Filing for bankruptcy is a process that can place your assets in a position of being sold to repay your debts. However, there are exemptions that allow you to protect some, and possibly all, of your assets. Exemption is a term used to describe certain assets that qualify for this protection in your bankruptcy case.

For example, household goods, non-luxury vehicles, tools for your profession, clothes and retirement accounts are often exempt. If the asset is exempt, the bankruptcy trustee isn’t allowed to take it and sell it to pay your creditors.

Assets are protected by an exemption list, determined state-by-state. There are two lists available in California, and the debtor can select the list which will protect more of his/her property.

Chapter 7 offers protection for your assets up to the amount of your exemptions. However, Chapter 7 permits the bankruptcy trustee to sell any non-exempt assets to pay the amounts owed to your creditors.

Chapter 13 provides the greatest amount of protection for assets. This option allows you to keep all of your property, including non-exempt assets, as long as you set up a Chapter 13 repayment plan to pay your creditors over time for the value of your non-exempt assets.

The bankruptcy attorney can provide detailed advice on which chapter suits your needs best, and which exemption list is the most protective for your particular assets.

#3: Can Bankruptcy Stop Creditors From Garnishing My Wages?

Filing bankruptcy is a lawful method that you can use to stop creditors from garnishing your wages or taking money directly from your bank account. Once you file the bankruptcy petition, your creditors become unable to sue you,garnish your wages or seize your bank account during the bankruptcy. This protection will allow you to continue to make your rent, mortgage, utility or car payments on time.

Petitioners are granted automatic protection from this type of collection by the filing of a bankruptcy case. In other words, filing bankruptcy provides you with an automatic shield against debt collectors. This is also called an “automatic stay” on collections. If someone has filed a lawsuit against you, the automatic stay will be in effect until the bankruptcy process if finalized.

This protection even extends to collection efforts made by the Internal Revenue Service. However, bankruptcy protection isn’t effective in shielding a debtor from efforts to collect on child or spousal support obligations.

#4: Can I Save My Home From Foreclosure in Bankruptcy?

Home foreclosures are affected differently in Chapter 7 and Chapter 13 cases. In Chapter 7 bankruptcy, the foreclosure is temporarily halted, which may give a debtor a very short time to get caught up on missed mortgage payments. However, home lenders have the ability to ask the court for permission to complete the foreclosure sale.  Also, once the chapter 7 case is completed, the home lender is free to resume foreclosure.

Filing for Chapter 13 bankruptcy will stop a foreclosure sale, allowing you to propose a chapter 13 repayment plan which can include any missed mortgage payments. You can also physically remain in your home during this process. Contact a bankruptcy attorney before the foreclosure sale date in order to fully understand this option and what payments will be needed to make it successful.

#5: Will My Retirement Accounts Be Protected in Bankruptcy?

Retirement accounts are generally eligible for protection from collection by any creditor. This includes 401(k) retirement plans if the money was contributed to the retirement plan according to the rules of the IRS. IRA accounts are also protected up to a certain amount. There are other exceptions, so talk to your bankruptcy attorney about how to protect your retirement accounts during bankruptcy.

#6: How Does the Automatic Stay Protect Me?

The automatic stay prevents creditors from taking specific actions against the debtor. As soon as you file a bankruptcy case, the automatic stay goes into effect. It functions as an injunction, and it prohibits creditors from taking a variety of actions to collect on the debt. Prohibited actions include vehicle repossessions, home foreclosures, wage garnishments and even harassing phone calls. Generally, creditors are forbidden from contacting you, your associates, neighbors or members of your family. Instead, creditors must communicate directly with your attorney.

Other prohibited actions include the following:

  • Eviction
  • Legal actions
  • Litigation
  • Disconnecting utilities

Bankruptcy filed under Chapter 13 will also protect co-borrowers from collection on consumer debts. However, the co-borrower isn’t protected if the bankruptcy is filed under Chapter 7. Once the automatic stay goes into effect, the chapter 13 debtor can work with the bankruptcy attorney and come up with a plan to also protect the co-borrower.

However, there are certain actions that can occur during a bankruptcy case. For example, if you’re involved in a criminal case, these charges can move forward even though actions to collect on fines, bad checks and other debts are prohibited.  Also, collection of child or spousal support can continue to during a bankruptcy case.

#7: Is It Too Soon to Talk to a Bankruptcy Lawyer About My Debt Problem?

Talking to a bankruptcy attorney can help you to decide on a course of action, and getting started right away can help you avoid common mistakes. Legal advice is definitely necessary when facing repossessions, foreclosures or wage garnishments. It can also be helpful in avoiding future tax debts, by obtaining from your current debts instead of borrowing against retirement plans. Rather than making a hasty decision to withdraw funds from your retirement accounts, contact a bankruptcy lawyer to see if there is a better option.

There is no reason to delay setting up an appointment to talk to your bankruptcy attorney about the options available. In fact, starting early can help you reduce the stress involved, while allowing you enough time to make a sound plan. The consultation will help you to sort through your non-exempt assets, debt obligations and protected assets. This process can also help you figure out if you stand to benefit more under Chapter 7 or Chapter 13 bankruptcy.

Contact a Professional Bankruptcy Attorney

Anyone who faces threats from creditors should consider the value of consulting a bankruptcy attorney. The bankruptcy lawyer can provide options if you’re experiencing stress just trying to figure out how to pay your debts. Bankruptcy can protect you while buying some time to set up alternative arrangements with creditors. Shulman Law Office is available to help you sort through various bankruptcy issues, and you can contact the office for a free consultation.