FREQUENTLY ASKED QUESTIONS
In its most basic form, a debtor is a person who owes someone else money. A creditor is the person who is owed money. For example, If John loans Mary fifty dollars, then John is the creditor of Mary, and Mary is the debtor of John.
Bankruptcy is the legal method for a debtor to “discharge” or obtain relief from the debts you owe. While no debtor is guaranteed a total discharge of his debt, most debtors who file for bankruptcy are given such relief. One of the primary purposes of the bankruptcy act is to relieve the honest debtor from the weight of oppressive indebtedness and to provide the debtor with a fresh start.
Can a married person file bankruptcy without their spouse?
Yes, a married person can file a bankruptcy petition without their spouse, however, the income of the non-filing spouse is factored into your ability to qualify for a Chapter 7 case and the required payment in a Chapter 13 reorganization, unless you are separated with intent to dissolve the marriage. In addition, all community assets, such as bank accounts and vehicles, that might be in the name of the other spouse only may be considered property of the bankruptcy estate. In California, the ability to use certain exemptions will require a spousal waiver from the non-filing spouse, even if you are separated.
Who can file for bankruptcy?
Any person can file for bankruptcy protection from creditors. In addition, most businesses and charitable organizations may also qualify for bankruptcy protection.
What happens to my bills after I file for bankruptcy?
As soon as your case is officially filed with the court, creditors are legally prevented from attempting to collect on any debt owed to them by you. This means that creditors must stop all collection activity, including: telephone calls, harassing letters, repossessions, foreclosures, lawsuits and wage garnishments. Once the case is concluded, the court may enter a “discharge.” A discharge is a total release of a debtor from any further personal liability for his or her pre-bankruptcy debts. Typically, dischargeable debts include credit cards, unsecured notes and loans, gambling debts, and secured debts, such as car and house loans if the secured property is returned to the creditor.
What is a Chapter 7 Bankruptcy?
A Chapter 7 bankruptcy is commonly referred to as a “liquidation” bankruptcy. The trustee takes any non-exempt property from the debtor and sells it, and distributes the proceeds to the creditors on a proportionate basis. The court then issues a discharge. It is not uncommon, especially in California for the debtor to not own any non-exempt property, and therefore, the trustee takes nothing.
What is a Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy proceeding lets you rearrange your financial affairs, repay a portion of your debts and put yourself back on your financial feet. The typical reasons for filing a Chapter 13 bankruptcy include saving a house in which you are in arrears, payment of back taxes, alimony or child support. You repay your debts through a Chapter 13 plan. Under a typical plan, you make monthly payments to the bankruptcy trustee, who is appointed by the bankruptcy court, for three to five years. The bankruptcy trustee distributes the money to your creditors
For individuals filing for bankruptcy protection, certain property is protected from creditors in bankruptcy. This property is known as exempt property.
Exactly what property is protected depends on the exemption scheme chosen. California has two schedules of exempt property. Determining what property is exempt requires a complete understanding of the laws governing residency and the California exemption laws. You should seek professional advice in dealing with exemption issues.
What happens to my personal property, real property and other assets?
Generally, all of the property you own at the time of the bankruptcy filing becomes the property of the bankruptcy estate. Certain property is exempt and you will be able to keep that property. California has two schedules of exempt property. The set of exemptions you should use depends on the nature and value of your property. Often, all of your assets can be protected.
Will filing bankruptcy affect my credit rating?
Unfortunately, it will. However, most individuals are able to rebuild their credit within a few years. If you are currently contemplating bankruptcy, then it is likely that your current credit rating has already been affected. A discharge of your current debt may provide the opportunity to rebuild your credit with steady, regular payments on a new account.
How long will a bankruptcy show on my credit reports?
The Fair Credit Reporting Act prohibits the reporting of outdated information about consumers. With a few exceptions, credit-reporting agencies can only disclose a bankruptcy during the ten years after the date of filing.
Is there a benefit to using debt consolidation companies vs filing a Chapter 13 bankruptcy?
Many people look to debt consolidation companies to assist them in paying off a large amount of credit card or personal loan debts. A better alternative to retaining a debt consolidation company is filing a Chapter 13 bankruptcy. The reason the Chapter 13 bankruptcy is a better alternative is it is a Court-ordered plan that once approved by the Bankruptcy Court, will not allow your creditors to file a lawsuit. The same cannot be said when working with a debt consolidation company. In a Chapter 13 bankruptcy, you may pay less than the full amount owing your creditors over a 60 month period. Any remaining debt not paid after a successful completion of the Chapter 13 plan is discharged. Another bonus to using a Chapter 13 bankruptcy is there is no forgiveness of debt income. Normally, if any portion of a debt is forgiven, the portion of the forgiven debt is a taxable event. For instance, if you owe $20,000.00 on a credit card debt and they settle on you paying $11,000.00, the other $9,000.00 forgiven is subject to you being taxed as if you earned that $9,000.00.
Can I surrender secured debt, such as timeshares and over encumbered vehicles?
If you own a timeshare or are upside down on a vehicle loan, meaning you owe more than the vehicle is worth, you can get out from under these debts in a bankruptcy. By surrendering the asset as part of the bankruptcy, you will not be liable for any arrears in a Chapter 7 and in most Chapter 13 cases.