“I’ve Been Sued By A Debt Collector!”
“I Can’t Pay My Bills!”
“My Paycheck Is Being Garnished!”
If any of these sound like you, you’re not alone. I talk to people – good people – every day of the week, who were just served a lawsuit, or who just learned that their wages are going to be garnished, or who just. can’t. meet. the. bills. anymore.
If this is you, I have only one takeaway you must learn from reading this page:
1. It Will Be OK
Federal law gives you the right to file for bankruptcy relief from your creditors, whenever you need to. Bankruptcy is a legal proceeding, in a special federal court, in which you can get a fresh start, free of your financial problems, free of collection agencies, and free of debt. Bankruptcy can be an effective and powerful tool for you to use in resolving financial problems. However, Bankruptcy is not the answer to all financial problems, and bankruptcy is not the right step for everyone. Your job is to decide to reach out and contact me. My job is to listen to your situation, and give you my honest opinion and my unvarnished recommendation. If bankruptcy is not the proper course of action for you, I’ll let you know, and I’ll suggest alternative ways to manage your debt.
The only way to be sure bankruptcy is the appropriate decision for you is to discuss your situation with a bankruptcy attorney. Everyone’s circumstances are different, and bankruptcy laws change constantly. This article gives you some basic information, but it does not substitute for consultation with an attorney.
2. Some Benefits of Bankruptcy:
- Your debt will be discharged, eliminating your obligation to pay most or all of your debts.
- Immediately stop foreclosure of your home and can allow you to catch up on missed payments.
- Immediately stop repossession of a car or other property, and, in some situations, force your creditor to return your property to you even after it has been repossessed.
- Immediately stop wage garnishments, and, in some situations, force your creditor to return your money to you even after it has been garnished.
- Immediately stop debt collectors from calling you, writing to you, suing you or otherwise trying to collect your debt.
- Get your drivers license back if it has been suspended because you didn’t pay court-ordered damages for a driving accident (unless you were driving under the influence of drugs or alcohol).
3. Some Things Bankruptcy Can’t Do:
- Eliminate certain rights of secured creditors. Some examples of secured debts are car loans and home mortgages. You can force secured creditors to take payments over time, but generally, you cannot keep the collateral unless you continue to pay the debt.
- Discharge debts that arise after the bankruptcy has been filed.
- Discharge certain types of debts, such as child support, alimony (spousal support), certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and most taxes.
- Eliminate the obligation of someone who co-signed on your loan in, most cases.
4. What types of bankruptcy can I choose?
- Chapter 7
This is sometimes known as a “fresh start” bankruptcy, or “liquidation”. In a Chapter 7 bankruptcy, your debts will be discharged (cancelled), but before that happens you must give up any nonexempt property to the trustee to pay to your creditors. You can keep secured property if you are current on the payments and continue making the payments regularly. The exemptions in California are quite generous, and you can choose from two different sets of California bankruptcy exemptions. Whichever is most advantageous to you is permitted.
- Chapter 13
This is also known as a “reorganization”, or a “Wage earner bankruptcy.” Chapter 13 bankruptcy allows you to keep valuable property, such as your home or car, which you might otherwise be about to lose due to past due payments. You will be petmitted to keep this type of property in your Chapter 13 bankruptcy if you are able to make the necessary payments going forward. In general, that will be your regular monthly payments plus a payment toward the arrears. In Chapter 13, you can have between three and five years to pay back the arrears.
5. What property can I keep?
Here is a list of property exempt under California law. All of your assets that are exempt pursuant to this list are ones which you will be able to keep.
In Chapter 7 bankruptcy, the trustee is required to take any non-exempt property and use it to pay your creditors. The good news, though, is that over 98% of Chapter 7 bankruptcies filed are “no-asset” bankruptcies, which means that the debtor will be permitted to keep all of their property.
Usually, if you do have non-exempt property, you can make an agreement with the trustee to buy it back, if you want to and are able to.
In Chapter 13, you can keep all your property, even non-exempt property, as long as your unsecured creditors get the value of the non-exempt property through your Chapter 13 plan, which will stretch over 60 months.
Your tax refunds due (if any) are not exempt and can be taken by the bankruptcy trustee, depending on the time when you file your bankruptcy case. You should consult a lawyer before filing bankruptcy to see if this will affect you.
If you have property, which is non-exempt, you could sell it before filing bankruptcy and use the money to purchase things, which are exempt; such are food, furniture, or clothing. However, you cannot give property away to friends or relatives, and have them give it back to you after the bankruptcy.
Any transfers of property without receiving fair value for it within one year before filing bankruptcy are called a fraudulent transfer. The property could be taken by the bankruptcy court and sold to pay some of your debts. If the court finds you have been dishonest in your bankruptcy, you could be denied your discharge. You could also be charged with federal or state crimes, which carry serious fines and jail sentences.
Also, you cannot prefer one creditor over another by making payments on that one debt within 90 days before filing bankruptcy (one year if the person paid is an “insider” (family, friend, etc.) If you do so, the bankruptcy court can take that money away from the person you paid. This is to insure that all creditors are treated equally. This does not apply, however, to regular monthly payments such as your car payment, house payment, rent, utilities.
6. Will I have to go to court?
In most cases, you will only have to go to one hearing called “meeting of creditors”. Usually, this will be short and simple. The trustee, including your name, address will ask you a few questions, whether you have had a bankruptcy discharge before, how long you have lived here. Creditors are permitted to attend and ask you questions. They cannot be abusive, however, so this is nothing to worry about. Usually, your case will be completed within 4 to 6 months from filing it.
7. How much does bankruptcy cost?
The Court charges a filing fee, which cannot be waived. That fee is $200.00 for a Chapter 7 case, and $185.00 for a Chapter 13 case. You do not have to pay any money to get your case filed, but you will be required to pay the fee within a reasonable time after filing. Payment plans can be set up for the fee. You may also have to pay attorneys fees.
8. How will bankruptcy affect my credit rating?
The fact that you filed bankruptcy will be on your credit report for 10 years. However, if you have a lot of debt and are behind on it, then your credit probably isn’t very good anyway. Late payments and unpaid debts will stay on your credit rating for 7 years. Filing bankruptcy doesn’t necessarily mean you won’t be able to get credit during the 10 years afterward. Many companies will lend to people who have filed bankruptcy, but they may charge you a higher interest rate than if you had not.
9. Can I be discriminated against for filing bankruptcy?
Law prohibits employers or government agencies from discriminating against you because you have filed for bankruptcy.
10. Can I file bankruptcy by myself?
You can file bankruptcy by yourself. There are do-it-yourself kits available at book and stationary stores, which cost approximately $25.00. However, we do not recommend that you file by yourself. Every case is different. You could lose valuable property or rights if you don’t know what to do or not do. The people at the bankruptcy court are not allowed to advise or help you with your case.
While Chapter 7 is generally easier than Chapter 13, even in Chapter 7, there can be legal problems you won’t know how to handle. It’s always best to consult an experienced attorney. Very few people ever successfully complete a Chapter 13 case (less than 5%) without an attorney.
11. What about attorneys and document preparation?
When you consult an attorney, ask him/her if he/she is experienced in bankruptcy. Before you make an appointment, ask if there will be a charge for the initial consultation. If you consult an attorney, be sure to ask him/her how much it will cost you for representation and what services you will get for the fee. Ask to see this in writing.
Non-lawyer document preparation: There are a number of non-lawyers who will prepare bankruptcy documents for a fee. Generally, it is not a good idea to use these services. Since they are not lawyers, there is no one overseeing their work, as the Bar Association does with lawyers. They are not supposed to advise you about how to complete your papers Also, in many cases, you can hire an attorney for the same cost, or only a slightly higher cost than you will pay the non-lawyer for preparation. The court does not allow non-lawyers to charge more than $200 and does not allow them to take your filing fee. Rather than take a chance on losing money to someone, who may not handle your case properly, call several bankruptcy lawyers and ask their fees. If you don’t know an attorney, ask friends or family or look in the telephone yellow pages.
There are legal aid organizations that may prepare bankruptcy papers if you qualify for the service.