Bankruptcy FAQ

Will bankruptcy get rid of my medical bills? Yes.

One of the number one reasons that people file for bankruptcy today is because of injury or illness that led to high medical bills. Fortunately, medical bills are dischargeable in bankruptcy.

Will bankruptcy stop my eviction from my rental residence? Maybe.

That depends on when you file. If you file your bankruptcy petition before your landlord obtains a judgment for eviction, a bankruptcy may stay the eviction until your landlord goes to court and gets an order to lift the stay. On the other hand, if you file your bankruptcy petition after your landlord has obtained a judgment to evict you, the Automatic Stay will not prevent your landlord from proceeding with the eviction.

Can I keep my house if I file for bankruptcy? Yes.

If you are behind on your mortgage payments and you file a Chapter 13, which is a payment plan bankruptcy, you can keep your home as long as you stay current in your plan payments, and in your post-petition mortgage payments. Your pre-petition delinquent payments can be paid over time through your Chapter 13 plan.

If you file a Chapter 7 you may be at a greater risk to lose your house. If there is no equity in your home and you are behind in your payments, your secured lenders(s) will likely file motions to lift the Automatic Stay so they can proceed to foreclosure, but you may be able to enter into a reaffirmation agreement with your lender(s) to keep that from happening. If you do enter into such reaffirmation agreement, you “reaffirm” that you owe the total amount of your loan. In such an agreement, the lender(s) may be willing to let you make up your past due payments over an extended period (such as six months) as long as you remain current in your ongoing monthly payments. Generally, it is inadvisable to enter into this kind of agreement after filing for bankruptcy protection since you essentially lose the benefits of having filed. However, your goals are unique to you so it is best to discuss your case with competent bankruptcy counsel. On the other hand, if there is equity in your home, and you have other creditors that need to be paid, the Chapter 7 Trustee may sell your home to pay off your creditors. You can keep that from happening by entering into an agreement with the Chapter 7 Trustee to pay her the cash equivalent of the equity she would recover from the sale of your home. As always, you need to discuss your unique situation with an attorney.

Can I keep my car if I file for bankruptcy? Yes.

If you are behind in your car payments and you file a Chapter 13, you can put the pre-petition arrears through your Chapter 13 plan as you continue to make current post-petition payments. If you have had your car loan for more than 910 days (2 ½ years), you may only have to pay for the value of the car rather than the full amount of the loan. In a Chapter 7, you may be able to “redeem” your vehicle by paying the lender only the fair market value of the car for the release of its lien.

What debts won’t I be able to discharge in my bankruptcy?

All debts that you didn’t list on your bankruptcy petition will not be discharged, criminal fines and debts, student loans (except in rare circumstances), most taxes, fraudulent debts, dischargeable debt you incurred to pay off non-dischargeable debt (such as paying off student loans with credit cards and then filing for bankruptcy), alimony and child support payments, priority debt such as taxes, wages owed to employees and any social security benefits, pensions, etc. that would not be dischargeable under a Chapter 7 bankruptcy, and secured debt. You may be able to get out of paying a significant portion of debt incurred from fraud or malicious and criminal activity in a Chapter 13 bankruptcy but not in a Chapter 7.

What is the “Automatic Stay”?

The “Automatic Stay” goes into effect immediately upon the filing of your bankruptcy petition and works to “stay” your creditors from attempting to collect against you personally. The stay will stop a foreclosure proceeding. There are certain actions that are not stayed, however, such as criminal prosecutions, current family support payments, and others.

If I file for bankruptcy do I still have to pay my alimony and child support? Probably, and yes.

You must always continue to pay child support, including past due support owed to your ex-spouse or to the State. You will usually have to continue to pay alimony except under certain rare circumstances.

Should I try a loan modification or debt consolidation before I file for bankruptcy? Maybe.

That is a personal decision and depends on the facts of your case. There are a lot of fraudulent companies these days that offer “loan modifications” and “debt consolidation” which are taking peoples’ money and then doing absolutely nothing! If you do decide to try that in order to avoid filing for bankruptcy, try to get a referral from someone you know to a reputable company. Whatever you do, don’t try to negotiate with the banks on your own. They are not looking out for your interests and they have plenty of lawyers working hard on their side.

Is bankruptcy cheating? No!

Many people feel guilty about filing for bankruptcy protection. You are not cheating. Debt forgiveness has a long history, even going back to the biblical “Year of Jubilee” where debts were forgiven every fifty years. See Leviticus 25. The United States Constitution expressly provides for bankruptcy protection: Article I, Section 8, of the United States Constitution authorizes Congress to enact “uniform Laws on the subject of Bankruptcies.” Furthermore, America is all about second chances, and that is the policy behind the Bankruptcy Code. Banks dedicate entire departments to loans that go “bk”. Believe me, they have planned for you, and they have baked the risk of certain loans going bk right into their high interest rates. Do NOT feel guilty about asserting your right to bankruptcy protection.

How long does the bankruptcy stay on my credit report? It depends.

Generally a Chapter 7 will stay for 10 years while a Chapter 13 will stay for 7 years.

Will I be able to get credit after I file for bankruptcy? Yes.

You may be charged a higher interest rate. Bankruptcy does not have the social stigma that it once had, and people often find that once they have discharged many of their debts and wiped the slate clean that creditors are willing to lend to them again. You should be cautious, however, to budget and stay on top of your finances so that you maintain the benefits of having filed for bankruptcy relief.

How much does it cost to file for bankruptcy? It depends.

There are various factors that go into the cost of filing for bankruptcy, including, the court’s mandatory filing fee, the cost of mandatory credit counseling and debt education classes, and how much your attorney charges for her professional advice and services.

Your up front costs which are due at the time of filing will be your filing fees, which currently are the following:
Chapter 7 Petition Package = $306.00
Chapter 13 Petition Package = $281.00
Chapter 11 Petition Package = $1,046.00

Also, under the new bankruptcy law that came into effect on October 17, 2005, debtors must undergo credit counseling at an “approved non-profit budget and credit counseling agency” within 180 days before filing for Chapter 7 or Chapter 13, and complete a debtor education course before receiving a bankruptcy discharge. Credit counseling can take place individually or in a group, in person, on the telephone, or over the Internet. There are a number of reputable providers and/or facilitators of these required services, which are listed at the trustee’s website here: Approved Credit Counseling Agencies in California.

Generally, the cost for credit counseling and debtor education courses is between $30 and $50 each.

The new bankruptcy law also requires attorneys to perform “due diligence” before they file your bankruptcy petition. This means that at the very least, your attorney needs to run a credit report to validate the information that you have provided to her. Generally, however, due diligence also includes pulling a tax transcript, a NADA Guide or Kelley Bluebook auto valuation, a lien search & ownership report, and an AVM home appraisal. There are many reputable companies that provide attorneys with “one stop shopping” for their due diligence, including StartFreshToday which currently costs a little over $200 to obtain the various reports and also includes the above-mentioned credit counseling and debtor education classes for the filer.

Finally, attorneys’ fees for a Chapter 7 bankruptcy generally run between $2,000 and $3,000, and for a Chapter 13 generally run between $4,000 and $5,000. These fees do not include the court’s filing fees mentioned above, or fees for representation in related litigation (such as defending against actions for nondischargeability of certain debts) or in opposing a creditor's motion for relief from the automatic stay, which are usually charged on an hourly basis, but may also be charged by flat fee. In the Bankruptcy Court for the Central District of California, courts have determined that $4,000 for a non-complex Chapter 13 is a reasonable fee for basic services, and that $5,000 is a reasonable fee when the debtor has business issues.

See Form 3015-1.7 on the Court’s website.

Since every case is unique, it is impossible to quote a flat fee without having interviewed a potential client. That said, Holly Roark’s fees are reasonable and competitive but if you are shopping for an attorney solely based on price, Roark Law Offices is not the firm for you. Holly Roark is a solo practitioner who provides personal, individualized service to each client. There are no paralegals or junior attorneys. She will handle your case herself from petition to discharge. She does not take on every client who walks through the door and is not in the business of “selling” bankruptcies to people who would not be well-served by bankruptcy. There are plenty of budget bankruptcy “mills” that crank out bankruptcy petition after petition because they just want to make their fee and move on to the next client. You should avoid those places the same way you should avoid budget petition prepares (see below). However, if you are shopping by price, bankruptcy mills generally charge lower prices because they work on high volume. If you decide to go that route, just be aware that you will not get the personal service you deserve, and there is a strong likelihood that a paralegal or a first-year attorney will be the one primarily responsible for your case.

I saw an advertisement that said “Bankruptcy $99” – why should I pay a lawyer’s fee when I can get my case filed much cheaper? Or better yet, why not just do it myself with a petition preparer or a DIY bankruptcy kit?

Remember the old adage: you get what you pay for. This is especially true with bankruptcy. Your case involves more than just filing a petition. A lot can go wrong if you do not consult counsel as to the facts of your particular case. There is no one-size-fits-all bankruptcy. You need someone to assist you throughout your entire case. A petition-preparer cannot give you legal advice, or negotiate with creditors on your behalf, or attend court hearings and represent you there. Moreover, a petition preparer is basically a salesperson whose job it is to sell you a bankruptcy whether you need one or not! A lawyer can tell you whether bankruptcy is really right for you. Furthermore, a petition preparer may put you in the wrong chapter of bankruptcy, which could have devastating effects. As for doing it yourself, that is not advisable for the same reasons that it is not a good idea to hire a petition preparer. When you hire a bankruptcy attorney to take your case, you are paying for peace of mind, expertise, and protection. An experienced bankruptcy attorney also knows the players at court including the judges, the trustees, and creditors’ counsel, which can help your case move along smoothly.

How can I pay for a bankruptcy attorney when I am already under water?

If you are wondering how you are going to come up with the money to file a bankruptcy case when you are in financial trouble, consider this: you are likely going to be discharging much of your unsecured debt in bankruptcy, thus freeing up funds that you did not previously have. Say for example you owe $30,000 in credit card debt, but you qualify for a Chapter 7 discharge. Wouldn’t it be worth it to pay an experienced attorney a couple thousand dollars to make sure you got rid of the $30,000? As well, in a Chapter 13, you may be able to discharge a large portion of your unsecured debt, which would therefore free up funds to pay experienced counsel to guide you through the bankruptcy process.

If you are out of work and have no income, you may be able to obtain free legal assistance at Public Counsel. Call them at (213) 385-2977 x100.

How long does the bankruptcy process take? It depends on the Chapter you file.

In a simple “no asset” Chapter 7 case, you could receive a discharge in anywhere from 4 to 6 months. In a Chapter 13, you will likely receive your discharge within 36 to 60 months, provided that you complete all your plan payments.

What property is “exempt” from being used to pay off my debts during bankruptcy?

Generally speaking, debtors are entitled to a homestead exemption, a vehicle exemption, exemptions for certain retirement savings, life insurance, household furnishings, appliances, provisions, wearing apparel, and other personal effects, jewelry, heirlooms, and works of art, all up to a certain amount, among other things.

Exemptions under the new bankruptcy law are tricky. The exemption laws that apply is the state or local law applicable as of the date the bankruptcy case is filed in which the debtor’s domicile has been located for the 2 years (730 days) immediately preceding the filing of the case. If the debtor has lived in more than one state during that 730-day period, then it is the state where the debtor lived for the greater part of the 180-day period prior to the 730 days. Some states allow debtors to take the federal exemptions. In California, debtors must choose from the California state exemptions. California has two sets of exemptions. You must choose one or the other. Consult an attorney to determine what exemptions you may have.

Chapter 7 — Liquidation
Chapter 7 is essentially a liquidation (or sale) of the debtor’s nonexempt property and the distribution of the proceeds to creditors. Since one of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a “fresh start”, the debtor has no personal liability for discharged debts. However, the right to a discharge is not absolute, and some types of debts are not discharged.

Chapter 13 — Individual Debt Adjustment
Chapter 13, also referred to as the “wage earner’s” bankruptcy, allows a debtor with regular income to restructure his or her debts. Under Chapter 13, the debtor is allowed to keep property and pay off their debts over time, usually three to five years, while being protected from the collection efforts of creditors. The size of the plan payments are determined by the amount the debtor can afford after paying necessary living expenses. At the end of the plan period, the debtor may have paid off anywhere from 0 % to 100% of their pre-petition unsecured debt. The debtor receives a discharge if all the plan payments are made. The plan can be modified if at some point the debtor’s financial condition changes and they begin to earn more or less money than they did at the time of their plan confirmation.

How To Prepare Before You File

The Court is going to scrutinize everything you did in the year prior to filing for bankruptcy (and in some cases, four years prior to filing). The 90 days prior to filing bankruptcy is particularly important. Bankruptcy is designed to help honest debtors, and the Courts are very familiar with FRAUD and various tricks to hide assets. You do not want your bankruptcy case tainted by the “F” word: it’s not worth it. If you think you may file, the following is just a brief list of things that you should not do in the months or year preceding your filing:

• Do not max out your credit cards thinking that you will be able to discharge all that debt in bankruptcy – you won’t.
• Do not make any big purchases or buy luxury items (such as jewelry, etc.), especially on credit.
• Do not attempt to hide your assets or “give” away (or sell cheaply) belongings to friends or relatives. These actions could be considered fraudulent.
• Do not decide to pay off certain creditors while paying other creditors nothing. That is called preferential treatment and the creditor might have to pay the money back into the bankruptcy estate.
• Do not transfer your balances from high interest credit cards to low interest credit cards right before you file. This may be considered a cash advance and your discharge will likely be challenged by the creditor who advanced the funds. This will increase the cost of handling your case and you may have to pay back that debt after all your efforts. If you have made such a transfer, wait several months before filing, and make regular good faith payments to the creditor.
• Do not choose to pay down your credit card balances instead of your mortgage or other secured debt. Your credit card balances will likely be discharged in bankruptcy.

Do take a written inventory of all your assets and their fair market value. You should also write down all the amounts you owe to each creditor. Personal property includes property such as: cash, checking or savings accounts, certificates of deposit or annuities, household goods, furniture, electronics, computer equipment, deposits with utility companies, landlords, phone companies, etc., collectibles such as books, art, antiques, etc., clothing, furs and jewelry, firearms, sporting equipment, photographic or other hobby equipment, interest in insurance policies, qualified educational or tuition accounts, pension or profit sharing accounts, stocks and business interests, government or corporate bonds, moneys due you by others, including tax refunds, alimony, maintenance, support, or property settlements to which you are entitled, interests in the estate of a decedent, life insurance, or trust, patents, trademarks and copyrights, licenses and franchises, customer lists, automobiles, trucks, trailers and other vehicles, boats, motors and accessories, aircraft and accessories, office equipment, furniture and supplies, machinery, fixtures and equipment used in business, inventory, farm animals, crops (growing or harvested), farming equipment and implements, and additional personal property.

Once you have taken inventory of your assets and debts, contact bankruptcy counsel in your local area. If you are in the Los Angeles area, contact Roark Law Offices at (310) 553-2600, or fill out the Free Bankruptcy Evaluation Form.

Helpful Resources

For more information about bankruptcy, check out the following links or contact our office for a free consultation: Bankruptcy Basics and United States Bankruptcy Court for the Central District of California. For low cost or free bankruptcy assistance, contact Public Counsel at (213) 385-2977 x100.