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Q: I'm worried I may not qualify for Bankruptcy, how can I find out?

A: We can help you determine if you qualify for bankruptcy. Bankruptcy is an important decision and you should make sure to explore all your options before proceeding down that course. Rust, Armenis and Schwartz are licensed bankruptcy attorneys that can help you with this important decision in your time of need. We have extensively studied and practiced under California bankruptcy laws and can fully explain your rights and options.

Q: If I'm facing legal action, should I just ignore it?

A: It's never advisable to procrastinate if you are facing legal action. It's often a natural human reaction to try to pretend the bad news will go away, but it won't. If you are in danger of foreclosure or car repossession, or are being sued, or have had your wages garnished, these are all serious events and bankruptcy may be your best option. We are experienced California bankruptcy lawyers that take the time to explain your options. Most of our clients have a true sense of relief when they realize that their problems can be resolved by filing for bankruptcy. Do not wait until after your house is foreclosed, your car is repossessed, or your wages have been garnished, come talk to Rust, Armenis and Schwartz to find out what bankruptcy relief is available to you.

Q: Why don't I file for bankruptcy myself, how can a lawyer help me?

A: The decision to file for bankruptcy requires a professional and thorough analysis of your situation. You should file for bankruptcy only after determining that it is the best way to deal with your financial problems. With our experience we can help you determine if a Chapter 7 or a Chapter 13 bankruptcy is best for your situation. It's important to note that if your case is filed wrong, it can be dismissed for not filing a required document. Let the professionals at Rust, Armenis and Schwartz help you with your bankruptcy so you get everything taken care of and can start the next chapter in your life.

Additional FAQ's provided by the American Bankruptcy Institute:


GENERAL CONCEPTS


1. What are the main purposes of bankruptcy?

Bankruptcy laws serve two main purposes. First, bankruptcy law may give creditors some payment on their debts. Second, bankruptcy law gives you a fresh start by canceling many of your debts through an order of the court called a discharge.

2. What are the different kinds of bankruptcy?

There are four types of bankruptcy available to individuals:

  • Chapter 7 (a liquidation-style case for individuals or businesses);
  • Chapter 13 (a payment plan or rehabilitation-style case for individuals with a regular source of income);
  • Chapter 12 (a payment plan or rehabilitation-style case for family farmers and fishermen); and
  • Chapter 11 (a more complex rehabilitation-style case used primarily by business debtors, but sometimes by individuals with substantial debts and assets).

The two most important types of cases for consumers are chapter 7 and chapter 13. Both provide for some possible payments to creditors, a discharge for you and supervision by a trustee. Chapter 7 involves surrendering some of your property (at least in theory) in return for a discharge of many of your debts. The trustee sells any non-exempt property and pays your creditors. In chapter 13, you keep your property but must commit to a three- to five-year repayment plan. You then obtain a discharge of most of the debts not paid in the plan.

In both types of bankruptcy, most creditors must stop efforts to collect debts after you file your case. This protection is called the automatic stay. In a chapter 7, this relief is often temporary since you must still pay for your secured property (usually a home and/or car) or the creditor may ask the court to remove the automatic stay.

3. What is the difference between chapter 7 and chapter 13?

Chapter 7: A Brief Overview
Chapter 7 is designed as a liquidation. Under this model, a trustee may sell certain property that you own at the time you file the bankruptcy case. The trustee uses the proceeds of the sale to pay creditors. However, the sale of assets in a typical chapter 7 case is unusual. In most cases, you will not have any assets over and above what the law allows you to keep. Thus, in most chapter 7 cases, you do not have any property that the trustee may sell.

About 90 days after you file chapter 7, most of your debts will be discharged, if yours is the typical case. This means you are no longer liable to pay the debt. Some debts are not discharged, however, and you still must pay them. Examples include past-due child support payments, some taxes and student loans. Debts for which you have pledged collateral for the loan (such as cars, homes and household goods) also do not go away in a bankruptcy.

The bankruptcy case addresses only the debts you list at the time of the bankruptcy case. You must pay debts you incur after the filing the bankruptcy case as usual. You may keep the money that you earn after filing a chapter 7 bankruptcy case, as well as most other property that you obtain after the filing.

Chapter 13: A Brief Overview
Chapter 13 is very different. If you file under chapter 13, you may keep your property and you agree to pay your debts over time from your current income, pursuant to a court-approved plan. The amount that you will repay to creditors under the plan will vary based on your particular circumstances.

The payments made to creditors under the plan must total at least as much as creditors would have received if you filed a case under chapter 7. The payments are made to a trustee, who distributes the payments to the creditors.

The plan lasts either until you pay your debts in full or until the end of a three- to five-year period. You receive a discharge at the completion of the plan.

This was just an overview. More detail is provided throughout this FAQ.

4. Do I have to qualify for bankruptcy? How will I know if I am eligible?

Chapter 7 Eligibility
After October 17, 2005, access to chapter 7 is more limited than it was in the past. If you are an individual with primarily consumer debts and you want to file a case under chapter 7, you will have your finances examined to determine if you can afford to pay creditors. If you can, based on a set formula known as the means test, you will not be eligible to file a chapter 7. So, the court will either dismiss your bankruptcy case, or you may choose to convert your case to chapter 13.

The means test compares your excess monthly income to the amount of unsecured debt to determine how much you could repay to creditors if you were in a chapter 13. Because this calculation is hypothetical and does not necessarily reflect your true financial condition, you may appear to be able to repay the minimum portion of your debts but you, in reality, cannot. In that situation, the court may permit you to stay in chapter 7. Unfortunately, the means test is quite complicated and it is wise to seek professional assistance when choosing the chapter under which to file.

Chapter 13 Eligibility
There are two principal requirements for eligibility in a chapter 13 case. First, you must have regular income, although this need not be from a job; regular benefit payments or rental income would qualify. Second, you must not have debts over a certain amount. The debt limits are $1,010,650 in secured debt (like home mortgages and auto loans), and $336,900 in unsecured debt (like most credit card debt). These numbers go up periodically.

5. How does bankruptcy help me in the short run?

The filing of bankruptcy automatically imposes an injunction against all collection efforts by creditors, which means creditors must stop calling, sending letters or suing you over your debts. This is called the automatic stay, discussed in more detail below.

6. What is a discharge?

If a debt is discharged, you no longer have an obligation to pay the debt, and the creditor may not make any effort to compel you to repay. However, if some other person (such as a relative or friend) also has an obligation to pay, his/her obligation is not discharged. In addition, if you have property that is collateral for a loan, the creditor may still be able to repossess that collateral.

7. Do all debts get discharged?

No, not all debts will be discharged through the bankruptcy, even if you have satisfactorily performed all your duties in your case. First, a bankruptcy case only discharges debts that you owed and scheduled at the time you filed the case, not those you incurred after filing the case.

Debts that are not discharged include debts for certain taxes, certain unscheduled debts (creditors with debts not listed in your paperwork), alimony, maintenance or support debts, pre-petition fines or restitution, debts for injury or death caused by use of drugs or alcohol, most student loans and certain condo or co-op fees.

Other debts that may not be discharged include debts you may have incurred through fraud or by willful or malicious actions. If the creditor does not ask the court to rule on these debts, they will be discharged.


MORE DETAILS ON THE BANKRUPTCY PROCESS

1. How much property can I keep after filing?

Chapter 7
Every state has exemption laws that allow you to keep some assets, free from creditors claims, even if you do not pay your creditors. The idea is that it would do little good to take all of your assets because you would not have a place to live, clothes to wear or a way to get to work. Most exemptions allow you to keep clothes, household goods, a car of some limited value, tools of trade, as well as other property. Some exemptions allow you to keep some equity in a house.

In addition, bankruptcy law contains federal exemptions, which you can use when you are in bankruptcy, at least in some states. Those laws list the type and amount of property you can keep. These federal exemptions are available if you live in Arkansas, Connecticut, the District of Columbia, Hawaii, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, Pennsylvania, Rhode Island, Texas, Vermont, Washington or Wisconsin. If you live in one of these states, you can essentially choose to use either the state or the federal exemptions, based upon your particular circumstances. One scheme may be great for one person, but horrible for another. An experienced bankruptcy attorney will be able to help you choose the appropriate exemptions.

As we described above, you must give all your non-exempt assets (the ones that do not fit within the exemptions) to the bankruptcy trustee. However, many people do not have property in excess of the allowed amount of exempt property, and if that is the case, you do not need to surrender any property. Despite the exemptions, you always need to pay debts owed to secured creditors in order to keep the collateral securing the debt. Your exemptions do not affect their claims.

Chapter 13
Under chapter 13, you enter into a payment plan in exchange for keeping even non-exempt property. Again, you must still pay for secured property in order to keep it. You may not have to pay the full amount of the debt in some circumstances, however. Also, it is possible that a bankruptcy judge may not allow you to keep and pay for certain secured property, such as an unnecessary luxury good.

You may use a chapter 13 to save your home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as you file bankruptcy. Chapter 13 allows you to catch up on overdue pre-petition payments over time, while keeping up with current payments.

2. What is the difference between secured creditors and unsecured creditors?

A secured creditor is a creditor that has a lien on property. A lien is an interest in property that a creditor can use to satisfy a debt. Some liens are voluntary, for example a mortgage or a security interest in a car. Other liens are involuntary, for example a lien on property resulting from unpaid taxes or a judgment.

An unsecured creditor is a creditor who has no interest in any of your particular property. Outside of bankruptcy, there are only two ways an unsecured creditor can get paid. First, you can pay the debt voluntarily. This is the way most debts are paid. The other way unsecured creditors get paid is much harder. They must sue you, get a judgment against you, and ask the sheriff to seize your particular property and sell it to satisfy the creditors claim.

Even in bankruptcy, the secured creditor has greater protection because its lien on your property is usually honored. The bankruptcy does not remove it.

3. Does a bankruptcy case automatically remove liens such as mortgages against my property?

No, not at all. Secured creditors get extraordinary rights in a bankruptcy case. Bankruptcy may temporarily delay secured creditors, but most voluntary liens (those granted by agreement on houses, cars and household goods) have to be satisfied one way or another.

However, you have some opportunities to remove or avoid involuntary liens and a small category of voluntary liens. Avoid is the term used in the Bankruptcy Code for removing liens.

Chapter 7
You can avoid some involuntary liens (except for liens securing alimony or support obligations) that are on property that you could exempt. You can also avoid some voluntary liens on property that you could exempt. For these voluntary liens, you can only remove liens on certain household goods, tools of the trade and professionally prescribed health aids. Moreover, the term household goods includes only certain types of items (for example, clothing, one radio, one television, one VCR).

Chapter 13
If you file chapter 13, you have the additional ability to remove liens by completing payments under the plan. In some cases, the plan will reduce the amount that you must pay or change the time period over which you must pay the debt. In the case of homes and cars, the ability to change the payment terms is very limited.

4. How does the automatic stay work to stop foreclosures, repossessions or other collection efforts from taking place?

Just by filing a bankruptcy petition, an automatic stay against all collection efforts is put in place. This is a powerful tool of bankruptcy and one of the laws primary protections for debtors. Most creditors have to stop all efforts to collect from you. Creditors must stop making calls to you, stop sending letters, stop all lawsuits to collect, etc.

The automatic stay also stops foreclosures, repossessions or sales of property from going forward. If you don't pay your house payments, however, the creditor will have the right to continue the foreclosure once the dust settles. Thus, the benefits of the automatic stay may be temporary when the creditor is a secured creditor.

There are a number of exceptions to the automatic stay. For example, attempts to establish or collect alimony or support obligations are not stayed, nor are criminal suits or suits by governmental agencies to protect the public.

Moreover, the automatic stay does not arise if you are filing a case within a year of filing two other bankruptcy cases that were dismissed because you did not file all the paperwork or otherwise follow through in your cases. If this happens, the stay is not automatic, but you can still request the protection of a stay.

Just remember that as to secured creditors, the automatic stay is temporary. It means only that creditors must ask the court before taking action. No bankruptcy filing allows you to keep property that is security for a loan without making payments on the loan. If you are behind on the payments and the property is of insufficient value to satisfy the debt, or there is risk of loss of the property, a secured creditor may obtain court permission to seize and sell the property.

In addition, in a chapter 7 case, as soon as the bankruptcy case is closed, the automatic stay terminates, and the creditor can proceed with foreclosure or repossession if you are behind on the payments.

If you have problems with secured debt, you may be better off filing a chapter 13 case than a chapter 7 case because the chapter 13 will allow you to pay off the past-due secured debt over time.

In chapter 13, the automatic stay also protects people other than you who area co-debtors. Co-debtors are people who also have an obligation to pay the same consumer debt as you do. That includes people who have guaranteed the debt for you.

5. What must I do to prevent foreclosures and repossessions?

Chapter 7
Soon after filing the petition, you must declare whether you will return the property, purchase the property or enter into a reaffirmation agreement with the creditor. However, if you do not do one of these things, the stay will terminate and the creditor may take the property.

Chapter 13
Depending upon the plan, you may be able to keep property despite secured claims. You can modify some obligations, for example by stretching out payments and reducing interest rates (where interest rates have fallen since you created the obligation).

6. How does a chapter 13 case help me with my secured debts?

Generally, in a chapter 13 you must pay in full all loans secured by your residence. The good thing is that the case gives you time to pay this off during the term of the plan, unlike a chapter 7. But, while overdue payments must be repaid over the course of the plan, regular monthly payments must still be made on time. Practically speaking, this means that if you were behind on the mortgage payment, you will be making a larger mortgage payment to make up for the past due debt.

Cars purchased for your personal use within 910 days (approximately 2 1/2 years) prior to the filing of the bankruptcy are required to be paid in full through the bankruptcy. You also must pay in full the debt for any other secured property of value that you purchased in the year before filing. However, you still may be able to reduce the interest rate on these secured debts.

7. What happens if I fall behind in payments after filing a chapter 13 case?

The terms of a confirmed plan bind you and each creditor. If you have an unexpected financial problem during your chapter 13 case, you should immediately consult with your attorney. It is often possible to deal with changed circumstances by amending the chapter 13 plan. Also, it is sometimes possible to add debts that you incurred after filing chapter 13 to the plan, so that they will be discharged with other debts at the completion of the plan.

8. What is a reaffirmation agreement and how does it work?

A reaffirmation agreement is an agreement providing that you will pay a creditors debt even though the debt would otherwise be discharged in bankruptcy. In theory, the debt can be renegotiated, but most reaffirmation agreements simply require you to pay the debt as originally agreed.

While unsecured debts can be reaffirmed, this is usually not a good idea. Thus, most reaffirmation agreements deal with secured debts, and debtors enter them to keep the creditor from repossessing or foreclosing on the property securing the debt. A valid reaffirmation agreement puts you under a legal obligation to repay the otherwise dischargeable debt. If you default on the payments required under the reaffirmation agreement, the creditor can repossess or foreclose on the property and seek a personal judgment against you.

In order for a reaffirmation to be valid, the parties must sign the agreement and file it with the court before you receive a discharge. In addition, either your attorney or the court must determine that the agreement does not impose an “undue hardship” on your family. There are other requirements as well, including extensive disclosures to you.

If the parties do not comply with all the requirements for a reaffirmation, the agreement may not be binding. In that event, you would have no personal obligation to make payments under the agreement.

As a rule, you should think very carefully about whether to reaffirm debt, as this limits your bankruptcy discharge.

9. Can I make payments on a discharged debt without a reaffirmation agreement?

Yes. You can make a voluntary payment of the debt. This often happens, for example, with debts to family members or friends. However, the key to this kind of payment is that it must be entirely voluntary; you have no legal obligation to pay a discharged debt, and the creditors can take no action to pressure or persuade you into making the payments.

10. Can I obtain bankruptcy protection again if I have filed a bankruptcy in the past and am now falling behind in payments again?

You may not be able file a bankruptcy petition if a prior case was dismissed because of your failure to abide by a court order. In addition, you cannot file again if, within the last six months, you requested dismissal of the prior case after a creditor sought relief from the automatic stay. The law in effect after October 17, 2005 also imposes the following rules if you have filed prior bankruptcy cases:

Chapter 7
You can file another chapter 7 case, but there might not be a right to discharge. If the prior bankruptcy was in chapter 7 and you filed the case less than eight years ago (six years before October 17, 2005) and obtained a discharge, you cannot obtain a discharge in a case filed today.

Finally, having filed a recent previous bankruptcy may affect the automatic stay. This is true in some situations where the prior case had been dismissed or a creditor had obtained relief from the automatic stay.

Chapter 13
You can file another chapter 13 case, but there might not be a right to discharge. On or after October 17, 2005, if the prior bankruptcy was in chapter 7 and you filed less than four years ago and obtained a discharge, you cannot obtain a discharge in a chapter 13 filed today. If the prior bankruptcy was in chapter 13 and you filed the petition less than two years ago and obtained a discharge, you cannot obtain a discharge in a chapter 13 filed today.

Finally, having filed a recent previous bankruptcy may affect the automatic stay. This is true in some situations where the prior case had been dismissed or a creditor had obtained relief from the automatic stay.

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