What is bankruptcy?

At the most basic level, bankruptcy is a process which was granted by the United States government to individuals and businesses to either wipe out their debt completely or reorganize their debt into a manageable repayment plan. The government recognized that sometimes honest individuals find themselves in a situation that cannot be solved by “tightening the belt” or “budgeting.” Sometimes due to loss of job, divorce, illness or an unforeseen event, people find themselves in debt they cannot manage on their own. Bankruptcy puts in place laws that allow people to start fresh, or restructure without becoming victims of circumstances.

Most individual debtors either file Chapter 7 or Chapter 13 Bankruptcy.

How do I know which Chapter I should file, Chapter 7 or 13?

Chapter 7 is a “straight bankruptcy” and is the most common Chapter. Note, that under the new Bankruptcy Law, not all debtors will qualify. Debtors with mostly consumer debt must satisfy the “Means Test.” If your income is above your state’s median, you may have to meet additional requirements to qualify under the Means Test. Law Offices of Leonora Gorelik can help you determine during the initial free consultation if you will qualify under the Means Test.

Assuming you can meet the Means Test, it might still make sense to file a Chapter 13 bankruptcy instead.

For example:

• If you have already received a bankruptcy discharge within the last 8 years, you may not receive another discharge until the 8 years expire (the entire reason for filing bankruptcy). However, you may still receive a discharge under Chapter 13;
• To avoid liquidation of assets by the bankruptcy trustee. Assets that have sufficient equity after exemptions may be liquidated by the Chapter 7 Trustee to pay unsecured creditors. While under Chapter 13 these unsecured creditors should be equally well off, the same amount that they would have received in a Chapter 7 may be paid over a 60 months period;
• If your monthly income minus monthly expenses still leaves a positive number, you may be ineligible for a Chapter 7 (even if you qualify under the Means Test);
• If you are behind on mortgage or car payments, Chapter 7 will only buy you a month or two of time prior to creditor taking certain steps and continuing the foreclosure/repossession proceedings. Chapter 13 will allow you to “catch-up” on these arrearage amounts over a 36-60 months period;
• If you have a home with a “fully-unsecured” second mortgage and you intend to keep your home, Chapter 13 should be considered in order to “strip” the second mortgage.

Which assets (possessions) can I protect when I file bankruptcy?

Note, the following discussion is only applicable to your case if you have lived in California for the entire 2-year period prior to bankruptcy. If that is not the case please contact an attorney who can help you determine which State’s exemptions are applicable to your case. Law Offices of Leonora Gorelik will be glad to assist you.

There are two sets of exemptions under California law. These exemptions allow you to retain certain assets, despite your bankruptcy filing. The debtor(s) must choose one set of exemptions. While the list below covers most of the common exemptions, it does not cover all due to the complexity of this area of law. Please contact a bankruptcy attorney to discuss exemptions relevant to your particular case. Further, the amounts listed below are subject to change and should not be relied upon.

“Wild card” exemptions set:

1. Wild card – allows you to protect up to $23,250 in any asset. Note, this exemption can be “broken up” and used to protect more than one asset.
2. Automobile – up to $3,525 in any one vehicle. Note, you can use the left over portion of your wild card exemption to protect the remaining equity in the vehicle. Example, you have a car that is worth $8,000. You can use the automobile exemption of $3,525 and protect the remainder of the value ($4,475) using your wild card exemption (assuming there is still $4,700 available from the wild card exemption).
3. Jewelry – up to $1,425.
4. Household goods and furnishings – up to $550 in any one item.
5. Tools of trade – up to $2,200.
6. Life insurance – up to $11,800 in cash value.
7. Pension Plans/Retirement accounts – usually completely exempt.
8. Social security, unemployment, public assistance – 100% exempt.
9. Personal bodily injury payments (not including pain and suffering or compensation for loss of future earnings) – up to $22,075.
10. Loss of future earnings – up to an amount reasonably necessary for the support of the debtor and debtor’s dependents.
11. Health aids (professionally prescribed) – completely exempt.

“Homestead” exemptions (note you will likely not choose this set unless you have equity in your home that you want to protect)

1. Homestead – allows you to protect $75,000 in equity if you are single, $100,000 in equity if you are married, $170,000 in equity if you are over 65/disabled/earning less than approximately $20,000 per year.
2. Jewelry, heirlooms and work of art – up to $7,175.
3. Automobile – up to $2,725.
4. Paid earnings – 75% of earnings received w/in 30 days of filing bankruptcy.
5. Inmate trust account – up to $1,425.
6. Materials to be applied to repair or maintenance of residence – up to $2,875.
7. Personal property used in debtor’s or debtor’s spouse’s trade, business, or profession – up to $14,350.
8. Private disability and health insurance benefits – entire amount exempt.
9. Private retirement plan and benefits – entire amount exempt.

Will I get to discharge (get rid of) all my debts?

No. Certain debts do not get discharged.
Obligations that do not get discharged include:

• most student loan obligations(unless can show undue hardship);
• most types of taxes;
• alimony and child support;
• liability from driving under the influence;
• criminal restitution awards;
• debts incurred by fraud or false pretenses;
• debts incurred by a false statement in writing (false credit card application);
• debts incurred by embezzlement and larceny;
• fines and penalties owned to the government;

This is not an all-inclusive list. Please contact an attorney if you have question regarding whether a particular debt will be discharged if you file bankruptcy.

Do I get to keep my home if I file bankruptcy?

The answer to this question depends on many factors, including:

• How much equity you have in your home?
• Are you behind on your payment?
• What other property are you trying to protect?
• What is your income level?

Generally, assuming you qualify for Chapter 7, the Chapter 7 Trustee will only have an incentive to sell your home if there is sufficient equity beyond your claimed exemptions to make it advantageous for the trustee to sell the property to pay your unsecured creditors. For example, if you have a home valued at $500,000 and you owe the bank $495,000 and you use your wild card exemption (see above) to protect the remaining $5,000 of your equity, the trustee will have no incentive to sell your home because he/she won’t be able to realize a profit sufficient to pay unsecured creditors. However, if you have a property valued at $900,000 and you owe the bank $500,000, even with a homestead exemption of $150,000, the trustee will still be left with roughly $250,000 in equity and will therefore have an incentive to sell the property for the benefit of unsecured creditors. In this case Chapter 13 bankruptcy is usually a better choice. However, it is also important to determine if you qualify to file Chapter 13 bankruptcy. A consultation with a bankruptcy attorney will allow you to make a choice most appropriate to your particular financial situation.

Note, if you are behind on your mortgage payments and you cannot repay those quickly (usually within a month of filing bankruptcy) after you file for Chapter 7 bankruptcy, your mortgagee will likely file what is known as a “Motion for Relief From the Automatic Stay” and obtain an order from the Court which will allow the mortgagee to proceed with the foreclosure despite your bankruptcy filing. The most practical solution to this problem is to file a Chapter 13 bankruptcy, which will allow you to repay this arrearage over a period of time (3-5 years). However, again, it is important to be able to qualify and propose a viable Chapter 13 plan. It is important to contact an attorney to discuss the most appropriate course of action. Law Offices of Leonora Gorelik will be happy to examine your situation and suggest a course of action suitable to your needs.

Is it too late to file bankruptcy if I am being sued or if there is already a judgment obtained against me?

No. Assuming the debt is dischargeable, you can still get rid of the debt even if the creditor has obtained a judgment against you. However, if the creditor obtained a judgment lien against your property, while this lien may be avoidable in certain circumstances if the proper steps are taken to avoid this lien, the lien will not automatically “disappear.” It is important to contact an attorney who may be able to take the necessary steps to avoid this lien. Therefore, if you file bankruptcy, while the underlying debt may be discharged, the lien will nonetheless survive, unless a motion is filed. If this judgment lien is not avoided (or avoidable), you will have to pay the creditor prior to selling/transferring your property.

What will my bankruptcy filing do to my credit score?

A bankruptcy filing can remain on your credit report for up to ten years. While you would think that bankruptcy will have a negative impact on the actual credit score, for many people, especially people with already poor scores, bankruptcy may actually create an improvement in the score within a year. Law Offices of Leonora Gorelik utilizes a service that will be able to estimate your score 1 year post-bankruptcy prior to filing the bankruptcy. Also, Law Offices of Leonora Gorelik will be glad to assist you with advice concerning rebuilding your credit post-bankruptcy.

How long will my bankruptcy take?

In most Chapter 7 cases, you will receive your discharge within 3 months after your creditor’s meeting. Your creditor’s meeting usually takes place 30-40 days after you file your petition. Therefore, it is likely that your case will be completed within 4 months. In Chapter 13 cases, your will receive your discharge within approximately 36-60 months (the time it takes to complete your Chapter 13 plan).

What documents should I bring to my initial consultation?

Although it is not necessary to bring any/all documents to the initial consultation if you are familiar with your assets and debts, you may find it helpful to have your documents reviewed by an attorney at this stressful time. Further, if you do decide to file for bankruptcy, certain documents will be necessary prior to document preparation and you may find it helpful to have the documents already prepared.

However, the following documents, if available, will be helpful in evaluating your case.

1. Income tax returns (both Federal and State) for last 3 years.
2. Pay stubs for the past 6 months. If you operate a business, your profit and loss statement for the last 6 months or bank statements with business deposits and withdrawals.
3. Copy of the most recent mortgage statement (from all the lenders).
4. Copy of your foreclosure notice, if any.
5. Copy of your most recent timeshare statement.
6. Copy of your most recent mobile home statement.
7. Copy of the most recent bill from auto lender.
8. Copy of your most recent real estate property tax bill.
9. Copy of the most recent statement from your retirement plan.
10. Copy of any lawsuit complaints against you (pending within the last 12 months).
11. Copy of all your credit card bills, student loan statements, delinquent tax notices, etc.
12. Copy of any marital dissolution documents.
13. Copy of your social security card.

How much will it cost to file for bankruptcy?

The attorney’s fees will depend on what Chapter you file and the complexity of your case. It is virtually impossible to give you a quote without first exploring your situation. However, there is a fee that remains the same and is payable directly to the Bankruptcy Court. For Chapter 7 filings the current filing fee is $299 and for Chapter 13 filings the current fee is $274. Please note that during your initial consultation you will obtain a firm fee quote from the Law Offices of Leonora Gorelik.

Disclaimer: Please note this section is not meant to provide legal advice and a consultation with a bankruptcy attorney in your state is strongly suggested in order to protect your rights and make the best decision with respect to your bankruptcy filing.