DO YOU QUALIFY TO FILE FOR BANKRUPTCY PROTECTION?

Most people are very upset and embarrassed about needing to file for bankruptcy.  However, in today’s tough economy, you are not alone.  Many people, including professionals, are filing for bankruptcy protection to get a “fresh start.”   

Call for a free initial consultation (760) 931-5495 to find out whether bankruptcy protection is for you.

You need to consider certain things before you file.  Your bankruptcy attorney should discuss these issues with you.  Some possible questions include:   

1. How much debt do you owe? Perhaps you can negotiate down your debts, rather than filing bankruptcy.  Remember that if you file, you need to include anyone who could sue you for money, e.g. former clients, hospitals, dentists, etc. 
2. Is the debt secured? Car loans are secured by the vehicle, house loans by the house, etc.
3. Is the debt dischargeable?  Support payments, student loans and recent taxes are not dischargeable.
4. How much you have earned over the past 6 months?  If you earned more than the allowed amount, you may have to file Chapter 13 debt reduction and reorganization, rather than having your debts completely discharged.  When you file may be important, e.g. if you received a big bonus 5 months before filing, wait to file.
5. Do I have to include my spouse’s income?  Yes, if you are married and not separated.
6. How many people live in your household?  This affects whether you can pass the Means Test.   
7. How many vehicles do you own and what are the debts thereon?  The equity in the vehicles may affect whether you can discharge the debt.
8. What are your real property debts – mortgage payments, association fees?  Do you want to try to save your home?
9. Do you want to keep your personal property?  If so, you may need to reaffirm the debt, e.g. your car loan.
10. What property can you keep after the bankruptcy?  Most personal property such as clothing household furniture and furnishings, tools of your trade, a modestly valued car.  However, the Bankruptcy Court looks at what assets have equity and can be sold to get money to pay your creditors.
11. If I can’t file Chapter 7, can I still file for bankruptcy protection?  You may be eligible to file for Chapter 13.  One advantage with this is you may be able to "strip" a lien and discharge a second loan on your house if the balance of the first loan is higher than the house's current market value.  Chapter 13 requires a 3 to 5 year payment plan to pay a portion of your debts.  By law, the Bankruptcy Trustee gets 10% of each payment.
12. Can I keep my car and my home? Yes, if you do not have too much equity.  If you do, the Trustee may want to sell the asset to get money to pay your creditors.  A homestead exemption should be available to protect some of the equity in your home.  If you have a car loan, you may want to reaffirm the debt and keep paying the loan to keep the car.
13. Do I still have to pay them for the car they repossessed it?  If your car was sold at auction for less than the debt, the creditor can come after you for the difference.  The difference owed should be included in your bankruptcy filing.
14. I am married, should I file a joint bankruptcy petition with my spouse?  In California your assets and debts are generally community property.  The Bankruptcy Trustee will look at 100% of the community property to see whether there is anything that can be sold to pay creditors.  If you are still married and not separated, you can file jointly to pay only one filing fee and one attorney.  If you are married but separated, talk to our office about whether it is better to file separately.
15. Can my creditors garnish my wages?  Yes, if they won a lawsuit against you and obtained a judgment.  That judgment can also be enforced by levying your bank account or filing a lien against your real property.  You can be subjected to a debtor's examination to find out where you work and how much you earn.  If you do not appear, the Superior Court can issue a bench warrant for your arrest.  See a bankruptcy attorney before the court issues a judgment.  Do not ignore a creditor's lawsuit. 
16. Can I discharge a Promissory Note?  Probably if it is unsecured.  If it is secured, the creditor can go after the security.
17. If I filed for bankruptcy before, can I file again?  You cannot file again if you received a Chapter 7 discharge within the last 8 years or if you have not discharged more than 30% of your debts in an earlier Chapter 13 case within the last 6 years.
18. Do I have to take any courses before I file?  Yes, you have to complete an approved Credit Counseling Course and the certificate of complation must be sent with your bankruptcy petition.  You will have to complete another course in order to have your debts discharged.
19. REMEMBER - BE TRUTHFUL:  Your spouse could show up at the creditor's meeting and reveal that you got a Porsche in the divorce that you did not disclose.  There are serious legal ramifications for lying in your bankruptcy.

DO YOU PASS THE MEANS TEST?

Do you have the means (income) to pay your bills?  If your income (before taxes, excluding social security) is less than the local medium income and you do not have much equity in your car or house, you should qualify to file for Chapter 7 bankruptcy. 

If you fail the Means Test, there “presumption of abuse” that you may be able to rebut and still qualify if some of your expenses are deductible, for example a special diet or expensive medicine that you can verify through your doctor.  An additional form must be completed if your gross income is more than the local medium income.  The Trustee will want to see a good reason for filing Chapter 7, e.g. inability to work in the future due to a catastrophic injury causing a job loss and high medical bills.

If you have more than $166.66 left over after paying all your permissible expenses, you will have to file for Chapter 13 and establish a payment plan to pay at least 25% of your unsecured debts to your creditors over the next 5 years.  You have to have a job to file for Chapter 13 as the Court will expect you to have income to pay a set amount based on an approved payment plan. 

Call our office to schedule an appointment to see whether you pass the Means Test. 

THESE ARE JUST SOME OF THE QUESTIONS YOU MAY HAVE BEFORE YOU FILE FOR BANKRUPTCY. 

Call our office for a free consultation (760) 931-9495 to discuss issues that may affect your case.

Disclaimer: The above responses do not form an attorney-client relationship. The answers may or may not apply to you and should not be relied upon as legal advice.