Bankruptcy Overview, how to file Chapter 7 or Chapter 13, and what You Need to Understand About the Bankruptcy Process and How it Works

A Bankruptcy Case officially starts when you file the "Petition." At that time, an "Automatic Stay" goes into effect under Bankruptcy Code sec. 362 (a). The Petition is accompanied by Schedules and a Statement of Financial Affairs that describe all your assets and debts, your income and expenses, and your financial transactions in the last several years. Unlike a civil case, most of the work on your case is done before you file. The work to be done includes accurately preparing your petition and doing effective exemption planning, which is one of the biggest reasons you need a skilled, experienced bankrtupcy lawyer. The filing of the petition prevents your creditors from taking any action to collect on any debt that is owed, including, but not limited to: foreclosing on your house or other property, filing or continuing lawsuit, repossessing your car, evicting you from your residence, calling you and harassing you, and virtually any other act against your interest. The Automatic Stay gives you breathing room while your case goes through the process and stays in effect until further order of the court or until the discharge is entered.

One of the concerns that people have is whether their Bankruptcy will be contested, and what they will say when they go before a judge. Most Bankruptcy cases are not contested, and the only court appearance in a Chapter 7 is before the Chapter 7 Trustee, not a judge. The Bankruptcy Code requires that you be examined under oath regarding your Petition, Schedules and Statement of Financial Affairs.. This is an informal meeting conducted by the Bankruptcy Trustee, who is appointed by the court to examine your file, make sure that everything is in order and determine whether there are any nonexempt assets that are subject to liquidation for the benefit of creditors. The Bankruptcy Trustee, however, is not an adversary, he just has a job to do. The Bankruptcy Trustee's job is to look over your file, make sure it is in order, and determine if there are any non-exempt assets that might be liquidated for the benefit of your creditors. If your lawyer has done a proper job for you, the meeting of credits should be a walk in the park.

When your petition is filed, the Automatic Stay goes into effect. A meeting of creditors will be scheduled for approximately 30-45 days later. Sixty days after the conclusion of the first meeting of creditors, assuming that everything is in order, the Discharge can be entered, and your case can be closed. It usually takes about 3 -4 months to complete a Chapter 7 in order for the Chapter 7 Discharge to be entered.. A Chapter 13 is a more extended process and usually lasts 3-5 years.

The goal of a Chapter 7 is to receive a Discharge and get rid of all your debts, credit cards, medical bills, payday loans, personal loans, judgments, deficiencies following a repossession or foreclosure and any other unsecured debt. When the discharge is entered, your creditors are forever barred from contacting you or taking any further action to collect on any debt. They can't come back years later to see if you are then able to pay them. The credit reporting agencies are required to report your debts as discharged. There can be sanctions imposed against anyone who violates a discharge order, so you can finally live in piece after the Discharge is entered on the court's files.

Chapter 7 is the traditional straight liquidation Bankruptcy. You get rid of all your debts that are “dischargeable,” like credit cards, medical bills and other unsecured debts. You get to keep whatever property is “exempt” according to State and Federal Law.

The reason why most people file Chapter 7 is to take advantage of the Chapter 7 Discharge. Most unsecured debts are dischargeable, such as credit cards, medical bills, payday loans, personal loans, and other debts such as a deficiency following a foreclosure or repossessed vehicle. Some things, however, are "excepted" from or not subject to discharge, such as taxes that are fresher than 3 years old, spousal support and child support or domestic support obligations, students loans, intentional torts, and money or property obtained by fraud, i.e., knowing you can't pay it back. The discharge can be entered 60 days after first meeting of creditors. 99% of Chapter 7 filings are uncontested, and a creditor has to have specific reasons for objecting to your dishcharge which usually involves fraud. In order to dispute your bankruptcy, a creditor has to file a complaint objecting to the Discharge, an "Adversary Proceeding""in the Bankruptcy Court. Once the discharge is entered, your creditors are permanently barred from making any further attempts to collect on their debts and are prohibited from contacting you again! Thats the whole point of a Chapter 7 Bankruptcy.

Secured debts, such as car loans, mortgage loans, and some types of loans involving personal property, survive a bankruptcy filing. That means that you have to keep paying those debts even after you file, by entering into a "Reaffirmation Agreement" and agreeing to remain personally liable ono the debt.

The goal in any bankruptcy, at least from the debtor’s perspective, is to get rid of as much debt and keep as much of your stuff as you can. When your Bankruptcy Case is filed, your property goes to a fictitioud entity created called the "Bankruptcy Estate." To the extent your stuff is not exempt, the Bankruptcy Trustee's job is to liquidate it for the benefit of your creditors. Don't worry though. You keep your stuff by claiming it as "Exempt” when you file your bankruptcy petition. Exemptions are governed by both State and Federal Law, and it can be very tricky. Under California Law you can exempt all kinds of things such as:

People who try and do their bankruptcies on their own can easily get in to trouble and you should consult a Bankruptcy lawyer and do your exemption planning before you file Bankruptcy, otherwise, you could get yourself in trouble and have the Trustee grab it. Below is a table of some of the commonly used exemptions in California. There are many exemption in federal and State law.
>>>>> See Table of Exemptions

As a general rule, taxes are not dischargeable. However, there are exceptions to the rule. If you have taxes that are three years older or older, and you have had your tax return on file for at least two years, income taxes may be dischargeable. Taxes like payroll tax, sales tax and other “trust fund” taxes are generally not dischargeable. However, if you have non-dischargeable taxes, an option for you may be to file Chapter 13, and spread the payments out over time.

Utilities such as phone, electric and gas bills are subject to discharge in the Bankruptcy Court. Since utilities are monopolies, essential service providers like the phone company, P.G. & E and SMUD have to allow you to keep service, but they can require you to make a deposit. Practical experience has shown that despite the fact that you can discharge utilities, a lot of times it is easier to make arrangement to keep the bill paid so that service is not interrupted and you don't have to make arrangement to make a deposit. The deposit usually works out to what you would have paid if you had kept the service on. Cell phones are a different story. Because there are many providers, your carrier is not obligated to keep you. If you are happy with your current provider, pay them and then file. It will save you a lot of hassle.

Reorganization under Chapter 11 of the Bankruptcy Code allows business and individuals with large amounts of secured or unsecured debts to restructure or repay their debts over time. Corporations or partnerships as well as individuals must propose a plan of reorganization that must be approved or confirmed by the court. Chapter 11 is a more elaborate and expensive process than Chapter 13, but in some cases may be necessary to provide effective relief.

Chapter 13 is the debt adjustment or repayment program for Individuals with regular income who have the ability to repay some or all of their debts over time, usually 3-5 years. You qualify if you are self employed, own a business, or have other regular income that allows you to fund a plan. In Chapter 13, you make a single monthly payment to the Chapter 13 Trustee, who then distributes the proceeds to your creditors on a priority basis, and then prorated to unsecured creditors.

Any individual with regular income who has the ability to repay some or all of their debts over time, usually three to five years. You don't qualify if you don't have regular steady income. You can't file Chapter 13 if you are a partnership, corporation or a trust, or have secured debts in excess of $1,000,000 and or unsecured debts of more than $750,000.00.

The Chapter 13 Plan In the Eastern District of California, the Court uses a Chapter 13 Form Plan that was created the Judges in the District, with input from the Chapter 13 Trustees, and Bar. It simplifies the process of proposing and filing a Chapter 13 Plan. In Chapter 13, you make a single monthly payment of your net disposable income, above and beyond your ordinary and necessary living expenses to the Chapter 13 Trustee, who then distributes the proceeds to your creditors. In order to get a Chapter 13 Plan confirmed, you must, in addition to other things:

Chapter 13 allows you to pay some or all of your debts back over time, usally 3-5 years

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