Quick Answers about California Bankruptcy

Q: What is bankruptcy?

A: The laws allows people or businesses who owe more money than they're able to pay to others time to either work out an equitable payoff plan or to eliminate the debt completely. The persons who owe the money are referred to as debtors, the people they owe the money to are referred to as creditors, and wiping out the debt is referred to as discharging the debt.

Q: What is secured and unsecured debt?

A: Secured debt is money owed on a piece of property by a contract, such as an auto loan, mortgage, or court judgment. Unsecured is money owed that is not legally tied to a piece of property, such as credit card debt

Q: How do I know if I should file for bankruptcy?

A: There are no hard and fast rules of who should go bankrupt, but of you a) only can afford the minimum payment on your credit cards, b) cannot get yourself out of debt in 5 years by budgeting carefully, c) have your mortgage holder threatening foreclosure on your home, d) have a major financial crisis, like losing your job, or have a protracted illness where you can't work, or have a costly divorce settlement that you cannot pay for, you should discuss your options with a competent attorney familiar with the bankruptcy laws.

Q: Can anyone file for bankruptcy?

A: Yes, just about any person or business can file for bankruptcy if they owe more money than they can pay. There are some exceptions, though. If your financial affairs are temporary, or if you have little or no assets, it may not be necessary or even not wise to file for bankruptcy.

Q: What is the downside of filing for bankruptcy?

A. The bankruptcy will appear on your credit reports, so you may find it difficult to obtain credit in the future, particularly unsecured credit. In addition, you run into trouble renting apartments or houses, if the landlord checks your credit. Some jobs may be difficult to get as well, if the company has a credit and background check policy. Be sure to discuss these points with your attorney before deciding if bankruptcy is right for you.

Q: Which of the different types of bankruptcy should I file?

A: Individuals file either a Chapter 7 bankruptcy where the debts are discharged, or a Chapter 13 Bankruptcy, where you work out a payment plan to your debtors. Each of these types of bankruptcy has different rules about which of your assets you can keep and which have to go. The laws are rather complex, so you should first consult with your attorney before deciding which is right for you. There are different chapters for businesses filing for bankruptcy.

Q: If I filed for bankruptcy before and find myself in trouble again, can I file again?

A: Yes, however there are rules about how many years between filings of the different types of bankruptcies. A Chapter 7 may be filed 8 years after a previous Chapter 7 filing and 6 years after a previous Chapter 13 filing. A Chapter 13 may be filed 4 years after a previous chapter 7 and 2 years after a previous Chapter 13.

Q: What do I need to have before filing for bankruptcy?

A: The first thing you'll need is a list of all of your assets, the things you own, and also a list of all of the money you owe and to whom. You'll also need your pay stubs if you're working to show how much you earn. The attorney will assemble this information into the proper forms. He'll also assist you in writing a statement about your financial affairs. These two documents along with an application will be filed with the court.

Q: Can a husband and wife file for bankruptcy together?

A: Yes. It is called a joint petition. Only people who are married may file it. Unmarried partners have to file separate petitions.

Q: What happens if one spouse files for bankruptcy and not the other?

A: This can bring up difficulties. The spouse who does not file may then be responsible for the debts of the spouse filing for bankruptcy. Discuss this with your attorney before making any decisions in this case.

Q: Am I protected if I'm divorced and my ex files for bankruptcy?

A: Not necessarily. If you both co-signed on loans, even if the divorce assigned the debts to your ex, you may be held liable for the debt.

Q: If I co-signed a note for someone else, and they filed for bankruptcy, and the creditor come after me?

A: Yes. That's why lenders ask for co-signers on notes for risky borrowers. You are required to make the payments on the debt even if they file for bankruptcy.

Q: Are there any debts that cannot be discharged?

A: Yes there are. These include:

* Taxes owed to the federal, state and local governments,
* Government education loans,
* Any loans that were obtained fraudulently,
* Any debts you did not list on the bankruptcy paperwork you filed,
* Any debts you owe for willful and malicious injury to another person or another's property
* If you owe money for a personal injury or death resulting from driving under the influence of alcohol or drugs, and
* Any debts you incur after your bankruptcy was filed.

Q: Can I keep some of my assets if I file for bankruptcy?

A: Yes. This includes things like some of the equity in your home, your personal vehicles, jewelry, and tools of the trade, if you need them to continue working. There are some limitations your attorney will discuss with you.

Q: Do I have to bankruptcy out of all of my debts?

A: No. While you are required to list all of your debts on your bankruptcy paperwork, you can elect to continue paying some of your debts if you wish by reaffirming them.

Q: What about retirement accounts and social security?

A: Under California bankruptcy law, qualifying retirement accounts aren't considered assets, so cannot be taken from you. In addition, if your social security is put into a separate account only identified as a social security account, it cannot be taken. If you intermingle the payment with your other cash, though, it becomes fair game.

Q: If I file for bankruptcy, will the court make me sell my home?

A: Maybe. It will depend on a number of factors, including the type of bankruptcy you are filing and whether your home loan is current or in foreclosure. This is why it is important to consult with an experienced bankruptcy attorney before you file.

Q: How many years will my records show that I have a bankruptcy?

A: Your credit report will show it for at least seven and possibly up to ten years.

Q: Can the bankruptcy be removed from my credit report?

A: No, but you can file an explanation with the credit reporting agencies who will post it on your report for those considering giving you credit to see.

Q: When can I apply for credit again?

A: The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor. There is no California bankruptcy law that prevents anyone from extending credit to you immediately after the filing of a bankruptcy, but creditors aren't required to extend you credit.

Q: Is it true that a credit repair company can prevent me from having to file for bankruptcy?

A: Not really. You can be just as effective on your own as any company in fixing your credit.

Q: After filing for bankruptcy, can I stop the harassing phone calls from creditors?

A: Yes. The court will order the creditors to stop their collection efforts.

Q: How does the bankruptcy work?

A: The court will assign a trustee, a professional, who is paid for by the filing fees, who will analyze the situation and decide which creditors get what and what you need to do. There will be documents issued and meetings to the creditors by the trustee to resolve any issues. If the assets are substantial and the issues complex, there may be court hearings or trials to resolve any disputes.

Stephen Brittain is a Bankruptcy Attorney serving Los Angeles, Orange, San Bernardino and Riverside Counties, and all of Southern California. He specializes in helping people who have gotten behind in their bills and need relief from bill collectors, foreclosure on their houses, and other financial difficulties from divorce, disability, excessive medical expenses, and more. Stephen offers a free initial consultation. His web site is http://www.stephenbrittain.com.