Filing for Bankruptcy in San Diego
Bankruptcy brings relief to honest debtors who cannot make good on debts within a reasonable time. What is reasonable depends on the circumstances. Bankruptcy stops creditor actions, wipes out dischargeable debts while allowing the debtor to keep exempt assets.
- CHAPTER 7 OR CHAPTER 13 WHICH IS BETTER?
- HOW BANKRUPTCY STOPS CREDITORS
- WHAT AUTOMATIC STAY CANNOT PREVENT
- HOW CREDITORS GET AROUND AUTOMATIC STAY
- DISCLOSE EVERYTHING, HIDE NOTHING
- LIST ALL CREDITORS
- LIST ALL ASSETS
- WHEN CHAPTER 7 ISN’T THE RIGHT CHOICE
- ARE YOU JUDGMENT PROOF?
- WILL CHAPTER 7 DISCHARGE ENOUGH OF YOUR DEBTS?
- HOW MUCH PROPERTY WILL YOU HAVE TO GIVE UP?
- IS CHAPTER 7 MORE THAN YOU NEED?
- COMMON CAUSES OF BANKRUPTCY
- HOW TO GET STARTED
COMMON CAUSES OF BANKRUPTCY Common causes of financial distress are job loss, divorce, illness, business failure. A combination of these events can easily overwhelm even the most fiscally prudent. In San Diego, this can be particularly devastating because our housing and living expenses here historically demand a premium.
Continuously increasing use of credit eventually can become unmanageable and many people do not realize this until after the tipping point has happened. The resulting fines, interest rate hikes of missed payments can become a spiral that makes it impossible or impractical to repay debts.
A typical collection process begins with creditor phone calls and threatening letters (more recently also text messages and robocalls) eventually lawsuits, judgments, wage garnishments, bank levy, liens on debtor’s property. Often, debtors exhaust assets hoping to catch up. If this effort makes little sense because no real progress can be made, such steps deplete needed assets and can leave a debtor only worse off.
The crucial part of Bankruptcy alternatives like credit consolidation or debt settlement is that these smart options only if the budget used is realistic. The true cost of non-bankruptcy alternatives need to be calculated. These could potentially include income tax consequences on forgiven debt and other personal sacrifices.
If creditors cooperate and the financial setback was temporary, or the amounts owed manageable, debtor may be able to get back on track with some negotiations. But an unrealistic budget to fund a fantasy of a credit consolidation plan just means debtor will lose time, money, and end up worse off.
Automatic stay stops lawsuits and most actions against your property by a creditor, collection agency, or government entity. If you are at risk of being evicted, foreclosed upon, being found in contempt for failure to pay child support, or losing such basic resources as utility services, welfare, unemployment benefits, or your job (because of raft of wage garnishments), the automatic stay may provide a powerful reason to file for bankruptcy.
How the automatic stay affects some common emergencies:
- Utility disconnections: If you are behind on a utility bill and the company is threatening to disconnect your water, electric, gas, or telephone service, the automatic stay will prevent the disconnection for at least 20 days although the amount of a utility bill itself rarely justifies a bankruptcy filing.
- Foreclosure: If your home mortgage is being foreclosed on, the automatic stay temporarily stops the proceedings, but the creditor will often be able to proceed with the foreclosure sooner or later. If you are facing foreclosure and wish to keep your property Chapter 13 bankruptcy is usually a better remedy.
- Eviction: If you are being evicted, the automatic stay may provide some help — but the new bankruptcy laws make it easier for landlords to proceed with evictions. If your landlord already has a judgment of possession against you when you file, the automatic stay won’t affect these eviction proceedings; the landlord can continue just as if you hadn’t filed for bankruptcy and if the landlord alleges that you’ve been endangering the property or using controlled substances there, the automatic stay won’t do you much good. In other cases, the automatic stay might buy you a few days or weeks, but the landlord will probably ask the court to lift the stay and allow the eviction — and the court will probably agree to do so.
- Collection of over-payments of public benefits: If you receive public benefits and were overpaid, normally the agency is entitled to collect the over-payment out of your future checks. The automatic stay prevents this collection. However, if you become ineligible for benefits, the automatic stay doesn’t prevent the agency from denying or terminating benefits for that reason.
- Multiple wage garnishments. Filing for bankruptcy stops garnishments dead in their tracks. Although no more than 25% of your wages may be taken to satisfy court judgments (up to 50% for child support and alimony), many people file for bankruptcy if more than one wage garnishment is threatened.
- Certain tax proceedings. The IRS can still audit you, issue a tax deficiency notice, demand a tax return (which often leads to an audit), issue a tax assessment, or demand payment of such an assessment. However, the automatic stay does stop the IRS from issuing a tax lien or seizing your property or income.
- Support actions. A lawsuit against you seeking to establish paternity or to establish, modify, or collect child support or alimony isn’t stopped by your filing for bankruptcy.
- Criminal proceedings. A criminal proceeding that can be broken down into criminal and debt components will be divided, and the criminal component won’t be stopped by the automatic stay. For example, if you were convicted of writing a bad check, sentenced to community service, and ordered to pay a fine, your obligation to do community service won’t be stopped by your filing for bankruptcy.
- Loans from a pension. Despite the automatic stay, money can be withheld from your income to repay a loan from certain types of pensions including most job-related pensions and IRAs).
- Multiple filings. If you had a bankruptcy case pending during the previous year, then the stay will automatically terminate after 30 days unless you, the trustee, the U.S. Trustee, or a creditor asks for the stay to continue and proves that the current case was filed in good faith. If a creditor had a motion to lift the stay pending during the previous case, the court will presume that you acted in bad faith, and you’ll have to overcome this presumption to get the protection of the stay in your current case.
HOW CREDITORS CAN GET AROUND THE AUTOMATIC STAY Usually, a creditor can get around the automatic stay by asking the bankruptcy court to remove (“lift”) the stay, if it is not serving its intended purpose. For example, say you file for bankruptcy the day before your house is to be sold in foreclosure. You have no equity in the house, you can’t pay your mortgage arrears, and you have no way of keeping the property. The foreclosing creditor is apt to go to court soon after you file for bankruptcy and ask for permission to proceed with the foreclosure — and that permission is likely to be granted.
Hiding property from the bankruptcy court is a federal crime. Your bankruptcy papers are signed under penalty of perjury, so you are swearing that everything in those papers is true. You are swearing that your forms are complete, because the forms ask you to list “all” property, income, and debts. Filing incomplete or inaccurate bankruptcy forms can lead to your case being dismissed or worse if the court believes the omission or false statements were intentional. The law is not supposed to punish those who make an honest mistake so if you accidentally leave something off your papers or misstate something you can usually correct your papers or explain the mistake to the trustee but if you leave out so much that it appears that you were careless, the court can find that your actions demonstrate an indifference to the truth and can dismiss your case on that basis. The consequences of deliberately attempting to hide assets or using a false Social Security number can haunt you more profoundly than your current debt crisis.
LIST EVERY CREDITOR Bankruptcy cannot help if you hide information. List all potential creditors, even if you dispute owing a particular debt. Your attorney will run a special credit report for you that will consolidate the information from all three credit reporting bureaus, however credit reports are not always absolutely accurate. You should provide your attorney with any collection letters you may have received.
If the debt is already the subject of a pending lawsuit, the debt can be listed as “contingent” — that is, it depends on how the lawsuit comes out. When your bankruptcy is finished, the debt is discharged and not collectible. If a disputed debt is discharged, the entire dispute will be irrelevant. The creditor will be legally barred from collecting anything more from you regardless of who is right.
Don’t Omit Creditors You Like such as your relatives, friends, or special store cards you enjoy. No matter how honorable your intentions are, Bankruptcy does not allow you to play favorites. The fundamental purpose of bankruptcy is to give a good faith debtor a fresh start BUT a second purpose is to ensure that the creditors are treated fairly and that means equally situated creditors are treated equally. If the bankruptcy trustee find out that you have intentionally omitted creditors from your bankruptcy petition it will raise suspicions about your honesty and could jeopardize your case.
- an inheritance from a recently deceased relative that you have not yet received
- stock options, trust funds, or tax refunds
- pensions, retirement funds, annuities, and life insurance, and
- judgments from lawsuits you’ve filed or could file, arising from a personal injury or other matter, it does not matter whether you have filed the lawsuit already or not, what matters is whether the act that gave rise to the right of a claim occurred BEFORE the bankruptcy is filed
All of these are examples of property that you must list on your forms. You may get to keep some or all of this property if there are exemptions available and you claim those exemptions, but you must list all the assets regardless if they are exempt or not, so that the trustee has a complete picture of all of your finances.
DON’T DELIBERATELY HIDE ASSETS OR OTHER FINANCIAL DETAILS
If you deliberately fail to disclose property, omit material information about your financial affairs, or use a false Social Security number to hide your identity as a prior filer, and the court discovers your action, your case will be dismissed and you may be prosecuted for fraud. The punishment for fraud is serious: Prison time along with hefty fines is not unusual for those who get caught hiding property from the court.
Chapter 7 bankruptcy may make you sacrifice property, yet not discharge all your debt. If you are inclined to file for Chapter 7 bankruptcy, take a moment to decide whether it makes economic sense. You need to consider three questions:
- Are you judgment proof — that is, are creditors legally barred from taking your property or income even if you don’t file for Chapter 7 bankruptcy?
- Will Chapter 7 bankruptcy discharge enough of your debts to make it worth your while?
- Will you have to give up property you really want to keep?
ARE YOU JUDGMENT PROOF? Most unsecured creditors are required to obtain a court judgment before they can start collection procedures, such as a wage garnishment or seizure of personal property. (Collections for taxes, child support, and student loans are exceptions to this general rule.) If your debts are mainly of the type that require a judgment, the next question is whether you have any income or property that your creditors can seize if they go to the trouble of obtaining a judgment. For instance, if all of your income comes from Social Security (which can’t be taken by creditors), and all of your property is exempt, there is nothing your creditors can take from you to satisfy their judgment. That makes you “judgment proof”.;
While you may still wish to file for Chapter 7 bankruptcy to get a fresh start, nothing bad will happen to you if you don’t file, no matter how much you owe. Of course should your situation change in the future, you acquire additional assets, start earning wages, a judgment previously obtained can attach to these newly acquired assets.
WILL CHAPTER 7 BANKRUPTCY DISCHARGE ENOUGH OF YOUR DEBTS?Certain categories of debts cannot be discharged in Chapter 7 bankruptcy. It doesn’t make much sense to file for Chapter 7 bankruptcy if your primary goal is to eliminate these nondischargeable debts. The main nondischargeable debts are:
- back child support and alimony obligations
- student loans, unless repayment would cause you undue hardship
- income taxes less than three years past due
- recent debts for luxuries (more than $550 to any one creditor incurred within 90 days before you file for bankruptcy, and cash advances of more than $825 within 70 days before you file), and
- court judgments for injuries or death to someone arising from your intoxicated driving.
The bankruptcy judge may rule some types of debts as nondischargeable if the creditor objects to a discharge in the bankruptcy court. These debts include:
- debts incurred on the basis of fraud, such as lying on a credit application or writing a bad check
- debts from willful or malicious injury to another or another’s property
- debts from larceny (theft), breach of trust, or embezzlement, or
- debts arising out of a marital settlement agreement or divorce decree that aren’t otherwise automatically nondischargeable as support or alimony.
If the bulk of your indebtedness is from debts that creditors may object to being discharged, it may still make sense to file for Chapter 7 bankruptcy and hope your creditors don’t object.
Co-debtors will remain on the hook. If you want to discharge debts for which you have a co-debtor (such as someone who cosigned a loan for you, or a business partner who is equally liable for the debt), bankruptcy won’t wipe out the debt. If the debt is of a type that can be discharged in Chapter 7 bankruptcy, you will no longer be legally responsible for paying it, but your co-debtor will.
HOW MUCH PROPERTY WILL YOU HAVE TO GIVE UP?Whether or not you decide to file for Chapter 7 bankruptcy may depend on what property of yours will be taken to pay your creditors (“nonexempt” property) and what property you get to keep (“exempt” property). Certain kinds of property are exempt in almost every state, while others are almost never exempt. The following are items you can typically keep (exempt property):
- motor vehicles, up to a certain value
- reasonably necessary clothing (no mink coats)
- reasonably needed household furnishings and goods (the second TV may have to go)
- household appliances
- jewelry, up to a certain value
- personal effects
- life insurance (cash or loan value, or the proceeds of life insurance), up to a certain value
- part of the equity in your home
- tools of your trade or profession, up to a certain value
- a portion of unpaid but earned wages, and
- public benefits (welfare, Social Security, unemployment compensation) accumulated in a bank account.
Items you might* need to give up (nonexempt property) include:
- expensive musical instruments (unless you’re a professional musician)
- stamp, coin, and other collections
- family heirlooms
- cash, bank accounts, stocks, bonds, and other investments
- a second car or truck, and
- a second or vacation home.
* Note California State offers a fairly generous wildcard to individuals who do not have equity in a home which may be sufficient to cover these items.
IS CHAPTER 7 BANKRUPTCY MORE THAN YOU NEED? You may be considering bankruptcy just to stop harassment by your creditors. However, in most cases, you can stop creditors from making telephone calls to your home or work by simply telling them to stop. If you determine that you are judgment proof, that you’ll be stuck with significant debt following a bankruptcy, or that you may have to give up too much property, Chapter 7 bankruptcy may not make sense for you. For a discussion of other options, continue to Chapter 13.
CHAPTER 7 OR CHAPTER 13, WHICH IS BETTER? Generally, in Chapter 7 certain debts are discharged in 90 days and the debtor gets a fresh start. In Chapter 13, the debtor makes some payments over a 3-5 year period, after which remaining balances on dischargeable debt is discharged. Some debtors are forced into Chapter 13 because they are ineligible for Chapter 7 discharge while others choose Chapter 13 for some benefits not available in Chapter 7. ADDITIONAL COMPARISONS OF CHAPTER 7 AND CHAPTER 13
HOW TO GET STARTED? READY. SET. GO. Even a quick phone chat with an attorney can help you get started. If you might benefit from a bankruptcy or other debt relief options attorney will ask you to provide more details. Attorney wants to know about your: Property (Assets), Income, Expenses, Amount and Types of Debts
1. GATHER DOCUMENTS NEEDED BY THE ATTORNEY TO REVIEW YOUR SITUATION
Attorney needs information and documents to understand your situation. Documents are also needed in preparing a bankruptcy petition. It is imperative to be truthful, accurate, and forthcoming with the information. What do I need?
2. SCHEDULE A CONSULTATION WITH A BANKRUPTCY ATTORNEY TO REVIEW YOUR SITUATION AND DISCUSS A STRATEGY
Your consultation should be with an Attorney, not a paralegal or other office staff. The meeting should include a comprehensive review of your financial situation and an explanation of available options including: Credit Consolidation, Debt Settlement, Budgeting, Chapter 7, Chapter 13, Loan Modification, doing nothing. You should feel comfortable at the end in understanding the process involved, able to calculate risks and rewards of each option. No one should tell you whether to file for Bankruptcy. You should however have your questions answered and have the information to be able to make wise and well informed decisions for you and your family.
If you choose to proceed with a filing of your case, attorney will need supporting documents to prepare the petition and provide as evidence to the Trustee. This includes: financial statements, pay stubs, Profit and Loss Statements, Security Agreements, Valuations of property, Collection Notices, and others.
3. COMPLETE LEGALLY REQUIRED CREDIT COUNSELING
Bankruptcy laws require that each petitioner complete a credit counseling course prior to the Bankruptcy case being filed and provide a Certificate of Course Completion. The course must be completed with a provider approved by the U.S. Trustee’s Office. It may be completed in person, over the phone, or through the internet. Attorney can refer you to legitimate low cost providers. Some of the high end as far as expense goes providers charge as much as $50. You should be able to obtain the same result with under $30.
4. PROVIDE DOCUMENTS TO ATTORNEY TO PREPARE YOUR PETITION
After the necessary documents are delivered the attorney prepares the petition. Most attorneys ask that you provide the documents at least 48 hours before the petition signing appointment. This gives attorney enough time to review all the documents and prepare the petition. Emergency situations (such as a Foreclosure Trustee Sale, wage garnishments or imminent IRS levy) may prompt a need for faster filing; if this is your situation PLEASE CONTACT ATTORNEY WITHOUT DELAY. Timing of the filing can be the most important part of your Bankruptcy case.
5. MEET WITH ATTORNEY TO REVIEW & SIGN THE BANKRUPTCY PETITION SO IT MAY BE FILED WITH THE COURT
Your Attorney will meet with you and review the contents of the petition. A petition is made up of several schedules and forms, altogether 50-80 pages in total, depending on your case. Expect to spend at least an hour with your attorney to thoroughly familiarize yourself with what you are signing under penalty of perjury. It is your responsibility as a Petition to be thoroughly familiar with your petition. While the attorney is there to help you with this process you cannot delegate this responsibility to the attorney. If there is something in the petition that you do not agree with or do not understand you should call attention to the item(s).
The filing of the case in San Diego is done electronically. San Diego Bankruptcy Court is on the federal ECF system. Attorneys are required to file using this system as the Bankruptcy Court’s clerk will not accept paper filings. Public can open case status public access to court electronic records, Pacer for short.
The Bankruptcy Court’s computer produces an instant confirmation and case number. Within 24-48 hours the case is assigned to a Trustee and an email notice is sent to the attorney providing name of Trustee, date, and time of the 341 meeting.
Your attorney will notify you immediately of the appointed day and time to ensure that you are available to attend this meeting as your appearance is absolutely mandatory.
The Bankruptcy Court mails out a Notice of Bankruptcy Filing to you, your attorney, and your creditors. The mailing typically happens within 5 days of the filing. As soon as your creditors are notified, they should update their records and immediately cease communications with you. You are represented with regard to your debt and all communications should be funneled through your attorney.
6. ATTEND CREDITORS’ MEETING AT THE US TRUSTEES OFFICE (ALSO KNOWN AS 341 HEARING)
Your attorney should receive a notice within 24-48 hours after filing of the petition the date and time of your Creditor’s Meeting. The meeting is assigned by the Bankruptcy Court’s computer. Your counsel attends the creditor’s meeting with you. Debtor(s) presence is mandatory. This meeting is officiated by a Trustee. The Trustee’s responsibilities include a review of your petition and the supporting documents for accuracy, to administer any assets that may be available for the benefit of the creditors, to conduct a Creditor’s Meeting giving creditors the opportunity to question a debtor with regard to debts and assets.
After the creditor’s meeting, a period of 60 days must pass, allowing any creditor to object to discharge. If the time period lapses and the creditor fails to object on some valid basis they may have, their right to object is lost. This is what we sometimes call “scream or die”.
7. COMPLETE A LEGALLY REQUIRED FINANCIAL MANAGEMENT COURSE
Bankruptcy rules require that in order to receive a discharge, each petitioner must complete a Financial Management Course. Similar to the Credit Counseling Course, the course can be completed online. A certificate evidencing the course completion along with a Form (called B23) must be filed with the Bankruptcy Court. Failure to complete the course in a timely manner will result in the case being closed, without discharge.
Prior to Discharge, there may be other items that need to be taken care of such as: dealing with creditors on reaffirmation agreements. A secured lender (car lenders for instance) may require that a petitioner sign a new agreement, post filing, with same or sometimes better terms in order to keep the vehicle(s). Your attorney will discuss your loan(s) with the lenders and obtain the necessary documents for your signature.