1. What is the difference between a Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 bankruptcy is the most common type of bankruptcy and it is usually what people think of when they hear the word bankruptcy. Your household gross income determines if you are eligible for Chapter 7. It does not require a repayment of your unsecured debt, which will all be discharged at the end. Some debts are not dischargeable. The trustee who oversees your case may look to liquidate any assets that are not covered by any exemptions.
Chapter 13 bankruptcy involves a reorganization and usually involves the repayment of some percentage of the general unsecured debts. The percentage that must be repaid depends on your household income and any assets that are not covered by any exemptions. The trustee will not look to liquidate any assets.
2. Will I lose my home, vehicle, or other property?
For the most part, no! There are two sets of exemptions that California allows debtors to use in order to protect their property, commonly referred to as 703 and 704 exemptions. 703 exemptions are usually utilized by debtors who do not own their home, which they can utilize a $29,000 wildcard exemption that allows them to exempt any property they choose. 704 exemptions are usually utilized by people who own their residence, which they can exempt up to $500,000 of equity in the residence in which they live in. The actual exemption amount depends on each debtor’s situation. If the value of your asset or property exceeds what can be exempted, the trustee usually will set up a payment plan for you to “buy back” the equity, allowing you to keep the property.
3. Will bankruptcy destroy my credit?
Credit is generally not your friend, as it requires you to go into debt. However, it is necessary if you want to buy property. When you file a bankruptcy, your credit will take a hit of 150 points or more. Once the bankruptcy is over, you will be bombarded with offers for credit cards and loans. Your best bet to rebuild your credit, while not allowing yourself the risk of falling deep into debt, is to open a $500 or so secured credit card. This way you can start to build your score back up with minimal risk. We have seen some of our clients be able to buy a house 2-3 years after filing their bankruptcy!
4. What debt can be discharged?
There are three different types of debt for the purpose of bankruptcy. There is secured debt, which is debt that is secured by either real property such as a house or a vehicle. The next is Priority unsecured debt, which is most commonly certain taxes and money owed to the Government. The last one is general unsecured nonpriority debt, which is debt such as credit cards, pay day loans, etc. In a Chapter 7 bankruptcy, only general unsecured nonpriority debt will be completely discharged. In a Chapter 13 bankruptcy, both general unsecured nonpriority debt and priority unsecured debt will be discharged at the end of the plan.
5. What will happen to my mortgage or my car loan?
Bankruptcy rarely will change anything with your mortgage, with an exception if you are behind and file a Chapter 13 bankruptcy (where the mortgage payment will get paid through the plan payment.) If a car loan will finish during the life of a Chapter 13 plan, it too will get paid through the plan.
In a Chapter 7 bankruptcy, your contractual obligation to the car loan is discharged. However, you still have the car which the loan is secured to. For the most part, as long as you continue to make the payments on the car on time every month you can “retain and pay pursuant to the original agreement.” The lender usually will continue to accept the payment and allow you to keep the vehicle. If you decide you do not want the car or it breaks down beyond repair, you simply can stop paying on it and allow the lender to come pick it up with no consequences.
6. will I lose my job?
It is against the law for an employer to fire you for filing bankruptcy. In fact, they would possibly never find out you even filed unless they were to run your credit report. The bankruptcy will stay on your credit report for 10 years from the time of filing.
7. Can bankruptcy get rid of my student loans?
While it is not impossible for a Chapter 7 bankruptcy to discharge student loans, it is very difficult to do and requires the debtor to show there is not way for them to ever pay them back such as no longer able to work. Unfortunately, our office does not specialize in this area of bankruptcy. Chapter 13 plan payments can include student loans and will pay back a certain percentage of them, but you will still be responsible for the rest after the bankruptcy.
8. Will I have to go to court?
You will have to at least show up to court one time during the process, which is at the court house with the Trustee and one of our Attorneys called the “Meeting of Creditors.” While creditors are allowed to show up, it is very rare that any actually do. Your appearance may be required beyond this meeting if the Trustee requests it, however most of the time you are only required to show up to the one meeting.
Bankruptcy can seem like an intimidating process, but we strive to simplify it and guide you through it. If you have a question during any point along the way, feel free to reach out and we would be happy to help!