FAQs: Why is it helpful to consult an attorney before filing bankruptcy?
Many of our clients have expressed their relief even after just the initial consultation. Despite what they may have read on the Internet or heard from friends or co-workers, people often feel a lot of confusion when it comes to bankruptcy. Some of the most pressing questions on their minds are:
- Am I eligible to file bankruptcy at this time? And if so, which chapter is better for me?
- Which of my assets can I protect? What properties, if any, will I have to give up? Will they take everything away from me?
- Can I discharge all my debts?
- How long will this whole thing take?
- Will my credit be ruined forever if I file bankruptcy?
If you are struggling with similar questions or have other concerns about filing bankruptcy then consider consulting with an attorney from our office. There's absolutely no charge for the consultation, so there's no reason why you shouldn't schedule one soon. When you are ready for a thorough evaluation of your case call us at (916) 714-7100.
To help give you a starting point in thinking about bankruptcy, below are brief answers to some frequently-asked questions. In reviewing them, please keep in mind that there many other important factors (some of which are fairly complicated) that should and must be taken into account in your decision to file for bankruptcy.
What is the difference between Chapter 7 and Chapter 13?
Chapter 7 and Chapter 13 are two different forms of bankruptcy. Under Chapter 7 (also known as the liquidation chapter), your assets are totaled up and if you have assets that not exempt or otherwise excluded from the bankruptcy estate then those assets may be sold off to repay back your debts. Most people filing for Chapter 7 do not have unexempt property and they generally do not pay back any portion of their dischargeable debts.
Under Chapter 13 you propose to "reorganize" your finances to pay back debts that are either non-dischargeable or for which discharge would mean losing property (e.g. arrearages on home mortgages). You may also have to use Chapter 13 if your income is too high. Under Chapter 13, you must go on a payment plan ranging between 3-5 years to pay off some or all of your debt.
Will I have to give up everything, including my house and my car, if I file Chapter 7?
Bankruptcy is not meant for people who have a lot of assets. However, it was also not intended to leave you completely bereft either. There are exemptions available to protect most types of assets, such as your homestead, household furnishings, clothing, motor vehicles, etc. Different states have different exemption systems. In California, there are two sets of exemptions available. The two systems have different limits for various types of assets. The determination as to which exemption system should be used in your case generally depends on the particular values of your assets, along with a consideration for your residency within the past two years. The issue of exemptions is one of the most important in your bankruptcy case. If you are at all unclear about exemptions, you should consult an attorney.
What types of debts are non-dischargeable?
Most taxes (e.g. recent taxes owed to the IRS), fines owed to government entities, domestic support obligations (e.g. alimony or child support) and student loans are examples of debts generally not dischargeable in bankruptcy. Other examples of non-dischargeble debts include debts obtained by fraudulent means or debts resulting from the death or personal injury of someone and you were either driving intoxicated or had willfully and maliciously caused the injury. For a more extensive list of debts that are non-dischargeable you may look to U.S.C. §523.
How long will this whole thing take?
There is a big difference between the two chapters with respect to the time you can expect to get your discharge. Under a Chapter 7 filing (assuming there are no issues that may keep your case open for a longer time), the process is approximately 3-4 months from the time your petition is filed until the time you get your discharge. Under Chapter 13, you get your discharge only after you have successfully completed your plan, which as mentioned above may range from 3-5 years.
Will my credit be ruined forever if I file bankruptcy?
A major concern people have about filing for bankruptcy is how it affects their credit worthiness (i.e. "credit score"). The good news is that you don't need to despair that a bankruptcy filing will ruin you for life. Once your bankruptcy case is over, you can certainly take positive steps to re-establish your credit. There is no rule that you won't be allowed to or that you simply can't rebuild your credit.