FAQs
- Will I be allowed to keep my home if I file for bankruptcy?
- Can I keep my car?
- What becomes of my retirement accounts?
- Can I keep at least one of my credit cards out of the bankruptcy?
- What's the difference between filing a Chapter 7 and Chapter 13 bankruptcy?
- What is a Chapter 11 bankruptcy?
- How do I choose which Chapter to file?
- My house is in foreclosure; should I file for bankruptcy?
- Is there a charge for the initial consultation?
- What is a reaffirmation agreement?
- Will the trustee come to my house?
- What should I bring to the initial consultation?
1. Will I be allowed to keep my home if I file for bankruptcy?
Many people are able to keep their homes after filing. The bankruptcy trustee would sell the home if it were worth more than the total payoff of all debts against it plus any homestead exemption claimed by the debtor. In California, for a married couple or a single person who has children, the homestead exemption is up to $100,000, or $175,000 if over 65. For example, if the home is worth $300,000, and there is a 1st deed of trust (mortgage) with a payoff balance of $200,000, a married couple would be able to keep their home.
Of course, if the payments on the 1st loan are not kept current, the property could be foreclosed upon under non-bankruptcy law. A bankruptcy under Chapter 13 or Chapter 11 might be a way for debtors to obtain time to bring current a loan secured by their home and thus prevent foreclosure.
Applying California exemption law to a particular individual’s or couple’s situation can be complex, and requires consideration of not just the home, but also what other assets are owned. You should obtain advice about your particular situation from an experienced bankruptcy lawyer prior to filing of the bankruptcy.
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2. Can I keep my car?
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The answer depends upon its value after deducting the payoff balance of the loan or lease. If you owe more than the car is worth, the bankruptcy trustee will not sell it, and whether you keep it is a matter between you and your lender or lessor. If there is equity in your vehicle, you might be able to claim the equity exempt. A car (and for that matter, any other asset) that has been fully exempted won’t be sold by the bankruptcy trustee.
Depending upon the exemptions used, up to $3,525 in equity can be exempted in a motor vehicle. In some situations, additional equity can be exempted if the vehicle is a “tool of the trade” (such as a pickup truck used by a carpenter) or by using the “wild card” exemption (which allows a debtor to exempt virtually anything up to $23,250).
If after claiming available exemptions there is still equity in a vehicle, you may be able to negotiate with the bankruptcy trustee to “buy-back” that value. The buy-back is normally funded from salary or wages earned after the bankruptcy filing, or from a loan made to the debtor after the filing by a family member or friend.
The bankruptcy trustee normally determines the value of a car, truck or other vehicle by checking price guides and using “private party” values. Commonly used price guides are Kelley Blue Book (www.KBB.com) and Edmund’s Guide (www.Edmunds.com).
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3. What becomes of my retirement accounts?
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Your retirement accounts are exempt, and not included in the bankruptcy estate. This means you will keep them.
Only ERISA-qualified retirement accounts and benefits are exempt. Examples of ERISA-qualified accounts include an IRA, a 401(k), and a 403(b). If you are not sure if your account is ERISA-qualified, check with your benefits manager or investment advisor.
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4. Can I keep at least one of my credit cards out of the bankruptcy?
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No, not unless it has a $0.00 balance as of the filing of bankruptcy. All creditors and claims must be listed in your bankruptcy. Failing to list a debt – even if you intend to fully repay it – violates bankruptcy law, may prevent you from obtaining a discharge and could result in a federal criminal prosecution.
Some issuers of credit cards are willing to enter into an agreement with debtors after bankruptcy to allow the card to remain active as long as the pre-bankruptcy debt is repaid. Sometimes the card issuer will agree to reduce the total amount owed, and / or the interest rate charged.
In our experience, American Express will cancel all credit cards after bankruptcy, even if there is nothing owing on the cards as of the filing, and even if American Express is not listed as a creditor.
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5. What's the difference between filing a Chapter 7 and Chapter 13 bankruptcy?
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Chapter 7 is often referred to as a “straight” or liquidation bankruptcy. The Chapter 7 debtor is primarily seeking a discharge of debt. Salary and wages earned after the bankruptcy are not included in the bankruptcy estate nor used to pay creditors. The job of the Chapter 7 trustee is to recover any non-exempt property that the debtor owned as of the filing, sell that property to create cash, and then pay creditors from that cash.
Chapter 13 can be referred to as a personal reorganization or a wage-earner repayment plan. The Chapter 13 debtor (which cannot be a corporation or other business entity) agrees to devote future earnings to repay creditors over up to 60 months. The job of the Chapter 13 trustee is to act as a disbursing agent, collecting the monthly payments from the debtor, and making payments to creditors. A Chapter 13 bankruptcy can be used to bring payments current on past-due secured debts, such as a home loan or car loan, with the goal of preventing a foreclosure. The discharge of debt in a Chapter 13 case is granted only after all the payments under the Chapter 13 plan have been completed.
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6. What is a Chapter 11 bankruptcy?
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Chapter 11 is referred to as a business reorganization. It is the most complex and creative of all the bankruptcy chapters, and is used by the largest corporations (such as Chrysler, Enron, and most of the airlines) as well as individuals and couples with substantial real property or other investments. A Chapter 11 plan may provide for the orderly sale of assets, the reduction of on-going expenses, the restructuring of debt, or a combination of these and other actions.
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7. How do I choose which Chapter to file?
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Choosing which bankruptcy chapter will offer the best fit is serious business. Consideration must be given to what you intend to accomplish with the filing, what assets you own, what debts you owe, and what your earnings and expenses are likely to be in the future. One size definitely does not fit all, and we recommend you don’t make the decision about which chapter to file until you have consulted with a competent attorney about your particular situation.
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8. My house is in foreclosure; should I file for bankruptcy?
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Filing bankruptcy by itself will not permanently stop the foreclosure process. Under most circumstances, however, bankruptcy will delay the foreclosure sale. A Chapter 13 or a Chapter 11 may allow you time to get the loan caught up and thus keep your home. When facing foreclosure, making the decision about when to file a bankruptcy can be complicated by factors that include the value of your home, the amount of the delinquency and whether you have multiple loans against the property.
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9. Is there a charge for the initial consultation?
Dahl & Dahl charges for an initial consultation. The consultation charge is fully applied to the fees we will charge if you hire us as your lawyers.
Please contact our offices for more information and to schedule an appointment.
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10. What's a reaffirmation agreement?
One of the primary reasons an individual files bankruptcy is to obtain a discharge of debt. That means you will no longer be personally liable to pay your creditors. Some of your debts may be secured by a lien in a particular item— such as a vehicle, a computer or other electronics, or furniture—and the bankruptcy does not eliminate the lien held by the creditor. Should you default after the bankruptcy, the creditor can repossess the security but, because your personal liability has been discharged, the creditor cannot seek any deficiency balance from you.
A reaffirmation agreement is like signing the promissory note or sales contract again. If you default after a reaffirmation agreement is entered into, the creditor can then not only recover the item, but can also come after you for any deficiency remaining after the repossession.
If you choose not to reaffirm the debt after filing bankruptcy, you will be required to return the item to the lender.
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11. Will the trustee come to my house?
Normally the bankruptcy trustee does not make house calls. A detailed listing of household goods and other things (including current values) located at your home must be filed as part of the bankruptcy petition. If that list doesn’t raise any red flags with the trustee, he or she won’t ask to view your home or its contents.
Sometimes the trustee will request a photograph of an unusual or high-ticket item, such as a piano or artwork.
Occasionally the trustee will request a formal appraisal of particular items, such as jewelry, art, guns, or collections.
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12. What should I bring to the initial consultation?
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At the initial consultation, we will review your legal and financial situation, identify and evaluate possible courses of action, and determine whether our office will be able to provide legal services toward a resolution. In order to make the initial consultation as productive as possible, please be prepared to discuss in detail your assets, liabilities, income and expenses.
- Financial statements or other worksheets if already prepared, even if they are not fully up to date
- Most recent bank statements
- Most recent tax returns
- Most recent credit card statements and other bills
- Lawsuits
- Foreclosure notices & other formal demands which you may have received
- Any particular documents or agreements about which you have questions
Please bring to the consultation:
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