Frequently Asked Questions

  • What is a Chapter 7?

    Answer is:

    A Chapter 7 is commonly referred to as a “straight” or “total” bankruptcy. It is designed for individuals or corporations who cannot pay their debts. It cancels or discharges most of your debts. The most common debts discharged in a Chapter 7 are credit card bills, finance company loans, medical/hospital bills, automobile repossession debts, foreclosure debts, and judgments from lawsuits. There are some debts that cannot be discharged in Chapter 7 cases, such as child/spousal support obligations, student loans, most taxes, court fines and restitution orders, debts for damages caused while driving under the influences of alcohol or drugs, and fraudulent debts. Certain taxes and some student loans can be discharged in bankruptcy; however, the standards for discharge are quite complex and require a review by one of our attorneys.Immediately upon the filing of a bankruptcy petition (either Chapter 7 or Chapter 13) the Court issues a restraining order called an “Automatic Stay,” which prohibits all creditors from contacting you or proceeding with any collection action against you, including foreclosures, levies, and wage garnishments. Any such actions that may have already begun prior to the filing of your case are immediately halted.

    The Chapter 7 process takes about 4 months. There is usually only one required hearing about a month after your case is filed (called the First Meeting of Creditors). This hearing is very quick and informal– usually less than 5 minutes. It is not held in a courtroom, but rather in the office of the U.S. Trustee. Everything else is handled by our office. Approximately four months after the filing of your Bankruptcy Petition, the Court will mail the Discharge directly to you. This signifies the end of your case and is a permanent order prohibiting creditors from taking any collection actions against you.

     

  • What is Chapter 13?

    Answer is:

    A Chapter 7 is commonly referred to as a “straight” or “total” bankruptcy. It is designed for individuals or corporations who cannot pay their debts. It cancels or discharges most of your debts. The most common debts discharged in a Chapter 7 are credit card bills, finance company loans, medical/hospital bills, automobile repossession debts, foreclosure debts, and judgments from lawsuits. There are some debts that cannot be discharged in Chapter 7 cases, such as child/spousal support obligations, student loans, most taxes, court fines and restitution orders, debts for damages caused while driving under the influences of alcohol or drugs, and fraudulent debts. Certain taxes and some student loans can be discharged in bankruptcy; however, the standards for discharge are quite complex and require a review by one of our attorneys.Immediately upon the filing of a bankruptcy petition (either Chapter 7 or Chapter 13) the Court issues a restraining order called an “Automatic Stay,” which prohibits all creditors from contacting you or proceeding with any collection action against you, including foreclosures, levies, and wage garnishments. Any such actions that may have already begun prior to the filing of your case are immediately halted.

    The Chapter 7 process takes about 4 months. There is usually only one required hearing about a month after your case is filed (called the First Meeting of Creditors). This hearing is very quick and informal– usually less than 5 minutes. It is not held in a courtroom, but rather in the office of the U.S. Trustee. Everything else is handled by our office. Approximately four months after the filing of your Bankruptcy Petition, the Court will mail the Discharge directly to you. This signifies the end of your case and is a permanent order prohibiting creditors from taking any collection actions against you.

     

  • What is Chapter 11?

    Answer is:

    Chapter 11 Bankruptcy is commonly thought of as being used by large corporations (American Airlines) to reorganize themselves when facing financial difficulty. It allows the entity to reorganize itself while under court protection. The company can retain assets and control of itself while dealing with creditors and seeking solutions to its problems.
    Chapter 11 relief is also available to small businesses and individuals. We most commonly use Chapter 11 when a small corporation is having difficulty. Many options to help a business are available. I think of the filing of a Chapter 11 as creating a protective environment for the business or individual to work out deals with creditors. The best examples I can think of involve the restructuring of vehicle and equipment notes. The bankruptcy code allows the Debtor to pay outstanding Internal Revenue Debts over a five year with modest interest. This time might be extended (VERY rarely) if the IRS will agree to it.

     

General Questions

  • Do I have to give up my house or my car or personal property if I file a Chapter 7 or Chapter 13?

    Answer is:

    Almost never. The law provides for a great deal of exempt property to be retained after filing. In fact, most individuals are allowed to keep all of their property. Any questions regarding the possible loss of property will be fully addressed prior to the filing of your case. You will be aware of any potential problems – no surprises!

    To the extent that you have creditors with a security interest in some of your property (homes, automobiles, furniture, etc.) you can still retain these items, but in a Chapter 7 you must pay for them by continuing regular payments or (in the case of furniture and appliances) by signing a Reaffirmation Agreement that usually reduces the amount of the debt and lowers the monthly payment. In a Chapter 13, secured debts can be paid through the plan, usually on terms more favorable than in the original contract.

  • What is the difference between a secured and unsecured debt?

    Answer is:

     

    Simply explained, secured debts are debts in which the item purchased has been pledged as collateral for the repayment of the debt. If there has been a default in payments, the creditor may be able to repossess the property. Examples of this type of debt are automobile loans in which the bank or finance company holds the “pink slip” to the vehicle, and loans for the purchase of furniture, jewelry, computers, stereos, and appliances. The creditors for these debts possess a purchase-money security interest in the items purchased. In a Chapter 7 case, you have the option of keeping the merchandise and paying the debt or returning the merchandise and paying nothing. In a Chapter 13 case you can keep these items and repay them through the Chapter 13 plan. The Court will generally allow the creditor only 10% interest on the value of the merchandise, not the 18% to 20% you are probably being charged under the contract. If the value of the item is less than the amount of the loan, the excess amount of the loan (amount of loan less the value of the collateral) is paid under the plan as an unsecured debt, without interest.

  • How will a Chapter 7 or 13 effect my credit?

    It is a common misconception that once you file bankruptcy you can never again get credit. This is simply not true. How a Chapter 7 or 13 will effect you in the future depends upon many factors — each creditor uses its own criteria to determine future creditworthiness. Income and job stability are key factors that creditors will look at in determining future credit. They will also review how you have handled credit since your Chapter 7 or 13 case was filed. Remember that anytime a creditor is not being paid under a contract, a negative comment can be placed on your credit record. Repossessions, foreclosures, slow payment, and nonpayment all have a negative effect upon your credit record. A Chapter 13 and a Chapter 7 also have a negative effect, but that alone will not prevent you from re-establishing your credit and obtaining credit in the future. Bankruptcies remain on your credit report for 10 years; however, many people receive solicitations for new cards immediately following a bankruptcy. While credit may have been the problem that got you into financial difficulties in the first place, there is an old adage, “It takes credit to get credit.”

  • How can I re-establish credit after filing a bankruptcy?

     

    There are many institutions that offer secured MasterCard and Visa accounts. They require a nominal deposit (usually less than $500.00) and allow you a credit line based on the amount of money on deposit. If you use these credit cards regularly and make prompt payments, your credit report will state “paying as agreed,” which is acceptable to future creditors.

    As to home and automobile loans, you will have to shop around. Some creditors may deny you credit, but others will finance your house or automobile. Supply and demand often dictate a creditor’s policies. Therefore, if a creditor wants to make a sale, it will finance the purchase. However, there is one word of caution: some lenders or finance companies will tell you they can “make the loan” and then charge you a higher interest rate — that’s why it is very important to shop around for credit. If you are turned down, try another bank or finance company. Frequently buyers with a prior bankruptcy are only concerned with getting approved for the loan and fail to get the best possible interest rate on the loan. Remember, loan companies make their profit writing loans and charging high interest notes.

  • Can I lose my job because I file?

    Section 525 of the Bankruptcy Code prohibits your employer from firing you because you file a bankruptcy. The filing of a bankruptcy prohibits creditors from calling you at home or at work and immediately stops any wage garnishments, with the exception of current child/spousal support.

  • How would a bankruptcy effect a co-signor?

    In a Chapter 7 proceeding, unless both parties to the contract file bankruptcy, the creditor may pursue collection against the non-filing party. If the filing party reaffirms the debt and maintains current payments, the co-signor should not be effected. A Chapter 13 Plan can be structured so that the co-signed debt is paid in full through the plan and the creditor is prohibited from taking action against the non-filing co-signor.

  • How do I get started? What's my first step?

    You have already taken the first step – you have obtained general information about Chapter 7 bankruptcy and Chapter 13 reorganization. If you still think bankruptcy or Chapter 13 may be the answer to your financial problems, call (619) 698-6800 for an appointment with an attorney. Remember that we have offices in three convenient locations and have appointments available every day except Sundays and holidays. The consultation is free and takes about an hour

  • Do I need a credit report?

    A credit report is not necessary for the first consultation, but may be obtained if you need assistance in providing a complete list of your debts. You can order a credit report by phone, on line, or in person. Check the yellow pages under Credit Reports or go to www.experian.com. You can order a free report annually at annualcreditreport.com; however, be sure that the credit report you obtain provides both names and addresses for your creditors, as this information is required by the Court if you file a bankruptcy. If you desire, a 3-bureau credit report can be obtained through our office for a nominal fee.

  • Changes in the Law after October 17, 2005.

    As you may be aware, new bankruptcy laws went into effect on October 17, 2005. There are numerous and significant changes to the bankruptcy laws; however, most people can still seek protection from their creditors under the new law. These are some of the changes to the bankruptcy law:

    1. There is now a requirement that a debtor counseling course be completed before an individual may file a bankruptcy. Another debtor education course is required to be completed before an individual can receive a Discharge. This course takes about 60 minutes and can be done in person, on the telephone or on the internet through an approved independent agency. The costs for this program are in addition to the attorney fees and the filing fee.

    2. The eligibility for filing has been extended to 8 years for those individuals who have previously filed a Chapter 7 case. There are also new restrictions for those individuals who have filed previous Chapter 13 cases that were dismissed (not completed) and you should be sure to discuss this with the attorney if this applies to you.

    3. The Bankruptcy Court now uses a state’s median income to determine eligibility for filing a bankruptcy. If your income is above the State of California’s median income for your family size, you may not be eligible to file a Chapter 7, but you may still be able to file a Chapter 13. This is commonly referred to as “means testing.” We can only determine your eligibility after obtaining certain detailed financial information about yourself and family.

Attorneys


David E. Britton

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Michael Koch

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Professional Affiliations

•San Diego County Bar Association
•National Association of Consumer Bankruptcy Attorneys