The Difference Between Chapter 7 and Chapter 13 Bankruptcy
The First question to be answered with any potential bankruptcy case is what is the debtor’s income and household size. This is very important because if the debtor makes too much money for his household size, then he won’t qualify for a chapter 7. The main difference is that in a chapter 7 bankruptcy, the debtor doesn’t pay any money back to the creditors. In a chapter 13 bankruptcy however, the debtor must pay a percentage of what they owe to their creditors over a period of 3 or 5 years. It is important to note that in most cases, the debtor(s) doesn’t pay all of the creditors in full over the 3 or 5 year period. The amount that is paid to the creditors depends on the income and expenses of the debtor(s). We strongly prefer Chapter 7 because we feel it is usually in our clients’ best interest not to pay creditors anything.
Foreclosure and Bankruptcy
Whether you file a chapter 7 or a chapter 13 bankruptcy, you will halt any foreclosure that is currently pending. However, in a chapter 7, the lender can and probably will ask the court for “relief from stay.” This is basically a request to foreclose on the property. A bankruptcy judge will almost always grant their request, but remember, this only happens if you are late on your mortgage. If you are current then you will most likely be able to keep your home if you wish. Therefore, if you want to keep your home and file a chapter 7 bankruptcy, then you should be current on your mortgage at the time you file.
Chapter 13 Bankruptcy
If you are behind on your 1st mortgage payments and you absolutely must keep your home, then chapter 13 bankruptcy is the way to go. Unlike a chapter 7, past-due mortgage payments can be put into a repayment plan. However, it’s important to note that you won’t be able to reduce your interest or monthly payments in a chapter 13. That is something you will have to discuss with your lender. The biggest benefit to a chapter 13 bankruptcy is stripping off your second mortgage. If the value of your home is less than what you owe on your first mortgage, then you can get rid of your 2nd mortgage in a chapter 13. For example, let’s say you owe 400k on your first mortgage and your home is worth 399k or less. Your second mortgage in this situation can be stripped off entirely in a chapter 13 bankruptcy. Now, if your home is worth 401k or more, then you would not be able to get rid of that 2nd mortgage.
Which Bankruptcy Chapter is better for your Credit?
A chapter 7 bankruptcy discharge is better for credit purposes because your discharge comes within 4 to 6 months. Remember, in a chapter 13 your bankruptcy petition is pending and won’t discharge until the end of 3 or 5 years. That means you won’t start rebuilding your credit for 3 or 5 years, whereas in a chapter 7 bankruptcy you start rebuilding within months. Therefore, a chapter 7 is better for your credit. If you are considering filing a bankruptcy in Modesto or a surrounding area, call our office today for more information.
Lawsuits
Lawsuits Before Filing Bankruptcy
If you are being sued by a creditor don’t worry because when you file your bankruptcy petition the lawsuit should go away depending on the debt. Your attorney may be able to suggest you file a paper to stay the pending local court case. The majority of creditors must get a judgment before they can garnish your wages or levy on your bank account. That means they must first serve you with legal documents call a “summons.” If you don’t respond within 30 days they can move for a default judgment and then start collection procedures. If you can’t immediately file for bankruptcy then it may be a good idea to file an answer to their complaint. This will buy you time before the creditor can try to take any collection actions against you.
Judgment Proof
A creditor with a judgment can’t garnish all income. For example, if your only income is social security, and your only assets are in a qualified retirement plan, then they can’t take anything from you. Or, you may be a person without a job that has no assets in your name. Either way, you may still want to hurry up and file for bankruptcy to get rid of your debt and start the rebuilding process. At the point you know you need to file for bankruptcy, you should immediately start the process so that you can rebuild your credit sooner.
Harassing Creditors
Once you file your bankruptcy petition, collectors are not allowed to call you to collect the debt that you once owed them. If they continue to harass you, our lawyer at BKModest will give them written notice that we can sue them under the Fair Debt Collection Practices Area for any damages you suffer as a result of their harassment and up to $1,000 in statutory fees. Damages might include medical costs you incurred due to their harassment. You can also collect attorney fees.
If you have a lawsuit and are thinking of getting rid of it with a bankruptcy, contact our lawyer in Modesto today!
Within 90 days of filing bankruptcy
Certain transactions should not be made within 90 days of filing your bankruptcy petition. Under Section 523 of the bankruptcy code, if a debtor spends over a certain amount on credit card for luxury services or goods, that debt will be presumed to be nondischargeable. Certain cash advances made prior to the bankruptcy filing will also be presumed to be nondischargeable. This doesn’t mean that the debtor won’t be able to file the bankruptcy and obtain a discharge. It only provides a presumption that a particular debt won’t be discharged. If the transaction was made via cash or ATM, and not a huge amount of cash, then the bankruptcy courts may not even care, because they know you need living expenses. But problems can arise when creditor’s monies are used such as credit cards, cash advances, etc., so keep that in mind when using credit cards, ATMs and cash advances.
If a creditor is able to provide proof that one of the mentioned transactions were made, then they will have met their prima facie burden. However, a debtor can rebut this presumption by providing evidence of his intent to repay. The best way to do this is to show the debtor made payments back to the creditor after the fraudulent transaction. For example, let’s say the debtor bought a diamond ring on a credit card 75 days ago and she made 2 payments of $300 before filing her bankruptcy petition. The payments made to the creditor will help rebut the presumption that the debtor bought the diamond ring with the intent of discharging the debt. This doesn’t mean the debtor will win the case, but it will certainly help. The longer monthly payments are made, the harder it will be for a creditor to claim fraud buying the item. Also, any payments made to any other creditors will help as well. So, if the debtor in our example also made payments to her other credit cards, that goes to show she didn’t intend to defraud any of them.
If you have any Chapter 7 bankruptcy issues and you believe you might need an attorney, contact our Modesto office today!
Emergency bankruptcy filing
Using Bankruptcy to Halt Creditors
When you file for bankruptcy you get immediate federal protection from your creditors. With few exceptions, creditors can’t garnish, lien, levy, foreclose, etc., until your case is over or they get permission from a judge. In order to file a valid bankruptcy petition you must have copies of your pay stubs, tax returns, bank statements, credit card statements, along with filled out questionnaires. So, what happens when you have to file right now because your house is foreclosing tomorrow? Our attorneys can file for bankruptcy without all the forms as long as we have your credit counseling class and a filled out credit form. The credit class can be done online in less than an hour and the credit form is supplied by our office.
Why Filing an Emergency should be a Last Resort
When you file an emergency bankruptcy petition the court gives you 15 days to get all of your information turned in. If you don’t get your information filed, then it is possible your bankruptcy petition will be dismissed. Don’t let this deter you from filing an emergency bankruptcy petition. If you must file it, then by all means go ahead. Just make sure you get your lawyer all the appropriate information ASAP. That means don’t wait until the 14th day!
Missing Your 15 day deadline
What happens if you don’t get all of your information in on time and your case gets dismissed? You can simply re-file your bankruptcy petition, but the only problem is that your “automatic stay” protection will be limited to 30 days, unless the judge decides to extend it. When you file for bankruptcy you get automatic protection until your discharge, unless a creditor gets “relief from stay.” If you file a second bankruptcy petition within a year of having a bankruptcy dismissal, your stay protection is limited to 30 days. If you want more time you will have to motion the court and get approval. For more information regarding bankruptcy contact our office in Modesto today.
For more information regarding halting creditors in bankruptcy, please contact our office in Modesto today!
Evictions and bankruptcy
Bankruptcy and Tenants
People facing eviction often times decide to file for bankruptcy to stay in their property a few extra months. When landlords wants to evict tenants, they must file a lawsuit referred to as an “unlawful detainer” and get a judgment against the tenant. With that judgment in hand, the landlord can go to the Sheriff’s department and get a writ. The Sheriff’s department will then inform you that you have a few days to leave the house, or you will be physically removed.
It is important for tenants to file for bankruptcy before the landlord gets a judgment because a tenant will most likely have more trouble to halt the eviction process after the landlord has a judgment. However, if the landlord doesn’t have his judgment and you file for bankruptcy, the automatic stay will most likely prevent your landlord from evicting you. He will have to file a motion with the court and ask for “relief from automatic stay” to get you out of the dwelling.
Endangering Property or Use of Controlled Substance
The automatic stay doesn’t apply to a landlord wanting to get rid of a tenant for endangering the property or use of controlled substances on the property. There is no requirement that the landlord have a judgment in hand if he is evicting his tenant for the above reasons. The landlord may continue with the eviction process after you file for bankruptcy. In order for the landlord to evict the tenant in this situation he must file and serve via certification showing that: an eviction has been filed against you for endangering the property or use of controlled substance. If your landlord serves these papers he can proceed with the eviction 15 days later. A tenant can challenge the landlord in this situation by filing an objection and the court will have a hearing within 10 days.
Lifting the Automatic Stay
As a practical matter the court is going to lift the automatic stay if the landlord makes the request. The trustee doesn’t really care because your lease is not something of value to the bankruptcy estate, so don’t bet on winning this hearing. If you need a bankruptcy attorney and you are in the Modesto area, please do not hesitate to contact us.
For more eviction and bankruptcy information contact our office in Modesto today!
Bankruptcy Means Test
The first step in the chapter 7 process is figuring out whether you qualify for the “means test”. The means test compares your household income against the median income for California residents with the same size. The relevant income is the average gross income earned over the past six months. What you earned before then or after your bankruptcy filing is irrelevant. Your past six months of income is referred to as your “Current Monthly Income” (CMI). Basically, all income is included in your CMI including disability, social security, rent, job sources, business income, assistance from family members both in and out of the house, etc.
When Your Household Income Exceeds California's Median Income
If your income exceeds California’s Media Income, that doesn’t mean you can’t file for bankruptcy. Certain deductions are allowed in order to determine whether someone qualifies to file for bankruptcy. These deductions, when taken, determine Net Monthly Income (NMI), which ultimately determines whether you qualify for bankruptcy. The following expenses are taken into consideration:
- Mortgage/Rent
- Cost of Living
- Tuition of Private Schools
- Medical Bills
- Taxes withheld
- Cost of Telephone and Internet services
- Spousal support and child support
- Gas/Bus and other costs of transportation
- Child care
- Health savings accounts
Failing the means test
If you fail the means test then you won’t be able to file a chapter 7 bankruptcy. If you want to file at all, you will have to file a chapter 13. The only way to really know for sure is to do a complete means test.
Business debtors
If over half of your debt is business debt, you can file a chapter 7 regardless of what your income is, however there are very high limits to the amount which can be discharged. On the other hand, it won’t matter what the outcome of your means test is if over half of your debt comes from your business.
The means test can be very complicated. Many people try out the means test online and after failing, they give up bankruptcy hopes. Before someone tells you that you are ineligible for a chapter 7 bankruptcy, make sure you contact our office in Stanislaus County today!
Stripping liens
Generally, if a debtor files for bankruptcy and has liens on some of his property, his liability will be discharged, but the lien won’t be stripped without a formal motion. That means the debtor must first file the bankruptcy petition, then prepare a written motion for the sole purpose of avoiding the lien. Section 522(f) of the Bankruptcy code allows debtors to take liens off their property in both chapter 7’s and 13’s. In order to strip a lien off, the lien must impair an exemption and the debtor must be a person. Section 522(f) of the bankruptcy code may not be used by corporations.
In most cases, a debtor can reopen their bankruptcy case to strip off liens after their cases have closed. In McDonald v. Home State Bank & trust Co., 161 BR 697, the court stated that in deciding whether debtors can reopen bankruptcy cases for the purpose of avoiding liens, the court should consider (1) reasons for the debtor’s delay, (2) the prejudice to the creditors that may result and (3) any other fair considerations. In the case of In re Quackenbos, 71 BR 693 (ED PA, 1987), the court stated that the debtor may lose their right to avoid a lien if their delay caused the creditor some kind of unfair prejudice. Unfair prejudice means that the delay caused some kind of harm to the creditor’s rights.
A lien can be created consensually through agreements (like a contract) or nonconsensually by the judicial process. When a creditor sues a debtor and gets a judgment, that creditor can then place a lien on the debtor’s property. Only judicial liens can be stripped under section 522(f) of the bankruptcy code. Section 522 doesn’t specifically state that the debt must be dischargeable in order to be avoided, but many courts have held that as a requirement.
Our bankruptcy attorney in Stanislaus County can answer your questions, so call us today!
The automatic stay
The Bankruptcy Automatic Stay
Many times it is all the harassment from the creditors that push people into bankruptcy. Every day like clock work they call and make threats to sue individuals and take their money via garnishment, lien or levy. The bankruptcy automatic stay puts a stop to all this. It is referred to as “automatic” because debtors receive protection automatically once their bankruptcy petition is filed, whether it be a chapter 7 or 13.
The Automatic Stay Stops Creditors
The automatic stay requires all creditors to stop any and all collection actions. For example, they can’t repossess your car, foreclose your home, levy your bank account, or garnish your wages. In fact, creditors are not even allowed to call you once you file your bankruptcy. Many people file for bankruptcy to stop a foreclosure sale date or a wage garnishment and that is completely fine. Let’s say for example your foreclosure sale date is next week so you hurry up and file for bankruptcy, the foreclosure date gets postponed indefinitely. The lender that owns the home must file a motion in bankruptcy court and ask the judge for permission to foreclose. This is called “relief from automatic stay.” Because creditors are required to give notice they usually don’t get a hearing date until at least a month after you file for bankruptcy. Once they are granted relief from automatic stay, then they can sell the home
When the Automatic Stay Doesn't apply
The automatic stay usually doesn’t apply to child support and spousal support type actions. There are other situations where the stay doesn’t apply, but they don’t come up very often.
How to Lose Protection of the Automatic Stay
If you file a bankruptcy petition within the past year and the case was dismissed, the automatic stay will only last 30 days the second time around. If you want extra time you will have to petition the court. If you had two bankruptcy petitions dismissed within a year of filing, you won’t get any stay protection. Again, you will have to petition the bankruptcy court and convince the judge that your previous filings were not in bad faith.
If you are around Modesto or surrounding areas and you want to learn more about bankruptcy, then call our office today!
Keeping Property In Bankruptcy
Many people are under the impression that if they file for bankruptcy, they are going to lose some or all of the property they own. That is rarely true. In fact, in most consumer bankruptcy filings the debtors get to keep everything they have. Bankruptcy law allows for certain exemptions under the Bankruptcy code that allow you to keep certain things up to a certain amount. Your clothing, furnishings and retirement, are usually all going to be protected unless you have some really valuable stuff. In addition to that you get another $21,000 to about $24,000 in wild card exemptions. That means you can keep your $10,000 car that’s paid off along with your bank account that holds another $10,000. You can mix and match with the bankruptcy wild card. So, you can protect just about anything… stocks, bonds, baseball card set, coin set, etc.
Exceeding The Limit
If the value of what you have exceeds your exemptions, then the bankruptcy court can sell off some of the things you have and disperse the money to your creditors. For example, let’s say you exceed your $21,000 wildcard exemption because you have $20,000 in the bank and stocks worth about $9,000. The bankruptcy trustee can take $8,000 in this situation and divide it among your creditors.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcies are used to help debtors restructure their debts. As long as the creditors are receiving at least what they would have received in a chapter 7 liquidation, your plan should be fine. You will be required to pay a portion of what you owe your creditors over a period of 3 or 5 years. The bankruptcy court won’t sell your property because you will be making cash payments to the Trusee who distributes the payment to your creditors, according to the plan. This may also include your second mortgage.
If you are in the Modesto area and you are looking for an attorney or help with filing your bankruptcy, please call us for a free consultation.
Credit repair
Rebuilding After Bankruptcy
Some people believe that they can’t purchase anything for 7 years after they file for bankruptcy. A debtor can usually obtain a secured credit card immediately after filing for bankruptcy. You can actually purchase a car from a dealership and get a loan right after discharge as well. Just beware of the sales price! If you have car loan that you are paying on, then it would be a good idea to keep the car throughout the bankruptcy. This will help rebuild your credit after filing.
If you are unable to stay current on your credit cards, then filing a chapter 7 bankruptcy is probably your best option. Many people make the mistake of burning through their retirement or savings before coming to the conclusion that they have to file for bankruptcy. If they had filed for bankruptcy earlier, they could have kept everything in their retirement/savings. Contact BKModesto before you make any of these types of mistakes.
Keeping whatever credit you can
As explained above, you should certainly keep the car that you are making payments on. After your chapter 7 discharge you will should start to rebuild your credit.
You can’t keep any of your credit cards if you have a balance on them, but you might be able to keep credit cards with a zero balance. Whatever you do, don’t close out these credit cards.
Rebuilding Credit after Filing for Chapter 13 Bankruptcy
Chapter 13 bankruptcies involve a repayment plan over the course of 3 or 5 years, allowing a debtor to restructure their debt and pay what they can to unsecured creditors. The discharge in a chapter 13 won’t come until the end of 3 or 5 years as opposed to a chapter 7 where your discharge comes within a few months. Therefore, with a chapter 13, it takes longer to rebuild your credit.
Contact
For some reason people tend to think that a bankruptcy means their finances are ruined. This is inaccurate, because filing for bankruptcy can be the reason why their credit recovers more quickly. Once their other debts are discharged, their debt ratios are more attractive to banks and credit card companies. Contact our office in Modesto for a free consultation today!