Bankruptcy Law FAQ
- What is bankruptcy?
- What are the types of bankruptcy?
- What is Chapter 7 bankruptcy?
- What is Chapter 13 bankruptcy?
- What is the "means test" in bankruptcy?
- What happens during the bankruptcy process?
- What happens to my house and property if I file for bankruptcy?
- What kinds of exemptions are available for me?
- Do I need an attorney to file a bankruptcy? What about collecting a debt?
If you are unable to pay your bills, you might be able to file for bankruptcy to immediately halt all creditors from trying to collect on their debts. Bankruptcy provides a process in which a federal bankruptcy court eliminates or determines the process by which debt will be repaid. Bankruptcy could prevent dispossession of property, stop a foreclosure on your home, or halt wage garnishment.
What are the types of bankruptcy?
There are four types of bankruptcy allowed by federal law:
- Chapter 7: a debtor gives up property which exceeds certain limits or exemptions to allow the property to be sold to pay creditors
- Chapter 11: for businesses and individual debtors with large debts
- Chapter 12: limited to family farmers or family fisherman
- Chapter 13: a debtor files a plan with the court to pay debts (or a portion of debts) from existing income
Consumers usually use a Chapter 7 or Chapter 13 bankruptcy.
A debtor initiates a Chapter 7 bankruptcy by filing a petition with the bankruptcy court. After filing, the debtor may eventually be required to sell certain non-exempt property to satisfy debts owed to creditors. A debtor's property will often be considered exempt. A chapter 7 bankruptcy lawyer can help ensure that a debtor's petition is properly filed, and that the debtor understands which property has exempt status.
What is Chapter 13 bankruptcy?
A debtor files a plan with the bankruptcy court under Chapter 13, which indicates how he or she plans to pay off their debts over the next three to five years. A chapter 13 bankruptcy lawyer can help a debtor determine which debts must be paid in full or in part.
What is the "means test" in bankruptcy?
For a debtor to be eligible to file for bankruptcy, the debtor must satisfy the "means test," which requires that the debtor's current monthly income be less than the median income in California. Up-to-date information on median income is available on the U.S. Trustee website.
What happens during the bankruptcy process?
A debtor must submit a petition to a bankruptcy court and pay a filing fee (which could be paid in installments or waived). After this step, a trustee may be appointed to work with the debtor and the creditors. Usually the trustee holds a creditor meeting, to address creditor claims and the debtor's financial status. A debtor may need to appear in court, if the debtor challenges a creditor's claim or if other issues arise.
What happens to my house and property if I file for bankruptcy?
Filing for bankruptcy can stop foreclosure and give you time to make up for missed payments. Mortgages and liens owed on your home will not be eliminated by filing for bankruptcy; however, you should consult with an experienced bankruptcy attorney. Whether you will be able to keep your property depends on your equity in the property, the current value of the property, the amount of debt owed, and other factors specific to each debtor's situation.
What kinds of exemptions are available for me?
Debtors may be able to claim many different exemptions, including the homestead exemption for real or personal property that the debtor occupies. Another available exemption is the personal property exemption, which could include some of the following items:
- Appliances, furnishings, clothing, and food
- Jewelry, heirlooms and art up to a certain value
- Motor vehicles up to a certain value
Other available exemptions include some of the following:
- Certain forms of insurance
- Certain types of pensions
- Public benefits
- Tools of trade
- A portion of wages
- Professional licenses
A qualified bankruptcy attorney can ensure that a debtor claims all appropriate exemptions during the bankruptcy process.
Do I need an attorney to file a bankruptcy? What about collecting a debt?
Federal law does not require a bankruptcy petitioner to file with the help of an attorney. However, all debtors can benefit from the assistance of a bankruptcy attorney during the bankruptcy process. Bankruptcy attorneys with experience filing petitions, negotiating with creditors, and dealing with trustees ensure that debtors' rights are protected and that debtors are able to start over financially at the conclusion of a bankruptcy proceeding. Likewise, creditors can ensure that their rights are fully protected with the help of an experienced bankruptcy practitioner.
