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FAQ

Bankruptcy is a federal law providing honest debtors with a tool to obtain relief from debt and the pressures caused by financial crisis. Below are the top 10 questions people ask about bankruptcy followed by brief explanations. For additional information, please download our free Bankruptcy Questions and Answers brochure
(pdf file 86KB).


1.
WHAT ARE THE DIFFERENCES BETWEEN CHAPTER 7, 13 AND 11?
2.
WHAT RECENT CHANGES WERE MADE IN THE NEW BANKRUPTCY LAW?
3.
IF I FILE BANKRUPTCY WILL MY CREDIT BE RUINED FOR LIFE?
4.
WILL I LOSE MY PROPERTY?
5.
DOES MY SPOUSE HAVE TO FILE TOO?
6.
HOW MUCH MONEY DOES IT COST?
7.
WILL FILING BANKRUPTCY AFFECT MY JOB?
8.
HOW DO I GET STARTED?
9.
IF I AM BROKE, HOW CAN I AFFORD TO PAY?
10.
DO I REALLY NEED AN ATTORNEY?



1. WHAT ARE THE DIFFERENCES BETWEEN CHAPTER 7, 13 AND 11?

The numbers refer to different chapters of the U.S. Bankruptcy Code, a federal law. Chapter 7 is traditional bankruptcy, where the individual gets a discharge from debts, and does not have to pay them (this type of bankruptcy can be filed every 8 years). Chapter 11 is a bankruptcy proceeding usually for businesses that want to stop their creditors temporarily, while the business proposes a plan to keep the business going and pay the creditors something (all or part of the debts) in the future. Chapter 11 attorney fees are very expensive. Chapter 13 is a bankruptcy proceeding for consumers and small non-corporate businesses that, for various reasons, need time to pay their creditors and are able to make monthly payments over a 3 to 5 year span of time.

Individuals typically find the most relief through Chapter 7 or Chapter 13.

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2. WHAT RECENT CHANGES WERE MADE IN THE NEW BANKRUPTCY LAW?

There were many changes to the new law in 2005, perhaps too voluminous and complex to summarize here, and many of which may not apply to your particular case.   A couple of new provisions that affect all cases are:
The requirement that all individuals seeking bankruptcy relief must obtain credit counseling and a certificate from an approved credit counseling agency before filing bankruptcy
The requirement that all individuals seeking bankruptcy relief take a debtor education class after filing bankruptcy in order to receive a discharge of their debts
All individuals must have their income and expenses evaluated against a means test to determine eligibility for Chapter 7 and Chapter 13 bankruptcy

Changes were also made to how auto loans are treated in Chapter 7 and Chapter 13, and changes were also made to what types of debts are dischargeable.

Many of the changes may not affect your case.  It is important to discuss your particular situation with an attorney to determine if any of these provisions affect you.

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3. IF I FILE BANKRUPTCY WILL MY CREDIT BE RUINED FOR LIFE?


Chances are that if you’re considering filing for bankruptcy, your credit has already been adversely affected. Late payments, defaults, repossessions, foreclosures, judgments and bankruptcy are all things that cause your credit score to decline. Credit reporting agencies are allowed to report your bankruptcy for 10 years from the date it is filed. However, your credit will not be “ruined” for this long; most of my clients find they begin receiving offers for credit very soon after filing, sometimes within just one year. The fact is many lenders are eager to loan credit to people emerging from bankruptcy because they know that they no longer owe debt so they are considered a better risk.

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4. WILL I LOSE MY PROPERTY?

No.  In California, the law allows you to exempt certain property from the reach of your creditors. As long as you are within these exemptions, you will not lose your property. Even if you have substantial property, i.e. a large equity in your home, you may still qualify for Chapter 13 bankruptcy and still protect your assets.  During your bankruptcy consultation, we will review your assets to determine whether they are exempt or not and advise you accordingly.

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5. DOES MY SPOUSE HAVE TO FILE TOO?

No, both spouses are not required to file together by law. However, since California is a community property state and the Bankruptcy Code makes all of the community property of a married couple part of the “bankruptcy estate,” both spouses should probably be involved in the bankruptcy case. While the bankruptcy of one spouse could technically protect the non-filing spouse in a community property state, these subtle distinctions are sometimes lost on creditors, and they may continue to harass the non-filing spouse.

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6. HOW MUCH MONEY DOES IT COST?

Fees vary depending on the extent of debt, the type of debt, the assets of the debtor to be protected, and any extra issues (such as foreclosure proceedings, non-dischargeable debts, tax problems, etc.). The fee I most often charge for a typical "consumer" Chapter 7 bankruptcy is $1200, plus a court filing fee of $299. I usually require up to 2/3 of the fee to be paid in advance of filing ($800), plus the filing fee ($299), with the balance of the fee to be paid in three plus monthly installments of $100 after the bankruptcy is filed. But this fee can be less, as low as $800.00, and it can be more, $1,500.00 or more, depending on the facts. A "business" Chapter 7 case may cost from $2,500 to $5,000; it all depends on the facts!


Chapter 13 fees are somewhat regulated by the Bankruptcy Court. The maximum "consumer" fee permitted by the court is $4,800, without having to keep time records. The filing fee to the court is $274, but this fee is usually paid with a retainer in advance of filing the Chapter 13 petition of $874 and the balance of the attorney fee is included in the monthly Chapter 13 payments. Basically one would pay the retainer, file the petition, and start monthly Chapter 13 payment a month later (and that payment includes all remaining fees and costs). Retainers to stop foreclosure proceedings are higher, often $1,574 and up, depending on how urgently it needs to be processed.

Chapter 11 fees (usually for businesses) are dramatically higher. Attorney fees usually range from $20,000 to $30,000 with a retainer of $15,000 usually required. This office does not do Chapter 11 cases. However, Chapter 13 or Chapter 7 will sometimes do even if you think your case falls under Chapter 11. You need an office consultation to determine if Chapter 11 is warranted, and in the event it is, we will do our best to refer you to attorneys who do Chapter 11 cases.

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7. WILL FILING BANKRUPTCY AFFECT MY JOB?

The Bankruptcy Court will not automatically notify your employer that you have filed for bankruptcy. If you file Chapter 7, it is unlikely that your employer would ever find out, unless a credit check is done after you’ve filed. If you file Chapter 13 and for some reason stop making your payments, the Chapter 13 Trustee may send a pay-over order to your employer to collect; otherwise, they will not receive notice.

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8. HOW DO I GET STARTED?

You should make a complete list of your debts; names and amounts of everyone you owe money to, including creditors you plan to pay (such as taxing authorities, auto loans, home loans and student loans) and schedule a consultation appointment with us. There is no charge at the first appointment if you decide you don’t need bankruptcy. If you decide hire us, the fee we quote compensates us for the time spent at your first appointment. At the first appointment we will review your debts, ask questions about your assets and financial situation and assess what type of bankruptcy would help. If we think you are a candidate for bankruptcy, we’ll give you a fee quote and an informational packet to complete. If you decide you do want to file, you will need to fill out the informational packet and come back for another appointment where you will retain our services and we will begin preparation of your case.

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9. IF I AM BROKE, HOW CAN I AFFORD TO PAY?

If you are truly broke - without income or assets - you don't need bankruptcy. We don't have debtors' prisons any longer, and you can't be put in jail for not being able to pay your bills. The reason people file bankruptcy is that they do own assets - income wages, homes, furniture, income tax refunds, bank accounts, automobiles, etc., - and while they don't have the ability to meet their creditors' demands, if they do nothing, the creditors will use legal means to seize their assets, thereby impairing their ability to meet their living expenses, or causing them to lose their jobs (i.e. wage garnishments). Usually the filing of bankruptcy relieves the strain on their income, and with what is left, they are able to pay an attorney fee out of that income.

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10. DO I REALLY NEED AN ATTORNEY?

If you hire an attorney, he/she is responsible for advising you on the appropriate chapter of bankruptcy to file, will represent you for the entire duration of the case (unless you agree otherwise) and will deal with all contact from your creditors regarding case information, reaffirmation agreements, return of collateral and any other problems that arise during the case.

When you act as your own attorney, you must deal with the Chapter 7 trustee, who is interested in taking assets from you. The trustee gets paid from any assets he/she collects, and debtors representing themselves make inviting targets. What assets are exempt from the trustee’s claims are subject to interpretation, and one of the reasons you employ an attorney is to investigate what your assets are (for example, accrued wages, personal injury claims, income tax refunds, interests in real estate, or trusts, or estates of deceased persons), and inform you whether or not they will likely be exempt, so that you can make an informed decision before you commit yourself to bankruptcy.

You must prepare a budget of income and expenses in your bankruptcy schedules, and if this is done incorrectly, it is subject to attack by the U.S. Trustee Office which can dismiss your case as an “abusive” filing. It is important to get this part of the petition right the first time, and an experienced attorney may be necessary to help you for obvious reasons.

Bankruptcy typing services make it clear that they are not attorneys, and do not offer legal advice. But they impliedly represent they know enough to file a bankruptcy petition for you. They are asking you to pay them to prepare a bankruptcy petition without taking any of the responsibility for the preparation. You must weigh the risk of losing an asset to the bankruptcy trustee or having your case attacked as an “abusive” filing without representation by an attorney, in addition to having to deal with whichever creditors decide to contact you after bankruptcy, against the difference in cost between having an attorney and representing yourself.

 

 
 
LAW OFFICES of
SARAH LAMPI LITTLE

- Hayward -
1276 A Street
Hayward, CA 94541
ph: 510-581-4060


Attorneys
Sarah Lampi Little
Bill H. Lampi


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1276 A Street, Hayward, CA 94541 • ph: 510-581-4060 • fax: 510-581-0317
email: info@lampilittlelaw.com

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