What is the difference between a Chapter 7, a Chapter 11, and a Chapter 13?

A chapter 7 is what most people think of when they think of bankruptcy. If you owe alot of money and have little or nothing assets, you file a Chapter 7. The goal of filing a Chapter 7 is to receive a “discharge” – a determination that no money is owed on any of your debts. If a Chapter 7 debtor has assets, those assets are sold and divided up among the debtor’s creditors. If a Chapter 7 debtor has no assets, meaning no non-exempt assets, then he receives a discharge without having to pay any money to his creditors.  Typically, a Chapter 7 is concluded in 4 months.

Not every individual files a Chapter 7.  There may be good reasons to file a Chapter 13.  Under Chapter 13, the debtors makes payments to his creditors over a 3 to 5 year period.  In a Chapter 13, you may be able to reduce what you owe on loans secured against your car or real property.  If you are behind on mortgage payments, you can cure the arrears over a period of up to 5 years.  A Chapter 13 may also make sense if you are operating a business or have significant assets which you are trying to protect.  

A chapter 11 is generally used by businesses, or individuals with secured debt in excess of $1,010,650 or unsecured debt in excess of $336,900. It is more complicated and is expensive.

Should I file for bankruptcy? 

No one is happy about having to file bankruptcy.  Bankruptcy is about making the best decision for your financial future. 

Can bankruptcy help if my house is in foreclosure?

If you file a Chapter 11 or 13, you are permitted to pay off arrearages as part of your Chapter 13 repayment plan.  In addition, the Courts have programs which enable you to attempt to obtain a loan modification while in a Chapter 11 or 13.  A Chapter 7 delays a foreclosure, but for a very brief period.

If my house has been foreclosed on, does it make sense to file for bankruptcy protection?

Both foreclosure and filing a bankruptcy damage your credit rating significantly. If you have been foreclosed on, then it may make sense to seek bankruptcy relief from credit card debt, as well as from home equity loans and other second mortgages (for which you may remain liable for after foreclosure).

Can the amount of money I own on a loan be reduced?

It depends on the loan. If it is your first mortgage, absent a change in the law, a bankruptcy court cannot modify the terms of that loan, or reduce the principal amount to the value of your house. If it is a second loan or home equity loan and the home is worth equal to or less what you own on the mortgage, then a court can order that the debt be treated as unsecured, i.e., in the same manner as any credit card debts. If the loan involves a car that was purchased two and half years ago, then the court has the power to reduce the amount of the loan to the blue book value of the car.

What effect does filing bankruptcy have on any lawsuits filed against me?

Filing bankruptcy automatically stops, or stays, any attempt to collect against the filer, including lawsuits, foreclosures, or collection efforts made on a judgment, such as wage garnishment.

Are there debts which cannot be gotten rid of (discharged) in bankruptcy?

Debts resulting from an intentional, i.e., a criminal act, cannot be discharged. Debts resulting from fraud, including when a loan is taken out (or credit card payment made) with no intention of repaying, cannot be discharged. Student loans and child support obligations cannot be discharged. In general, taxes are not dischargeable, although some taxes which have been due for more than three (3) years can be discharged.

Are some of my assets protected from being part of the bankruptcy estate?

Yes, certain assets are exempt from collection under California law, and are similarly exempted from being collected and sold by a Chapter 7 trustee. If you own a home, then you have a homestead exemption, which protects between $50,000 and $150,000 of the equity in your home ($75,000 for a family). If you do not own a home, or there is no equity in your home, then you can claim a “wild card” exemption which covers up to $21,825 of your assets. In general, retirement accounts are protected, and there are also exemptions for your household goods and your vehicle (up to $3,300).

How much does it cost?

For a Chapter 7, there is a court filing fee of $335.  The fees for filing a Chapter 13 is $310, for a Chapter 11, $1717 . Attorney’s fees vary, depending on the complexity of the case but generally range from $1,000 to $3,000 for Chapter 7 and Chapter 13 filings for individual consumers.