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 do owe people a lot of money and have little or nothing to pay them with, 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.
Not everyone files a Chapter 7. If you and your family’s income is more than the median income for California (currently $47,363 for a single person, $77,014 for a family of 4 in California), then you generally must file a Chapter 13. If you have a lot of non-exempt assets (i.e., your home has equity in excess of California’s homestead exemption ($75,000 for a family), then bankruptcy may not make sense, or you can file a Chapter 13, agree to make payments, and attempt to hold onto your property.
Should I file for bankruptcy? Bankruptcy is about making the best financial decision for your financial future. That decision is difficult and involves accept on some level that you have not been successful, at least as far money goes.
A chapter 13 is generally used by individuals who have an average than higher income, or have assets which they do not want to hold onto. In a Chapter 13, the debtor or debtors agree to pay a monthly payment to creditors over a 3 to 5 year period.
A chapter 11 is generally used by medium to large 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.
Can bankruptcy help if my house is in foreclosure? If you file a Chapter 13, you are permitted to pay off arrearages as part of your Chapter 13 repayment plan. 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 filing fee of $274, for a Chapter 13, there is a $299 filing fee. Attorney’s fees vary, depending on the complexity of the case but generally range from $1,500 to $3,000 for Chapter 7 and Chapter 13 filings for individual consumers.