Overview of Chapter 7 Bankruptcy and Alternatives to Bankruptcy

you okay so this is an overview of chapter 7 bankruptcy as well as different alternatives to chapter 7 bankruptcy there are basically three options when you’re considering bankruptcy first is to do nothing and actually in some cases believe it or not doing nothing may be the best option for you the second is to work out some sort of payment plan or a settlement with your creditors and then finally the third option is bankruptcy alright now let’s talk a little bit more about doing nothing if you do nothing a creditor may sue you or may let the statute of limitations pass so let me tell you a little bit about what the statute of limitations is basically a creditor in California has four years from the date of default and the data default is usually the date of your last payment they have four years to sue you and if they don’t then that deadline passes and they can no longer sue you so that deadline that four-year deadline is called a statute of limitations even if the statute of limitation passes that debt can still be on your credit for a total of seven years now if a creditor does decide to sue you they can get a judgment with a judgment there are essentially three things that a creditor can do that they can’t normally do it they can’t do without a judgment the first thing is a wage garnishment they can garnish your wages up to 25% pre-tax the second thing is they can levy your bank account and a levy is where they go they find your bank account and they actually pull money out of your bank account and they can keep doing that until the full amount of the debt has been paid off the third one mainly applies to people who own real estate what it is is a lien they can put a lien on your property so essentially what that means is if you were to try to sell your property down the line you would have to pay them off or or settle with them before they would release that lien and you could sell your house now a certain category people are what we call judgment proof judgment proof means that even if a creditor Sue’s you they can’t recover any money from you there are certain classes of people so people that are getting government assistance for example unemployment Social Security SSDI any kind of government disability those in most cases cannot be garnished by creditors so especially for example a retired person they may be judgment-proof where the creditor can sue them but they’re not gonna be able to get any money for there’s no wages to garnish they can’t put a levy on the bank account if you can prove that the money that’s in the bank account comes from government funds for example from Social Security and if they don’t own property they lean isn’t going to have any effect so the retired person is a good example of someone who is judgment-proof especially if they’re not anticipating working again now some of you may be judgment proof because you’re not working right now you may be collecting unemployment however in the future if you get a job you may no longer be judgment proof if you have a change of income even if your judgment proof right now you may be susceptible to a wage garnishment or other post judgment remedies after you start working again and in that situation you might need to reconsider your options if you’ve decided not to do anything for the moment because your judgment proof later on you may need to look at a payment plan or possibly bankruptcy probably the most common complaint that people have is that they get a lot of phone calls and letters from creditors you can actually get the creditors to stop sending these letters by sending them what’s called a cease and desist letter a cease and desist letters also called a no-contact letter if you send them this letter by law they have to stop contacting them they have to stop calling you they have to stop sending you letters now they could still sue you but they have to stop all of the collection activities all right let’s talk a little bit about if you get a judgment against you a lot of you are concerned because creditors have threatened to sue you or they actually have sued you that you’ve been served with papers even if a creditor gets a judgment against you in most cases you can still discharge or eliminate that debt in bankruptcy let’s talk about the the second option

which is a payment plan or settlement for some of you if you have income coming in or you have a chunk of money you may be able to arrange some sort of a settlement with a creditor and a settlement essentially is where you negotiate with the creditor to pay off a certain amount of debt for less than what you owe so for example if you owe $10,000 in credit card debt you may be able to settle for less than $10,000 you could be 50 cents on the dollar 25 cents on the dollar it’s whatever you are able to work out with the creditor now one thing is that you can actually do this by yourself there are companies out there that will say well give us money and we’ll contact the creditors and we’ll work out some sort of settlement plan this is nothing that you can’t do on your own so I would recommend trying to work out some sort of settlement with some of your creditors if you can come up with a lump sum payment sometimes even a creditor will accept installment payments you know maybe a few installments I’ve seen up to a year of installments where you’re paying off less than what you owe there’s also a number of nonprofit agencies that you can arrange to pay back credit cards or other types of debt over a period of time what happens is they will lower your interest rate in many cases and you make one payment to this nonprofit agency and then they distribute the money to the creditors the problem with both of these is that they’re all voluntary so the credit card companies or the other creditors are under no obligation to accept a payment plan or even a settlement but one of the pros of this is that you do get to avoid having a bankruptcy on your record and a bankruptcy is on your record for 10 years now let me just say a little bit about that a bankruptcy is on your credit report for 10 years if you have debts discharged in bankruptcy it’ll say discharge in bankruptcy under the name of the debt however it may not affect your credit for that long in fact many people can recover very quickly after bankruptcy within maybe a couple years you can qualify for a car loan at some of the same rates that you have been offered before bankruptcy within maybe three to four years you can sometimes qualify for a mortgage at non bankruptcy rates all right so now let’s talk about the final option that we’re going to discuss today which is bankruptcy and I want to discuss two different types of bankruptcy that are most common to consumers those are chapter 7 and chapter 13 you probably have heard these terms I’m just going to give an overview of the differences between chapter 7 and chapter 13 chapter 7 is what’s called straight bankruptcy or liquidation bankruptcy and in Chapter 7 bankruptcy you discharge or eliminate most or all of your unsecured debt now let me just distinguish between unsecured and secured debt unsecured debt is debt that is there’s no collateral against it so credit cards personal loans medical bills there’s no collateral against those so those are unsecured debt secured debts a couple of good examples of secured debt are home loans and car loans with a home loan the loan is secured against the house if you stop paying on the house the lender can foreclose on the house and recover the house with a car loan if you stopped paying the lender can repossess the car sell the car and use the proceeds to pay toward what you owe in Chapter 7 bankruptcy you’re going to be able to eliminate most or all of your unsecured debt you also may be able to protect most or in some cases in fact in many cases all of your personal property and at bankruptcy case in Chapter 7 lasts about 4 to 6 months depending on how long it takes for you to fill out the forms once you file it’s pretty standardized how long it takes let me talk about chapter 13 that’s called the wage-earners bankruptcy chapter 13 there’s a few instances where people may choose chapter 13 over chapter 7 chapter 13 you can also discharge all or a portion of your unsecured debt but in chapter 13 you’re actually paying back your creditors some or all of what you owe them and it’s it can be a three year plan or a five year plan so you’re paying them back a portion of what you owe them or in some cases all of what you owe them but it gives you extended amount of time to repay them one of the most common reason people do chapter 13 is because they make too much money to do a chapter 7 in order to qualify for chapter 7 in most cases you have to make below the state median income if you make above that if you make too much money then the court feels that you have some ability to pay back some of your debts so they’ll make you to a chapter 13 and there are also other reasons some people may choose to do a chapter 13 people who are behind in secured payments like on a car loan or a home loan if you’re behind on payments and you need to catch up chapter 13 will let you do that while under the protection of the Bankruptcy Court so while you’re in a chapter 13 as long as you’re making the payments and you’re catching up they can’t foreclose on your house or they can’t repossess

your car alright let me discuss some of the pros and the cons of bankruptcy some of the pros now as we discuss you’re able to discharge most or all of your unsecured debt you get a fresh start and a chapter 7 bankruptcy actually both 7 and 13 the minute you file bankruptcy it stops collection activity garnishment and Bank levies now some of the cons as I said before bankruptcy will be on your record for 10 years it can in some cases negatively impact your credit rating although a lot of that is dependent on where your credit score is to start with and some creditors may refuse to do business with someone who has a bankruptcy on the record for example some landlords will refuse to rent to someone who has a bankruptcy on the record or in some cases they may just require more of a security deposit as I said today we’re only going to be covering chapter 7 bankruptcy for people who do not own any real property because in that situation if you need to do a chapter 13 or if you have real property we strongly recommend that you seek the advice of an attorney all right there are certain types of debts that are not dischargeable meaning you cannot eliminate them in chapter 7 bankruptcies so some of those debts are taxes with certain time limit exceptions so some older income taxes you may be able to eliminate in chapter 7 bankruptcy domestic support obligations so child support payments any alimony things like that those any back payments those cannot be eliminated in bankruptcy student loans by and large you cannot eliminate in bankruptcy there’s a very narrow exception for undue hardship but it’s very difficult to prove an undue hardship as far as eliminating student loans in bankruptcy traffic tickets and government fines also not dischargeable in bankruptcy any alcohol-related accident judgments any judgments related to that not dischargeable a judgment for willful or malicious conduct that results in serious physical injury or death not dischargeable and any unlisted debts also may not be dischargeable now one of the biggest concerns that people have is am I gonna have to give up stuff am I gonna have to get you know turn over my property in the bankruptcy well fortunately in most cases the vast majority of chapter 7 cases you can keep most or probably all of what you own assuming you don’t have large a large number of assets in bankruptcy there what are called exemptions and exemptions are essentially protections so anything you own you would want to have a corresponding exemption to protect it in the bankruptcy so you don’t have to turn it over there are exemptions for household goods and furnishings there are exemptions for jewelry pension plans and retirement accounts and there’s a number of other exemptions and then for anything else that’s already not covered by an exemption there’s what’s called the wild card exemption the wild card exemption applies if you don’t own any real property and you can protect up to about twenty three thousand dollars a little over $23,000 of assets that aren’t already protected by another exemption so for example if you have cash in the bank cash on hand stocks bonds if you have a car that has high value you can protect it as long as it’s the total of everything isn’t more than $23,000 now if you have a lot of property valued at over $23,000 you might need to surrender some of it or you might consider doing a chapter 13 bankruptcy in fact that’s another reason why sometimes people will consider chapter 13 as if they have a lot of valuable assets that they want to keep that otherwise in a chapter 7 they might have to turn over now there’s some determinations to go through to see if you actually qualify for chapter 7 bankruptcy the first is have you filed for bankruptcy in the past eight years you can only get one chapter 7 discharge every eight years so if you have a discharge that’s more recent than that then you may not be able to do chapter seven again you might want to consider chapter 13 which has a shorter time between bankruptcies also have you lived in California for the last two years and have you lived at your current address for the past hundred and eighty days these are some venue requirements you have to lived in our district our district is called the Central District of California it covers most of Southern California except for San Diego and Imperial counties it’s a very large district the largest district in the country so as long as you’ve lived somewhere in Southern California for the last two years you should be fine if not you might need to use to file in a different district or if you’ve lived in another state you might have to use that other states exemptions there’s also what’s called a means test a means test determines your eligibility for chapter 7 bankruptcy and in the means test it compares your income to the median household income of each safe so for

this in this example would be the median income of California if your income is below the median income then you qualify for chapter 7 bankruptcy most everyone here should qualify under the means test just to give you a little sample currently for a household of one person the median income is just under $48,000 for two people it’s about sixty two thousand for three people it’s about sixty seven sixty eight thousand and then it go up from there but if your income is below that for your household size then you should qualify for chapter 7 bankruptcy in most cases there’s also a credit counseling course you have to do now some of you may have already done this we have a list of providers in the packet there’s one that’s actually costs only $5 this is an online course or an over-the-phone course that you do it takes an hour to – at the end of it you’ll be issued a certificate which you have to include with your bankruptcy paperwork when you file it with the court so you need to do that credit counseling class you also need copies of your pay stubs you’ll need to gather copies of your pay stubs for the last six months you’re actually going to be using those in determining your eligibility under the means test that I talked about they’re gonna look at your last six months of income you also need to have the last 60 days of pay stubs that you’re actually going to include with the petition so you need six months in preparing all the paperwork and you’re actually going to turn in 60 days worth of pay stubs with your bankruptcy paperwork you’ll also want to keep all copies of bills judgments collection activity so those bills that you’re getting from your credit cards or collection agency debt collectors don’t throw them away you’re gonna need that information from those bills you need to know how much you owe and the name of the the creditor so you can include that in your paperwork that’s very important in bankruptcy it’s important to include everyone everyone you owe money to even friends family members personal loans you have to include everything you’re also gonna want a copy of your credit report we’re gonna show you how to get a free copy of your credit report from each of the three agencies you’re gonna need that credit report because that’s going to give you a good list of most of the people you owe money to now keep in mind that not every one that you all money to is going to be listed in your credit report for example if you have a loan with a family member that’s probably not going to be listed in your credit report because your family members in reporting to TRW or Equifax one of those agencies you’re also going to need copies of your taxes for the last two years you’re going to need that in preparing part of the bankruptcies and you’re also going to need to know how much you’ve earned this year you’re also going to need to provide a copy of your most recently filed taxes to the bankruptcy trustee now let me talk a little bit about the bankruptcy trustee in each chap seven bankruptcy case there is a trustee assigned in that the trustee is essentially an administrator who oversees all of your assets and your debts they oversee your case until you receive the discharge in your case and these are people who are in most cases lawyers or accountants and they do the trustee work as a side job so these aren’t full-time trustees they they do this on the side and you will have actually one in-person meeting with the trustee which I’ll talk about in a little bit but you need to provide your most recently filed taxes to the bankruptcy trustee before your meeting with the trustee you’ll also need to go over your monthly income and expenses you’re gonna need to create a budget see how much you’re actually spending and how much you’re you’re actually taking in you’ll also need any information on Co debtors these are people for example if you have a cosigner on a car loan you need that information because that needs to be included in the bankruptcy paperwork information about any pending lawsuits this is any lawsuits where you’re suing someone or somebody else is suing you you’re gonna need to include that information in the bankruptcy any potential lawsuits that you have against someone you’ll need that information you’ll need to have a valid social security number and social security card you’re gonna have to have your identification a government-issued photo ID and your social security card at the meeting with the trustee for verification purposes so if you don’t have your social security card you can’t find it you can contact the Social Security Administration and they will issue a replacement card at no cost also any 401k loans if any of you have borrowed from your 401k or other retirement accounts you need to have that information any information on student loans even though in most cases student loans are not dischargeable you’re still going to want to include that information because you have to include all of your debts in the bankruptcy any information on parking tickets moving violations any government fines like that you want that information again even though that’s not dischargeable you still want to include that information in your bankruptcy petition all right now where are you gonna file your bankruptcy petition well it’s going

to depend on where you live so what you should do is you’re gonna go to this website WWC ACB US courts gov you’re gonna click on location and do a zip code search you’re gonna put your zip code in and it’ll tell you where you’re gonna file your bankruptcy paperwork and in our district which again is the Central District of California there are five bankruptcy court locations there’s downtown Los Angeles Woodland Hills Santa Ana Riverside and Santa Barbara now what do you actually need to turn in when you’re filing your bankruptcy paperwork you’re gonna need a copy of your paperwork the petition and all those schedules and a copy of that for yourself you’re gonna need the credit counseling certificate which you’ve already done copies of your pay stubs for the last 60 days and make sure to mark out any identifying information like your social security number just and in fact anywhere where it asks for account information social security information you should block out all but the last four digits you’re gonna need a mailing list you’re gonna have to have a typed mailing list of all of your creditors and in fact anyone who appears in the different schedules in the bankruptcy SoCo debtor’s things like that you’re gonna want to have a typed list of all those people now one thing the bankruptcy paperwork you can actually handwrite all of it except for the mailing list the mailing list is the one thing that needs to actually be typed in fact if you try to turn in your paperwork without a type mailing list they’ll send you back and they in some cases will have a typewriter there and make you type out your mailing list and the reason that has to be typed is because they scan that in and they have optical character recognition so they can see who they need to send notification to so that’s again the only part of the paperwork that needs to actually be typed is the mailing list everything else can be handwritten as long as you write it legibly there is also a filing fee currently the filing fee is three hundred and six dollars and you should get a money order cashier’s check or exact change in cash if you’re going to get a money order we recommend getting a money order from the US Post Office they will not accept money orders from other places so I recommend going to the post office or you can get a cashier’s check from your bank or again exact change in cash now some of you may qualify for a fee waiver where you don’t have to pay the filing fee if you make below a certain amount of income that’s a hundred and fifty percent of the poverty line and if you fail to pay the fee then your case may be dismissed all right so now you’ve filed your paperwork what do you need to do after filing the paperwork there’s one meeting in person that’s called the 341 a hearing that’s named after the the section of the Bankruptcy Code that calls for this it’s also called the meeting of creditors this is a meeting with the trustee this is usually 30 to 40 days after you file your case at the time of filing you’ll get a sheet of paper that has the time date and location of your 341 a meeting you must attend this meeting if for whatever reason you can’t make that meeting if you get sick you should contact a trustee ahead of time let them know you’re not going to be able to be there and in most cases they will postpone one time beyond that and they likely will dismiss your case as I said you’ll also find out the name of your chapter 7 trustee these are randomly assigned based on the time you file your case you also will need as I said before you will need to mail a copy of your most recently filed taxes to the trustee at the address provided in the paperwork and you should send that tax return via certified return receipt mail also make a copy of that tax return so you can bring it with you to the meeting with the trustee in case for some reason they don’t receive that as I have said before you also need to complete the financial management course after you file you can do it from sometimes the same provider that did the credit counseling course but you need to do that there’s a deadline if you pass that deadline they will close your case without a discharge and again you’ll have to pay two hundred sixty dollars to reopen your case so I recommend that you complete the financial management course and take it to the court within just immediately after filing your case and there’s also a cover sheet that goes with the financial management certificate it’s called form b23 usually when you do the financial management course they will email you a PDF of your certificate along with a copy of form b23 you need to turn in both of those if you fail to turn in either of those some people we’ve seen where they turn in the the certificate but they forget to turn in form B 23 their case still gets closed without the discharge they have to pay two hundred sixty dollars to reopen it as I said with this financial management certificate that you do not mail the financial management certificate to the trustee you’re going to take it in person to bankruptcy court along with the cover sheet which is formed b23 just to reiterate if you don’t file the financial management course your case will be closed without a discharge and you’ll have to pay two hundred sixty dollars to reopen your case I’m gonna talk a little bit now about

the meeting with the trustee which is the medium creditors the 341 a meeting it has a lot of different names this is what you need to bring to that 341 a meeting you need a copy of your Social Security card again if you don’t have your Social Security card you can go to the Social Security Administration and they’ll provide you a copy of that although that can take a couple weeks so you should look right away and if you don’t have a copy you should order that right now you’ll need a valid driver’s license or some other government-issued ID a copy of your petition a copy of your most recently filed taxes these are the taxes that you’ve already mailed to the trustee and also bring a notepad and pen in case the trustee needs additional information you can write down what the trustee needs or if the the trustee is going to continue or postpone your meeting to a different date you need to write that information down so at the hearing you should plan to arrive 30 minutes before your hearing starts and this is because sometimes you might have issues with parking but also you want to see some of these meetings ahead of time the layout of the meeting in most cases it’s going to be in a big room where they’ll be rows of chairs the trustee will be in the front with the trustees assistant they’ll call people up usually one at a time swear them in and they’ll ask a series of standard questions some of those questions include did you read everything before you signed it did you sign the paperwork do you have any additions do you have any changes did you list all your debts did you list everything you own so you’ll see if you get there early you can see by watching other people’s meetings the kinds of questions they ask and in most cases it’s standard questions and in most cases if you’ve done your paperwork correctly this should be a very short meeting in a lot of cases that lasts shorter than 90 seconds so it’s a very it should be a very short meeting it can go longer if the trustee needs additional information there will also be when you arrive at the meeting you’ll see a stack of green pamphlets you want to pick up a copy of the green pamphlet and read the pamphlet because the trustee will ask did you read the green pamphlet there’s also in many cases if you’re representing yourself there be a separate sheet of paper for people that are representing themselves so you need to pick that sheet of paper up to because the trustee will ask about that the trustee will swear you in under oath under penalty of perjury and it is your responsibility to testify truthfully so this is even though this isn’t in a court you are testifying under penalty of perjury when you aren’t answering the trustees questions now after the meeting you may need to do the following the chapter 7 trustee may request additional information from you what you should do is send that information via certified mail and with the return receipt that’s where you attach the postcard and they’ll send you a postcard back once they’ve received the mail it costs a little extra but it’s worth it just to make sure that they’ve gotten the information sometimes the trustee will ask you to amend your schedule so if there’s something you didn’t include you forgot to include in there there’s a certain debt you forgot to include or assets you didn’t include the trustee may ask you to amend those schedules and if you need help with that you can come to the self help desk and we’ll give you all the forms you need to be able to amend your schedules and then submit those to the court you need to attend any continued hearing date so if the trustee has said you need to come back on such and such date you need to make sure to come back on that date now sometimes the trustee will say all right I need this information and if you get this information to me before the continued hearing then you don’t have to come in so sometimes if you get that information you’ll be excused from coming in that second time but in order to confirm that you should call the trustees office and get confirmation via mail that once you provided that information you don’t have to come back and again your case may be dismissed for failing to cooperate with the chapter 7 trustee alright now let’s talk about discharge this is what all of you want in your bankruptcy case the discharge is what eliminates all of your unsecured debts or at least the debts that can be discharged if you don’t receive your discharge within four to six months of your hearing you can contact the court to see what’s what’s happening there may have been some error usually the discharge will occur within about two to three months after your meeting with the chapter 7 trustee if you change your address you need to let the court know there is a change of address form which is on the courts website or you can come to the self-help desk and you can file that change of address otherwise you’re not going to get a copy of your discharge in the mail and you won’t know that you’ve received your discharge so if at any point you change your address you need to file a change of address form when you get your copy of the discharge hold on to that file that this is something you want to hold on to make copies of it this is your proof that those debts have been discharged you