1. Do the answers to the following questions constitute legal advice?
- a. No. These are general questions and general answers for general situations in the Central District of California only. In no case do the following answers constitute legal advice or create an attorney-client relationship between the reader and the Law Offices of Vernon L. Ellicott. Please contact the Law Offices of Vernon L. Ellicott for answers to specific questions about your case.
2. The bankruptcy laws changed on October 17, 2005. What is different now?
- a. The most significant change is the means test that makes it more difficult for many people to file a Chapter 7 (see below). Debtors with an income over a certain amount, based on family size, may not file a Chapter 7. The amounts change annually and are based on IRS standards for the cost of living. Many more people have had to file Chapter 13’s since the change in the law. The difficulty of filing for bankruptcy just about doubled when the law passed in 2005.
- b. Additionally, debtors must take two debtor education courses. These are usually online, last about and hour, and cost about $50 each.
3. What is the difference between a Chapter 7 and Chapter 13?
- a. In Chapter 7, you can only keep certain property. You discharge (or cease to be legally liable) for all unsecured debt; i.e., debt that is not secured by property such as a house or car. No payments are made to the unsecured creditors, but you have to keep paying for the secured debts such as homes or cars if you keep the property. Chapter 7’s usually last less than 6 months, and are much less expensive than Chapter 13’s.
- b. In a Chapter 13, you usually can keep all your property, but you make “Chapter 13 plan payments” over a five year period. In Chapter 13’s, I create a plan for you to repay the unsecured creditors a portion of what they are owed. Plan payments vary from as little as $100 per month or more and depend on your income and expenses. More court appearances are required in Chapter 13’s than in a Chapter 7, and Chapter 13’s are much more complicated.
- i. People often file a Chapter 13 when they are behind on house payments. In these cases, you must make your house payment plus the plan payment, which includes paying back the amount you are behind, over the five years of the Chapter 13. In other words, you spread out the mortgage arrearage over five years and then are totally caught up.
- ii. People sometimes file a Chapter 13 to catch up on taxes. You have to pay back all past due taxes during the five years of a Chapter 13, and this is sometimes a good way to deal with state or federal taxes.
4. Do I have to go to court?
- a. You have to attend a § 341(a) Meeting of the Creditors in both Chapters. These usually last less than one hour, but are longer in Chapter 13’s. You must also attend a confirmation hearing in a Chapter 13, which can last half a day. Frankly, these are not very efficient hearings.
5. What happens when I go to court?
- a. In the § 341(a) Meeting of the Creditors, some creditors such as Sears or Best Buy may show up and ask about the property you bought from them. There is a trustee who reviews your bankruptcy petition and determines if you have any assets to give the unsecured creditors in Chapter 7’s. I often intervene on my clients’ behalf with creditors at these meetings. Much more information is required in a Chapter 13 § 341(a) Meeting of the Creditors.
- b. In the Confirmation Hearing, the Chapter 13 trustee tells the judge whether or not you have made all the plan payments and I argue with the trustee and the judge about whether or not your plan will be confirmed. Confirmation means that the plan is accepted and no creditors can later object or try to change it. It also means that if you complete the five years under the plan, all unsecured debts are discharged.
6. Do I really need an attorney?
- a. For Chapter 7’s, that depends on your experience in reading forms, interpreting the U.S. Bankruptcy Code, and talking under pressure. For most people, the answer is yes. Attorneys do more than fill out the forms. They also attend the Meeting of the Creditors, negotiate with the creditors there and in their office, advise clients about offers to take or reject, and give legal advice in general. A paralegal can fill out the forms, but cannot represent the client or give legal advice about how to fill out the forms, or what the law says about your particular situation.
- b. I do not see how anyone can do a Chapter 13 without an attorney. Chapter 13’s are difficult to prepare and the process is very complicated.
- c. Good attorneys understand that bankruptcy clients have special emotional needs as well as special legal needs. Let’s face it; no one wants to file bankruptcy. I understand that. That’s why my office theme is “Helping Clients in Times of Personal Legal Crisis.” Every one of my clients is in some sort of crisis. My goal is to help my clients with the support they need in those intensely personal times.
7. How much does it cost?
- a. How much are your minimum monthly payments on your credit cards? In many cases, my services cost less than your minimum monthly payments.
- b. You can always find someone to prepare a bankruptcy petition for less, but it costs more to correct a problem than to avoid it in the first place. The age old saying, “You get what you pay for” is very true in paying for bankruptcy services. In most cases the difference between a competent bankruptcy attorney and a paralegal or attorney who only occasionally files a bankruptcy petition is a few hundred dollars-not much considering the risk and amount of work done by a competent bankruptcy attorney.
- c. You can make payments toward my fees in some cases.
8. Will I lose my house or car?
- a. Not if you keep making all your payments on them. Keep in mind that people often file Chapter 13’s to keep their house when they are behind in house payments. In that case, you must make your house payments and the plan payments to keep your house.
- b. You may not want to keep the house or car. You may get rid of all liability on your house or car, whether purchased or leased, through the bankruptcy.
9. What is a bankruptcy petition?
- a. That is the form, usually about 30 plus pages long, that describes your income, assets and debts in great detail. You have to list ALL assets and ALL debts, whether you intend to keep the asset or continue to be liable for the debt.
10. What if I accidently leave out some information?
- a. We can amend your petition after it is filed to include missed items. However, the FBI investigates bankruptcy fraud. You may be having trouble sleeping at night worrying about paying your bills. It is much harder to sleep at night worrying about the FBI knocking on your door.
11. Can I keep a credit card?
- a. I know most people want to keep a credit card. Unfortunately, the answer is no. Remember, most people file bankruptcy because of credit cards, so why would you still want one?
12. Do both my wife and I have to file together?
- a. No. Sometimes only one spouse files, but that is an exception. You may be able to file without your spouse if you have been married a short time or have all the debt in your name alone. Your spouse will be involved in a Chapter 13 whether their name is on the petition or not. Your spouse’s income will be used to pay the Chapter 13 plan payments, so if there is joint debt, there are few reasons not to file jointly.
13. I operate a small business. Can I keep my business?
- a. Yes, but this is usually a good reason to file a Chapter 13. You can lose your business in a Chapter 7, depending on the value of the business.
14. How long do bankruptcies take?
- a. In a Chapter 7, you attend the § 341(a) Meeting of the Creditors approximately one month after I file your bankruptcy petition. You then receive a Notice of Discharge in the mail three to six months after that. Usually, you hear nothing from me or the court during this time because there is nothing for either of us to do on your case.
- b. In a Chapter 13, you attend the § 341(a) Meeting of the Creditors approximately forty-five days after I file your bankruptcy petition. The Confirmation hearing may be between seven and forty-five days after the § 341(a) Meeting of the Creditors, depending on where your petition is filed. Once your plan is confirmed, you make your payments for five years and then receive the discharge.
15. Will anyone come to my home or office?
- a. Rarely. Occasionally if you run a business, the trustee may send out an appraiser or accountant to look at property or records. This is rare. I have never had anyone come to my clients’ homes to look for property.
16. Am I a candidate to file bankruptcy?
- a. You are a candidate to file bankruptcy if you are considering taking money out of your retirement, pension, IRA’s or 401k plans to pay credit cards. You can protect these funds from creditors and you should not use them to live on. If you can’t pay your bills, leave the retirement funds for retirement and file bankruptcy.
- b. You should also file before you are so deep in debt that you are borrowing from one credit card to pay another. You are a candidate for bankruptcy if you cannot pay your credit card bills without taking money from your home equity line of credit or by taking cash advances from one credit card to pay another. Avoid both of these at all costs.
- c. Here is a rule of thumb I use to determine if people should file: Do not file if you owe less than $10,000 in unsecured debt-it is not worth it. If your credit card debt equals 25% of your gross annual income, then you may be able to pay the credit cards off over several years with hard work and discipline. If your credit card debt equals 33-50% of your gross annual income, then you are so financially tight that you are probably barely making it. You are just making the minimum monthly payments and anything, even new tires, has a very big effect on your finances. If so, you are a candidate for a bankruptcy. Do not take retirement funds out to pay credit cards. Do not borrow against your house to pay credit cards. If your credit card debt equals 60-100% of your gross annual income, then is it not a question of if you will file bankruptcy, but when. If your credit card debt is over 50% of your gross annual income, you are borrowing from credit cards or your home equity line to pay the minimum monthly payments-or not making the payments at all. You are probably facing judgments and lawsuits and receiving nasty telephone calls from creditors. Call me immediately to get relief. In any case, if you are facing a judgment or wage garnishment, then bankruptcy should be considered.
17. Can I discharge taxes or student loans?
- a. Taxes are very complicated issues. Some can be discharged, some cannot. Dischargeable taxes must be from tax returns you filed at least three years ago. There are other rules which also apply. Do not attempt to discharge taxes without consulting an experienced bankruptcy attorney.
- b. Most student loans are not dischargeable. There are exceptions, but they are rare.
18. I am behind on my house payments. Can bankruptcy help me?
- a. Very much! In a Chapter 13, you force the lender to accept your payments and allow you to repay the amount you are behind over a five year period. Of course, you have to be able to make both the house payment and the Chapter 13 plan payments. If you are out of work or had a pay cut, Chapter 13 is not likely to help you with the mortgage. I can calculate your payments fairly quickly in my office.
- b. Timing is very important in a foreclosure. I can stop a foreclosure right up to the day of sale, but why wait so long? Remember, the lender must give you a 90 day notice of foreclosure followed by a 20 day Notice of Sale before the lender can sell your home. Do not ignore the lender’s notices! Read them carefully and bring them to my office with you.
19. A creditor is threatening to take my wages-can they do that?
- a. Yes! They can take 25% of your take-home pay. Filing bankruptcy can stop the wage assessment and probably wipe out the creditor’s claims entirely.
20. How does bankruptcy affect my credit?
- a. It hurts your credit, but if you are reading this, chances are your credit is already bad. Bankruptcy draws a line in time when you start to rebuild your credit. When your bankruptcy is over, you can tell people that your credit was bad, but you’ve been rebuilding it since the bankruptcy. Just don’t get behind on anything again!
- b. Most people have difficulty obtaining credit within one year of the bankruptcy. You can buy a car at a high interest rate with 20% down. After one year, things get easier, as they do after two years. Many mortgage lenders will grant you a loan four years after the bankruptcy.
- c. Bankruptcies stay on your credit reports for up to 10 years.
21. Can you stop creditors from calling me?
- a. Yes! No creditor may contact you in any way after I file your bankruptcy petition. I often intervene with creditors prior to filing the bankruptcy petition so the creditors stop calling anyway. After I am retained but before you file, just tell them you retained a bankruptcy attorney, give them my name and phone number and tell them I have instructed you not to talk to them. Then laugh and hang up!
22. What is the process after I retain you?
- a. I give you forms to fill out. You fill them out and give them back to me. This is where you give me information about your assets and debts. Clients always have questions about the forms. That is normal. It is important to include all assets and all debts. That takes most of my clients about two weeks. It then usually takes me about two weeks to get your petition ready to file. I always have questions for you after your turn in your forms. That is normal. Once I have all the information I need, including your last six months pay stubs, last two years tax returns, and the debtor course certificates, we schedule an appointment for you to come in and sign your petition.
23. How much contact can I expect to have with you?
- a. Very good question! Communication is very important between you and your attorney. Bankruptcy cases, like family law cases, tend to be like the rain in California. Nothing happens for a while, and then there is a flood. If you want to know what is happening because you have not heard from your attorney in a while, contact your attorney to find out. There is little to do after a Chapter 7 petition has been filed other than take the post-filing course and attend the Meeting of the Creditors, so there is little communication from attorney to client because nothing is happening. Chapter 13’s often require more documentation after the Meeting of the Creditors, so expect to receive an email or letter asking for more documentation. After the Plan is confirmed, I usually have little or no contact with clients unless there is a problem with their case.
- b. I have a very competent staff and clients may contact them if there are questions. I am in court a lot, of course, and may not always be able to be reached immediately. I do carry a Palm Treo and can occasionally respond to email even when I am not in the office or on weekends. (No guarantees!) I do not give out my home or cell phone numbers. My staff can almost always reach me unless I am in court. I do not encourage clients to drop by the office without an appointment in hopes of seeing me. I may be in court, or with another client who made an appointment, and you may end up frustrated that you were not able to see me. I try to be as available to my clients as possible. The best ways to contact me are by email or by a phone appointment. Call my staff to set up a specific time when we talk on the phone. You may also set up an office appointment with me if you so desire and I am always happy to see my clients face to face. Occasionally, I will ask you to come into the office to meet with me. You may always come by the office to drop off a document whether I am present or not. My staff is in the office full time and will be happy to assist you. Sometimes clients will refuse to talk to my staff and insist on talking to me. My staff is there to assist you and often can answer a simple question right away.