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Frequently Asked Questions

California Bankruptcy FAQ

What is Bankruptcy?

Bankruptcy is a legal process that individuals and businesses may use to eliminate and erase their debt or to repay all or a portion of their debt over a specified period of time. Once the debt is erased or once the determined portion is paid off, the bankruptcy court officially grants the debtor a discharge. The debtor can then make a fresh start financially. Bankruptcy courts are part of the federal court system, and the Bankruptcy Code is found in Title 11 of the United States Code.

Who Can File Bankruptcy?

Any person 18 years or older may file bankruptcy. Married couples may file a joint bankruptcy, or if only one spouse wants to file, he or she can file individually. One does not have to be a citizen of the United States to be eligible for bankruptcy. Partnerships, corporations, business trusts, charitable organizations, and social organizations may also file bankruptcy. Debtors who filed a prior Chapter 7 bankruptcy and received a discharge may not file Chapter 7 until 8 years after they filed their first petition.

How is Eligibility for Bankruptcy Determined?

Federal law bases eligibility for bankruptcy on the average median income for a debtor's family size in the debtor's home state. A debtor's average yearly income is determined by looking at the debtor's family income in the 6 months prior to filing (this is referred to as the 6 month look back period). A debtor must provide his attorney with income information for the 6 months prior to filing to determine if he qualifies for bankruptcy and under what chapter he may file.

Will My Creditors Stop Harassing Me?

Creditors are required by law to cease all collection efforts once the debtor has filed bankruptcy. They are prohibited from engaging in collection activity by the Automatic Stay in the Bankruptcy Code. Creditors who violate the automatic stay may face serious consequences. Exceptions to the automatic stay apply in certain situations. Some of these situations arise when debtors have had a prior bankruptcy dismissed within a year of filing the current bankruptcy, when debtors have not complied with requirements concerning debts secured by personal property, when debtors' landlords have received a pre-petition judgment for possession against them, and when debtors have domestic support obligations.

Prior to filing for bankruptcy, a creditor may still contact the debtor. However, once a debtor has retained an attorney the debtor may refer their creditors to attorney's office. Often this will reduce the volume of harassing creditor calls to the debtor.

Can I Keep My House, Car, and Other Personal Property?

In most cases, debtors can keep their homes, cars, and other personal property despite filing bankruptcy. Home lenders cannot foreclose on your real property and car lenders cannot repossess your vehicle merely because you filed bankruptcy. However, if you have fallen behind and are in arrears on your home loan, then the lenders can move the court to lift the automatic stay so that they can take back the property.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has created many new rules regarding treatment of vehicles that have not been paid for. Unpaid vehicles must be reaffirmed or redeemed in order for the debtor to keep the vehicle. Please talk to your bankruptcy lawyer about your options.

A Chapter 13 bankruptcy can also provide a way for debtors who are behind on their payments to keep their property.

Those who file bankruptcy in California and have lived in California for 730 days before filing are subject to the state exemptions found in Sections 703 and 704 of the California Code of Civil Procedure. Please call our office in order to find out how this will affect you.

Will I Be Able to Keep My Credit Cards?

The credit card company decides whether or not a debtor with a zero balance can keep the credit card. However, debtors who have outstanding balances on their credit cards must list those cards in the bankruptcy and will lose the cards unless they can work out an agreement with the credit card company and reaffirm the debt.

What is Reaffirmation?

Sometimes creditors will allow debtors to keep their credit cards if they waive their legal right to receive a discharge on the debt. Creditors will usually offer to lower the balance on the card and to lower the interest rate on it. It rarely benefits debtors to reaffirm credit card debt because they may be able to qualify for a new card after filing bankruptcy.

Also, debtors who want to keep their unpaid vehicles must either redeem the vehicle by paying the fair market value in full as determined by the court soon after filing bankruptcy or they can reaffirm the debt. A debtor who decides to reaffirm their debt on a vehicle must remain current on their monthly vehicle payment. When debtors agree to reaffirm the debt and later default on the loan, they must repay the creditor the difference between the amount they owed on the loan and the amount that the creditor received for reselling the car. Therefore, the debt is not discharged. Debtors who do not want to keep their unpaid vehicles and instead want to receive a discharge on their vehicle debt must surrender the unpaid vehicles.

How Will Filing Bankruptcy Affect My Credit?

Bankruptcies appear on a person's credit report for 10 years. However, many credit card companies will offer debtors new cards right after they receive their bankruptcy discharge. Some credit card companies deem newly discharged debtors a good credit risk because they know that the debtors cannot file another Chapter 7 bankruptcy for at least 8 more years. In most cases, debtors can start rebuilding their credit right after they receive a discharge.

Will I Be Able to Qualify For A Housing Loan Afterwards?

Debtors often qualify for housing loans within one year, however, they usually have to make a larger down payment and pay higher interest. Debtors are eligible for loans with more favorable terms, such as FHA loans, within two years of receiving a bankruptcy discharge.

Will I Be Able to Qualify For a Car Loan Afterwards?

Many finance companies will work with debtors after they have filed for bankruptcy. While ultimately it is the decision of the individual finance company whether to extend credit, many debtors successfully finance vehicles after filing a bankruptcy.

Can My Boss Fire Me If I Declare Bankruptcy?

No. Title 11 of the United States Code Section 525 prohibits a private employer from discriminating against an employee for filing bankruptcy.

Which Debts Are Not Eliminated in Bankruptcy?

The following debts are generally not dischargeable in bankruptcy:

  • Student loans
  • Income taxes less than 3 years old
  • Older income taxes that were filed less than 2 years ago
  • Debts for cash advances or loans for more than $750 incurred on or within 70 days of filing
  • Debts for credit purchases of more than $500 for luxury goods or services incurred on or within 90 days of filing
  • Debts incurred on the basis of fraud, embezzlement, or larceny
  • Debts incurred by inflicting willful or malicious injury on another person or person's property
  • Debts for personal injury or death caused by drunk driving
  • Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution
  • Domestic support obligations