Uriarte & Wood

Se Habla Espanol | Directions | Contact

HomeAttorneys ProfilesbankruptcyFAQ

city

Frequently Asked Questions

 

 

Why file Bankruptcy?

 

An individual generally files for bankruptcy in order to obtain one or more of the following benefits:


(1) have certain debts discharged completely or sort out which debts are dischargeable from those debts which will still be owed;
(2) receive extra time to pay debts;
(3) receive a break from creditor calls while debt relief is arranged;
(4) have the assistance of a trustee to pursue lawsuits or other claims that the debtor owns so that the money obtained can be used to pay creditors; or
(5) Eliminate certain judgment liens if those liens impair an exemption.

A business files for bankruptcy to obtain similar benefits, including the possibility of operating the business while debt relief is arranged. A business other than a sole proprietorship is not entitled to receive a discharge of debts in a chapter 7 case.

There are negative consequences of filing for bankruptcy, and these may outweigh the benefits. For example, a potential debtor may need to resolve one debt (such as a mortgage), but if the home does not have any equity, there may not be any benefit to filing for bankruptcy. It is highly recommended that an individual or business owner who is considering filing for bankruptcy consult with a bankruptcy attorney to learn how a bankruptcy may affect its financial situation.

 

 

Can I Still File for Bankruptcy Under the New Law?

 

The new bankruptcy laws went into effect on October 17, 2005. These laws do not prevent a debtor from filing bankruptcy, though the new bankruptcy laws contain some differences.

The main procedural difference is in the information that a debtor must provide to the bankruptcy court in order to open a bankruptcy case and to obtain a discharge.

Other differences include:
(1) how long an individual must wait to obtain a discharge if the debtor had a prior bankruptcy;
(2) the income level required in order to obtain a discharge in a chapter 7 case;
(3) how long the Automatic Stay lasts; or
(4) the procedure for reaffirming a debt on an automobile or a credit card.

It is highly recommended that an individual or business owner consult with a bankruptcy attorney to learn how the changes in bankruptcy laws may impact the particular financial situation.

 

 

What Does A Debtor Have to Do After Starting a Bankruptcy Case?
 

After starting a bankruptcy case, a debtor must stay closely involved with all activities in a bankruptcy case until a discharge is received AND the bankruptcy case is closed. In some ways, bankruptcy is like a deal that Congress has made with a debtor. If a debtor follows the bankruptcy rules and meets certain financial tests, a debtor obtains debt relief. But if a debtor does not pay attention to the bankruptcy case and does not follow the bankruptcy rules, rights will be lost, benefits delayed, and if the bankruptcy case is closed without a discharge being entered, a debtor may have to pay extra to reopen the bankruptcy case to achieve the debt relief desired. In some situations a bankruptcy case may be dismissed. Some ways that a debtor must remain involved with the bankruptcy case are:

a) Read all Mail Sent by the Court and Other Parties Related to the Bankruptcy Case – Pay close attention to all information sent by the court because a good way for a debtor to protect his/her rights is by staying informed about the bankruptcy case. For example:

1) The court may notify a debtor that certain forms were not filed, and there will be a deadline for filing the forms to avoid dismissal of the case. Generally all information is required to be filed no later than 14 days after a bankruptcy case was opened, and if not filed, the bankruptcy case may be dismissed with an order barring the debtor from filing again for a specific period of time (i.e., 180 days or more).

(2) A creditor may file a lawsuit to have its debt deemed non-dischargeable, and it is imperative that the complaint be answered within thirty (30) days of a summons being issued by the court.

(3) A creditor may file a motion asking the judge to allow the creditor to take action against the debtor. The written notice of motion will indicate the deadline for filing a written response, usually fourteen (14) days before the hearing.


b) Notify the court of any change in mailing address -- If a debtor has a change of mailing address, it is the debtor's responsibility to promptly file a change of address form so that the clerk’s office, trustee, and creditors know where to mail documents to the debtor.

c) Promptly Communicate With Attorney – If a debtor has an attorney, and the attorney contacts the debtor about a court date or other papers that need to be filed, the debtor should call the attorney immediately. Do not wait until the last minute, as there are court deadlines that must be complied with, and it is not reasonable to expect the attorney to meet the deadline without a debtor’s cooperation and information. Just because a debtor has an attorney does not mean that the court will reset hearing dates or give extra time to submit evidence and file documents. Failure to meet court deadlines or be present at court hearings can result in a bankruptcy case being dismissed or in the court granting a motion in favor of a creditor, EVEN IF A DEBTOR HAS AN ATTORNEY.

d) Attend the Mandatory 341(a) Meeting of Creditors – Within thirty (30) to forty-five (45) days after a bankruptcy case is filed, the debtor must show up at the Office of the United States Trustee so that a trustee and creditors can ask questions about the debtor’s financial situation. This meeting is required under section 341(a) of the Bankruptcy Code and is called a 341(a) Meeting of Creditors. The clerk’s office mails a notice that contains the date, time, and location of the 341(a) Meeting.

e) Attend all Court Hearings – Most court hearings are scheduled because a trustee or creditor filed a motion. If the court sets a hearing date to rule on a motion, the debtor should timely respond to the motion AND attend the hearing, regardless of whether or not the debtor has an attorney.

f) Be Honest – Never hide information from the court or trustee and never be untruthful about details of financial condition. The bankruptcy case trustee, U.S. Trustee, or other parties can ask the court to deny a discharge of debts if a debtor provides false information. This may result in the loss of property and dismissal of a bankruptcy case without a discharge and loss of the bankruptcy case filing fee. The debtor may have transferred or given property to a friend or relative before or after the bankruptcy case was filed, and the court or trustee has the right to examine such transactions. Do not hide this information, as the bankruptcy court process is designed to benefit all creditors in a certain priority and plan for fairness. Sometimes property must be returned to the bankruptcy estate so that it can be distributed in accordance with these rules, and hiding information can be considered bankruptcy fraud and may result in criminal prosecution.

 

Does Every Debtor Get a Discharge of Every Debt?

 

A discharge is a court order that forgives a debtor of certain specific debts. The discharge order prohibits a creditor from attempting to collect from a debtor a debt that has been discharged. However, not all debts are dischargeable. Parties can file written requests (adversary complaints) to have the court determine if a debt is dischargeable.

a) Creditor, Trustee, or U.S. Trustee Asks the Court to Determine if There is a Discharge

(1) Some unsecured debts are not dischargeable because Congress has determined they are types of debts that should not be discharged because of public policy reasons. These debts are listed in Section 523 of the Bankruptcy Code and usually require that a debtor prove the debt should not be discharged. Examples are:
(A) spousal and child support obligations;
(B) certain tax debts;
(C) most educational loans;
(D) debts related to injuries or death caused by driving while intoxicated; and
(E) debts arising from fraudulent conduct.

(2) It is also possible for a debtor to be denied a discharge of all unsecured debts if a debtor has not been honest, forthcoming, or cooperative in the bankruptcy case. These scenarios are listed in Section 727 of the Bankruptcy Code and usually involve the U.S. Trustee, a trustee, or a creditor filing a lawsuit in a chapter 7 bankruptcy case to determine that the debtor should be totally denied a discharge.

(3) Debts that are secured by real or personal property are not dischargeable. For example, a creditor may be able to seize property even after a discharge is granted because the debtor has not kept up with payments. Even though the creditor may not collect on the unsecured portion of the debt, the property can still be foreclosed upon (residence, automobile, etc.).

b) Debtor asks the court to determine if a debt can be discharged -- Some creditors have obtained court judgments, and then filed a “lien” which can be used to sell property of the debtor. In some situations, a debtor may file a motion asking the court to remove such a lien.

If I had a Prior Bankruptcy, How Soon Can I get Another Discharge?

 

If this is not a debtor’s first bankruptcy case and the debtor received a discharge of any debts in a prior case within the last eight years, the debtor may not be entitled to a discharge in the current bankruptcy case. It depends upon the chapter number of the prior bankruptcy case, the chapter number of the current bankruptcy case, and the number of years that elapsed between the date that a prior bankruptcy case was filed and the date that the current bankruptcy case was filed. It is important to consult a bankruptcy attorney and to refer to Section 727(a) and Section 1328(f) of the Bankruptcy Code. General rules:

a) Prior bankruptcy = Chapter 7 or 11, and Current bankruptcy = Chapter 7:
8 years after date that the prior bankruptcy case was filed – Bankruptcy Code Section 727(a)(8)

b) Prior bankruptcy = Chapter 7 Current bankruptcy = Chapter 13:
4 years after date that prior bankruptcy case was filed – Bankruptcy Code Section 1328(f)(1)

c) Prior bankruptcy = Chapter 13 Current bankruptcy = Chapter 7:
* No mandatory waiting period if 100% of claims were paid in the prior Chapter 13 bankruptcy – Bankruptcy Code Section 727(a)(9)(A)
* No mandatory waiting period if 70% of claims were paid in the prior Chapter 13 bankruptcy and the Chapter 13 Plan was proposed in good faith and was the debtor’s best effort – Bankruptcy Code Section 727(a)(9)(B)
* 6 years after date that prior bankruptcy case was filed, if less than 70% (and up to 100%) of claims were not paid in the prior Chapter 13 bankruptcy case – Bankruptcy Code Section 727(a)(9)

d) Prior bankruptcy = Chapter 13 Current bankruptcy = Chapter 13:  2 years after date that the prior bankruptcy case was filed – Bankruptcy Code Section 1328(f)(2)

What do the Different Chapter Numbers of the Bankruptcy Code Mean?

 

The common chapters of the Bankruptcy Code are:

CHAPTER 7

 

Chapter 7 refers to a "liquidation" bankruptcy and can be used by an individual to obtain a discharge of many debts without making payments in the future. It may also be used by a business that wishes to liquidate its business assets under the protection of the bankruptcy court.

A trustee is appointed to take control of certain asserts of the debtor and to sell or distribute these assets for the benefit of creditors. A trustee can also recover certain assets that have already been distributed and bring those assets back into the bankruptcy estate.

Creditors generally have the right to file “claims” which identify the amount of money owed and the documents supporting the claim. In some situations may be able to file a written request (motion) to the court for an order allowing the creditor to take back a residence, automobile, or other property.

CHAPTER 11

 

Chapter 11 is often called the "reorganization chapter," and it allows a corporation, partnership, or individual to reorganize property and debts without liquidating all assets. The basic goal is for a debtor to retain control of property and present a “Plan of Reorganization” for repaying creditors. If the creditors accept the Plan of Reorganization, and the court approves the plan, a debtor is able to reorganize personal, financial, or business affairs.

A trustee may be appointed if a motion is filed with the court and the court agrees that a trustee is needed to manage the affairs of the debtor.

Creditors have the right to file “claims” which identify the amount of money owed and the documents supporting the claim. They can also object to a debtor’s plan proposal, and in some situations file a written request (motion) for an order allowing the creditor to take back a residence, automobile, or other property.

CHAPTER 13

 

Chapter 13 refers to reorganization of debts by an individual who has regular income and debts that are below certain statutory limits. A Chapter 13 debtor proposes a “Chapter 13 Plan” which proposes a repayment schedule. The plan essential identifies details for the debtor to retain control of property, keeping up with current debts, and repay at least some of the past due debts.

A trustee is appointed to monitor activity in the case and report to the court on whether or not the debtor is meeting obligations. If a debtor is not meeting obligations, the trustee or a creditor can ask the court to dismiss the bankruptcy case. If a debtor’s income rises, the trustee or a creditor can ask the court to increase the amounts paid to creditors.

Creditors have the right to file “claims” which identify the amount of money owed and the documents supporting the claim. The can also object to a debtor’s plan proposal, and in some situations file a written request (motion) for an order allowing the creditor to take back a residence, automobile, or other property.

 

Is Credit Counseling different from Personal Financial Management?

 

An individual debtor must complete TWO DIFFERENT CLASSES to obtain a discharge. The names for these courses are: 1) Credit Counseling; and 2) Personal Financial Management. The courses are different in two ways: (a) When the class must be taken; and (b) What type of individual debtor must take the class. If a bankruptcy case is filed jointly, each spouse must take both classes.

 

CREDIT COUNSELING

 

Before Filing For Bankruptcy – The Bankruptcy Code ordinarily requires an individual debtor (not a business debtor) to complete an approved course in Credit Counseling within 180 days before filing a bankruptcy case. The course can be completed in person, over the internet, or by telephone, and the credit counseling service will provide a certificate that the course was completed.

 

PERSONAL FINANCIAL MANAGEMENT

 

Very Soon After Filing for Bankruptcy - In order to obtain a discharge of debts, an individual debtor (not a business debtor) must complete an approved course in Personal Financial Management within 45 days after the 341(a) Meeting of Creditors.

 

Are all Debtors and Creditors Required to Have an Attorney?

 

Business Debtor

 

In the Central District of California, a corporation, partnership, or unincorporated association may not file a bankruptcy petition or other court documents, or appear in court, without an attorney. See Local Bankruptcy Rule 2090-1(g)(1).

Individual Debtor or Creditor

 

An individual debtor or creditor is not required to have an attorney in order to file a bankruptcy petition, file other documents, or represent themselves at court hearings. This is true regardless of a chapter 7, chapter 11, or chapter 13 bankruptcy case. However, it is difficult for an individual to be aware of and protect all rights without the assistance of a competent bankruptcy attorney