“Interest is like a snake bite.  Just as the poison is not noticed at first but soon overwhelms the person, so too interest is barely noticeable until it accumulates to an overwhelming sum.” Rashi’s Commentary on Exodus 22:24 (Parsha Mishpatim), 11th Century

Where to Start?

"A Chapter 7 Bankruptcy case begins with the consumer filing a petition with the Bankruptcy Court serving the area where the individual lives or where the business debtor is organized..."  UScourts.gov Bankruptcy Basics Guide.  This is commonly known as "declaring bankruptcy" and officially starts the Bankruptcy process.

Why File Bankruptcy?

The primary purpose for chapter 7 bankruptcy is to legally discharge certain debts to give an honest individual consumer a “fresh start.”  The consumer receives a "fresh start" by having no liability for the discharged debts. UScourts.gov Bankruptcy Guide. This means that you do not owe your creditors the money anymore and your account balances are legally zeroed out.  However, you can still pay your discharged creditors back if you want to.

Another benefit is that in many cases you will receive an automatic stay from any pending collection actions, lawsuits, unlawful detainers, or foreclosures against you.  The collection calls can stop too.

Why Not File Bankruptcy?

(1)  Filing bankruptcy may potentially damage your credit score and will show on your credit report for approximately ten (10) years.  Beware of advertisements promising an improved credit score after bankruptcy.  While it is possible, it is not usually the case. In many cases, the prospective debtor's credit score has already been damaged to begin with and they cannot currently obtain financing in today's market anyway.  If so, then it makes sense to start the ten (10) year clock sooner rather than later.  This does not mean that the consumer will necessarily be prevented from getting a loan in the ten (10) years following bankruptcy, and we offer post-bankruptcy credit repair and advising services standard in all of our Chapter 7 Bankruptcy cases.

(2)  Some types of debts are not discharge-able in bankruptcy so if your debts primarily fall into those categories then it may not benefit you to file bankruptcy and you should consult an attorney to see if an exception applies in your case.  See 11 USC 523 and see table below.

(3)  In addition, a Chapter 7 bankruptcy discharge does not extinguish a lien on property.  UScourts.gov Bankruptcy Guide, so if you are interested in stripping an unsecured lien on a second mortgage from your home then please see our information regarding Chapter 13 Bankruptcy.

(4)  Finally, many consumers will continue to drown in debt and struggle to pay creditors that they can't afford because they fear the stigma of bankruptcy.  The sense of personal satisfaction derived from getting by financially without declaring bankruptcy, or their fears about the process cloud their better judgment while they sink deeper into debt.  There is no reason for the consumer to wait until the wage garnishment order is in their employer's hand, or the sheriff's at their front door before speaking with a bankruptcy lawyer, however many will do just that.  The decision to file bankruptcy is an important financial and legal decision for consumers and their families and shouldn't be avoided out of fear.  Filing bankruptcy is every consumer's economic right from the United States Constitution, if you've over-extended then you do not have to stay trapped in the never ending debt cycle - you can legally get out from under it.

There are other potential pros and cons in deciding whether to file bankruptcy, when to file, how to file, and what chapter to file under.  The above is intended as a brief overview and not legal advice.  Call us now to schedule your free initial consult with a licensed bankruptcy attorney, (619) 794 0460.

What Debts can I Discharge in Chapter 7?

In general, the following table represents the types of debts which may or may not be dischargeable under the United States Bankruptcy Code.

*There are exceptions to the general rule of non-discharge-ability, consult an attorney.  The above table is not intended as legal advice, please do not rely on it.

How do I Know if I Qualify for a Chapter 7 Bankruptcy?

If you can benefit from discharging your eligible debts, the automatic stay, and getting out from under the cycle of debt discussed above then you may qualify for Chapter 7 bankruptcy if your GROSS income (your income before taxes) is below the median level for the area you live in given the number of people in your household.  The rule of thumb is the number of "heads on beds."  The United States Census Bureau publishes and periodically updates the information on the Department of Justice website based on the statistics for your region.

In California (for cases filed after 3/15/2011) the numbers are reflected in the table below.*  Note that these numbers are subject to change, please check the link to the Department of Justice – Census Bureau Median Family Income By Family Size for the most up to date information and do not rely on the table below.

*Add $7,500 for each individual in excess of 4

If your income is below the level for your household size then you automatically qualify for Chapter 7 Bankruptcy.

What if my Income is Above the Median for my Family Size?

If your family’s gross income exceeds the median amount then you may still be eligible for a Chapter 7 discharge, rather than a Chapter 13 reorganization, after completing what’s known as the means test.

The means test is found on Bankruptcy Form 22A, you can complete it for free on your own here.  However, would strongly advised against completing on your own as the form involves complex calculations and legal terminology you may not be familiar with.  If you have questions about completing the test or want to make sure that you are claiming all of your eligible deductions then we can complete one for you for a reduced flat fee, and will roll your payment in the cost of the bankruptcy if you decide to hire us, (619) 794 0460.

If you do not qualify for a Chapter 7 discharge after the means test, then you may still file one under the presumption of abuse which may be appropriate under the circumstances.  The consumer may want to consider filing a Chapter 13 bankruptcy as an alternative.

To that end, if you do not initially qualify for a Chapter 7 and are not interested in a Chapter 13 repayment plan, then you may be able to qualify for a Chapter 7 in the future if your current circumstances change.

Call us regarding your pre-petition planning needs (619) 794 0460.  We routinely assist honest debtors arrange their financial affairs in order to legally qualify for a Chapter 7 Bankruptcy in the future.  These services are similar to how a tax professional helps their client's minimize tax liability.

I'm Qualified and Want to File.  Now What?

Within one (1) month of filing you'll have what's known as your 341(a) hearing where the trustee will swear you in and ask you some questions under oath.  The foregoing is a representation of what to expect at your 341(a) hearing assuming that your attorney performed their due diligence, there are no irregularities or concealed assets in the consumer's bankruptcy, and the consumer submitted all of their documents on time.  Getting you to a 341(a) hearing like this is our goal and we have a less than 1% continuance rate.

Assuming everything goes well and none of your creditors object then you'll receive your discharge within 3 months of the date of filing and 2 months after the above hearing. We are oversimplifying the process here to a degree and you will have to provide us with a great deal of information and documents to ensure everything goes smoothly, but so long as you do this in advance of the deadlines that we will provide you with up front, then your bankruptcy court experience may go just like demonstrated above.

What Happens Once my Bankruptcy is Over?  Will I be able to get a loan ever again?

We can help you obtain a secured credit card to begin rebuilding your credit after bankruptcy and offer post-bankruptcy advisory services as well.  You will not be able to receive another bankruptcy discharge for eight (8) years and the bankruptcy will show on your credit report for ten (10) years as discussed above.  Many of our clients have made the most of their fresh starts over the last several years and we hope that you will too.

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