- What is Bankruptcy?
- Bankruptcy Services We Offer
- Will I Be Filing Under Chapter 7 or Chapter 13?
- 2nd Mortgage Lien Strip
- What To Expect
- Bankruptcy FAQ
- Ch.7 Bankruptcy vs. Ch. 13 Bankruptcy Video
- Bankruptcy Law in California
- Why Wadhwani & Shanfeld for Bankruptcy?
What is Bankruptcy?
Bankruptcy is a federally-created legal process that allows individuals to free themselves of insurmountable debt and obtain a fresh start. Most individuals who file bankruptcy do so under Chapter 7 or Chapter 13, depending on their financial situation
Bankruptcy Services We Offer
Chapter 7 Bankruptcy
Chapter 7 bankruptcy allows you to eliminate your debts and obtain a fresh start. Debts that are typically discharged under Chapter 7 bankruptcy include credit card bills, medical bills, personal loans, older taxes and balances owed on repossessed vehicles or foreclosed homes. Lawsuits and judgments can also be discharged. Approximately 98% of Chapter 7 cases are “no asset” cases, meaning all assets are fully protected. Chapter 7 Bankruptcy
Chapter 13 Bankruptcy
Chapter 13 is a reorganization plan that results in repaying a portion of your debt over a period of time, typically ranging from 36 to 60 months. The percentage of debt that is repaid is typically determined by your disposable income, which is your income after all applicable expenses are factored in. Chapter 13 is often used to catch up on mortgage payments, wipe out 2nd mortgages, lower car payments, reorganize on taxes, etc. At the same time, it is possible to completely wipe out credit cards and other unsecured debt under a Chapter 13 plan. Chapter 13 Bankruptcy
Will I Be Filing Under Chapter 7 or Chapter 13?
In 2005, the bankruptcy laws were overhauled in a way that made it more difficult for some individuals to file for Chapter 7 bankruptcy. The current laws require an eligibility test known as the Means Test.
If your household income is below the median income for your state, you automatically pass the Means Test, and are free to file under Chapter 7 or Chapter 13.
If your household income is above the median income for your state, you are subject to the Means Test. The Means Test allows you to deduct certain recognized expenses from your income to determine whether you have disposable income with which you can repay your creditors. If, after these expenses are deducted, you have no disposable income, then you are free to file a Chapter 7 bankruptcy. If, however, you are shown to have disposable income, then you may be limited to a Chapter 13 bankruptcy, whereby this disposable income will go to your unsecured creditors on a monthly basis. Upon successful completion of your Chapter 13 case, those unsecured debts will be considered extinguished no matter how small the payments made to them were.
With the complexity of the Means Test analysis, it is essential to utilize the services of an experienced bankruptcy attorney, such as Greg, Raj or one of the other attorneys at our office, to ensure that your are getting the full benefit of the allowed deductions. We often meet with people who are seeking 2nd opinions because they were advised by an inexperienced bankruptcy attorney that they did not qualify for Chapter 7. Seemingly more often than not, we are able to figure out a way to qualify these individuals under Chapter 7.
2nd Mortgage Lien Strip
During the housing boom from the late-90’s through 2006, many people cashed out the equity in their homes by taking out 2nd mortgages or home equity lines of credit. In addition, many people took advantage of the lax (or crazy) lending policies and purchased homes they couldn’t really afford. Well, the fun didn’t last forever. After years of declining real estate prices, most homeowners owe more against their home than their home is worth.
Here’s where it gets interesting. If you have both a 1st and 2nd mortgage (or home equity line of credit), and your house is worth less than what you owe on your 1st mortgage, then you may be able to completely wipe out your 2nd mortgage through Chapter 13 bankruptcy.
This process is called a “lien strip”.
To understand how this works, it is important to understand the relationship between your home value and your mortgages, and the difference between a secured and unsecured obligation. In bankruptcy, a mortgage is considered secured only to the extent the home has value to secure it. So, when a home is worth less than what is owed on the 1st mortgage, the 2nd mortgage is considered unsecured for bankruptcy purposes. This allows us to treat the 2nd mortgage holder just like we treat a credit card or medical bill. In other words, at the end of your case, the 2nd mortgage will be discharged like the rest of your unsecured debts.
This mortgage lien stripping process allows people to keep their homes when they would otherwise not be able to afford them.
What to expect (from your 1st phone call to your discharge and fresh start)
You might be nervous about how much of your time and energy this process will consume, so let’s take a look at the whole process, starting with the moment you call our office:
Upon calling our office or filling out our online request, one of our friendly staff members will ask you a few basic questions that give us a snapshot of your financial situation. This process takes on average no more than 5 minutes. You will then be immediately transferred to an attorney, if one is available (most of the time) for your free consultation.
During your free consultation with one of our attorneys, we will talk to you about your financial situation and outline your options. Some of the factors that will determine your options are your income, your household size and whether you own a home, and if you do, whether you want to keep it. You are also free to ask as many questions as you like. The attorney will then advise you as to whether bankruptcy makes sense for you, and if so, what chapter.
If you decide to retain our office to move forward with bankruptcy, you can immediately begin referring harassing creditor phone calls to our office. Those harassing calls will then cease because they become illegal once you have retained an attorney and instructed them to contact us.
Next, we will collect a few basic documents from you, namely your paystubs or other proof of income and your tax returns from the prior two years. We will use these in our Means Test analysis and in preparing other aspects of your bankruptcy petition. As you can see, we do not need much from you, but if you ever need anything from us (questions, help with creditors, etc…), we are here to help!
Once your case is filed, all collection activity (lawsuits, wage garnishments, bank levies, repossessions, foreclosures, etc.) are halted by what’s called the “Automatic Stay.” In general, the automatic stay protects you from your creditors until your case is discharged. Of course, a secured creditor who is not being paid has the right to file a motion for relief from the Automatic Stay.
Approximately 4-6 weeks after filing, you will be required to attend a hearing often called a “341(a) meeting.” Typically that is the only hearing you will have to attend. It is not in front of a judge, but rather in front on an individual called a Trustee. The Trustee will ask you some basic questions and will want to confirm that the paperwork is accurate. Of course, we will represent you at your hearing and make sure that everything goes smoothly. You will be well-prepared and in good hands. It becomes glaringly obvious at these hearing who is well represented and who is poorly represented. These hearings can get very uncomfortable for people who did not file a professional, fully-compliant set of documents. We know what we are doing, and your hearing should last less than 5 minutes.
If you have filed a Chapter 7 case, you will typically receive your discharge within three months after your hearing.
If you have filed a Chapter 13 case, you will have a Confirmation Hearing sometime after your 341(a) meeting. We attend any Confirmation Hearings pertaining to your case, but there is a good chance that you will not have to be at any of those hearings.
Your Chapter 13 Plan is an outline of your 3-5 year repayment plan. It describes which creditors will get paid, and how much they will get paid. These determinations are primarily based on your total disposable income and the type of creditor (secured, priority, unsecured). The type of creditor is important because different classes of creditors may be treated differently.
Once the Court determines that your plan is feasible and in full compliance with Chapter 13, your plan will be confirmed. The effect of confirmation of your plan is that all of your creditors become bound by the terms of the plan, even if they will not be paid anything.
Once your plan is confirmed, all you have to do is make your monthly plan payments until your plan is complete. When your plan is complete, your remaining unpaid debt with be discharged, and you will get your fresh start!
When we are informed of either your Chapter 7 or Chapter 13 discharge, our office will notify you and send you your Notice of Discharge, which is a record that you have successfully completed your case, along with a helpful packet on rebuilding your credit. The Notice of Discharge is useful as you begin your fresh start because, surprisingly, it will give your prospective lenders confidence in their desire to lend to you. After all, by law you cannot declare bankruptcy again for a number of years, and this fact will put them at ease.
Q: Does everyone qualify for bankruptcy?
A: Almost everyone qualifies for bankruptcy, it is just a question of which chapter. See “Bankruptcy Services We Offer” section above for more information on the different chapters of bankruptcy and requirements of each. There are a few exceptions to this, though.
One notable exception is that if you have filed another bankruptcy case too recently, you may not be able to file again for some time. Here is the breakdown regarding successive filings:
You must wait 8 years after the filing of a discharged Chapter 7 case to file another Chapter 7 case.
You must wait 4 years after the filing a discharged Chapter 7 case to file a Chapter 13 case in which a discharge is sought.
You must wait 2 years after the filing a discharged Chapter 13 case to file another Chapter 13 case in which a discharge is sought.
You must wait 6 years after the filing of a discharged Chapter 13 case to file a Chapter 7 case.
Keep in mind that these timelines are tied to the date of filing, not discharge, so the wait is not as long as it might seem. Also, if the prior case was not successfully discharged, there is typically no required waiting period to file another case.
Q: What is the difference between Chapter 7 bankruptcy and Chapter 13 bankruptcy?
A: Chapter 7 bankruptcy is typically a four-month process whereby you wipe out your unsecured debts, while Chapter 13 bankruptcy is a three to five year reorganization.
Q: Will I lose my assets?
A: Approximately 98% of Chapter 7 cases are “no asset” cases. In other words, all of the debtors’ assets are protected. The policy behind bankruptcy is to provide a fresh start, and one cannot truly enjoy a fresh start unless he is able to protect a reasonable amount of assets. California has particularly generous exemption laws allowing debtors to protect their assets..
In a Chapter 13 case, assets are not subject to liquidation. So, a trustee cannot sell any assets. However, the amount of assets one has may impact the amount of the required monthly plan payment.
Q: How will bankruptcy affect my credit?
A: A bankruptcy will stay on your credit report for up to 10 years. However, you will be able to rebuild your credit much sooner than that. It is not uncommon to receive credit card offers within months after your bankruptcy discharge. Ironically, a bankruptcy is often the best thing you can do to improve your long term credit prospects.
Q: Is it wrong to file bankruptcy?
A: The morality of bankruptcy is a common concern amongst people considering filing bankruptcy. While everyone is free to make up their own mind as to morality, it is important to realize that bankruptcy is a legally recognized path.
In a democracy, the laws tend to reflect the collective opinion as to what a majority of people think is right or wrong. After all, without a majority of support, laws would not get passed.
Bankruptcy laws that allow people to escape the crushing weight of their debt exist throughout the world, and have existed in this country since the early 1800s. Every time the law comes up for a vote, it is modified, but always re-approved. This represents a collective vote of confidence from society that it is better for the country as a whole to allow people to get a fresh start. Indeed, bankruptcy is a critical component of capitalism: Without bankruptcy laws, entrepreneurs would be unwilling to take risks, and our society would be much worse off.
Q: If I file, does my spouse have to file too?
A: No. There is nothing that prohibits a married person from filing an individual bankruptcy case. If one spouse incurred all the debt in his/her name only, there is no need for the other spouse to file. That way, the non-filing spouse’s credit is preserved.
On the other hand, if both spouses’ names are on the debt, one spouse filing bankruptcy will not protect the other from the creditor’s recourse. This means that the other spouse can still be sued on the whole of the debt, effectively negating the benefit that the first spouse should be receiving from the bankruptcy filing.
Q: How much does bankruptcy cost?
A: Fees can vary depending on the type of bankruptcy and complexity of the case. However, our fees will always be very reasonable and highly competitive. During our consultation, we will let you know the exact amount of our fees after learning about the particulars of your case. Unlike the many attorneys who bill hourly, we charge a flat fee so that there are no unpleasant surprises later on. We do not separately bill for things like phone calls, email communications or copy charges. Call our office for a free consultation, and we’ll be happy to discuss our fees in more detail.
In addition, the Bankruptcy Court charges a filing fee. The Chapter 7 filing fee is $299, and the Chapter 13 filing fee is $274.
We understand that if you are contemplating bankruptcy, you are highly concerned with the amount of the fees. However, we caution against selecting your attorney by simply “shopping” for the cheapest fee. The idiom, “You get what you pay for” is particularly applicable to the field of bankruptcy, which has become flooded with inexperienced attorneys and non-attorney bankruptcy petition preparers trying to capitalize on these tough economic times. Saving money on the front end often costs you more on the back end. We believe that fees should be an important consideration, but the competence, experience and accessibility of your bankruptcy attorney are equally important considerations. Click here (link to How to select the right bankruptcy attorney for you) to learn more about the risk and dangers of using inexperienced attorneys and non-attorney bankruptcy petition preparers.
Q: Do you service my location?
A: We service all of California, with offices in Sherman Oaks, Long Beach, Ontario, Lancaster and Los Angeles.
If it is not convenient to visit one of our offices, we can handle your entire case by phone and email! Please give our office a call for a free consultation.
Ch.7 Bankruptcy vs. Ch. 13 Bankruptcy Video
Bankruptcy Law in California
The U.S. Bankruptcy Code is federal law administered by federal courts. However, Congress gave the states control over certain aspects of bankruptcy law, namely the exemptions that debtors can take.
Bankruptcy exemptions determine what assets you can protect from your creditors and the extent to which you can protect them. For example, federal and most state laws allow you to protect up to a certain amount of equity in a home or car (equity is the difference between what the asset is worth and what you owe on it). Many exemption schemes also allow you to protect miscellaneous items with “wild card” exemptions.
In California, there are two sets of exemptions, designated §703 and §704 based on their sections in the California Code of Civil Procedure.
Section 703 has protections for a variety of assets, but the most important is the “wild card” exemption ($23,250), which can be used to protect any asset, including cash, bank deposits, stock, etc. Other exemptions provide protection for motor vehicles, jewelry, household furnishings, clothing and tools of your trade. Section 703 also provides full protection for retirement accounts such as IRAs, 401(k) plans and pension plans.
Section 704 also has protections for a variety of assets, but the most important is the generous “homestead” exemption which protects equity in your home ($75,000 – $175,000 depending on your situation). Section 704 has similar exemptions to Section 703, although Section 704 does not contain a “wild card” exemption. So, there is a trade-off between a homestead exemption and a wild card exemption.
Unfortunately, you cannot commingle between the two sets of exemptions, but rather you must select only Section 703 or Section 704. Your selection should be based on which provides the better protection for your assets. The single most important factor in determining which set of exemptions will best protect you is whether you own a home in which you have significantly more than $23,250 in equity. If so, then likely Section 704 will better protect you. If not, then Section 703 will likely better protect you. Exemptions can be complicated, and your attorney will be able to assess whether any of your assets are at risk. Again, the great majority of Chapter 7 cases are “no asset” cases.
Why Wadhwani & Shanfeld for Bankruptcy?
At Wadhwani & Shanfeld, we offer the best combination of personal service, professional experience and financial value.
Raj Wadhwani and Greg Shanfeld have over 30 years of bankruptcy experience, and have filed over 10,000 bankruptcy cases. They have seen almost every situation out there, and you can be sure they will have the plan for your case that will give it the best chance of smooth success.
Client experience is a top priority, and we are dedicated to being the most responsive and accessible attorneys out there. Our clients tend to love their experience with Wadhwani & Shanfeld, and much of our business comes from former clients recommending our office to their family and friends. Our A+ rating with the Better Business Bureau is an indication of the quality of service we provide to our clients.
This service and experience is made available to you at very affordable rates. Please call our office for a free consultation to find out more about your financial options.