Bankruptcy

Additional information on Bankruptcy

EXPERIENCED CHAPTER 7 AND 13 BANKRUPTCY ATTORNEY IN BAKERSFIELD, SANTA BARBARA, VENTURA, AND WESTLAKE VILLAGE

BANKRUPTCY IS STILL AN OPTION

Chapter 7

Chapter 7 bankruptcy, sometimes called a straight bankruptcy, is a liquidation proceeding. The debtor turns over all non-exempt property to the bankruptcy trustee, who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts, usually within four months. In the vast majority of cases, the debtor has no assets that he would lose, so Chapter 7 will give that person a relatively quick "fresh start". 


You can file a Chapter 7 case every 8 years. If you are not eligible to file another Chapter 7 but need relief from creditors, you can be eligible to file a Chapter 13 case. 

One of the main purposes of bankruptcy law is to give a person who is hopelessly burdened with debt a fresh start by wiping out his or her debts. 

You can start the process by calling my office for a free consultation. You will need to bring: paystubs or evidence of income for the past 6 months; the last 2 years tax returns; and a recent credit report(s). You can get free reports once a year from www.annualcreditreport.com from each of the credit reporting agencies. If you owe taxes, you need to bring any correspondence you have received from the taxing agencies and, preferably, a transcript of the tax periods in question. If you have liens of any sort, you will need to bring copies of those.


You will need to bring your driver's license and social security cards, as copies need to be provided to the trustee before the meeting of creditors. This meeting is about a month after you file your case. I will appear with you at this hearing, where the trustee will ask you questions regarding the information contained in your bankruptcy case. Any creditor can also appear and ask questions, although my experience is that very few actually do.

Chapter 13

There are many reasons why people choose Chapter 13 bankruptcy instead of Chapter 7. Generally, you are probably a good candidate for Chapter 13 bankruptcy if you are in any of the following situations: 

  1. You have a sincere desire to repay your debts, but you need the protection of the bankruptcy court to do so. You may think filing Chapter 13 bankruptcy is simply the "right thing to do" rather than filing Chapter 7. 
  2. You are behind on your mortgage or car loan and want to make up the missed payments over time and reinstate the original agreement. You cannot do this in Chapter 7 bankruptcy. You can make up missed payments only in Chapter 13 bankruptcy. 
  3. You need help repaying your debts now but need to leave open the option of filing for Chapter 7 bankruptcy in the future. This would be the case if, for some reason, you can't stop incurring new debt. 
  4. You are a family farmer who wants to pay off your debts, but you do not qualify for a Chapter 12 family farming bankruptcy because you have a large debt unrelated to farming. 
  5. You have valuable nonexempt property. When you file for Chapter 7 bankruptcy, you get to keep certain property, called exempt. If you have a lot of nonexempt property (which you'd have to give up if you file a Chapter 7 bankruptcy), Chapter 13 bankruptcy may be the better option. 
  6. You received a Chapter 7 discharge within the previous eight years. You cannot file for Chapter 7 again until the eight years are up.

A Chapter 13 can be filed if:

The debtor received a discharge under Chapter 7, 11, or 12 more than four years ago, or the debtor received a discharge under Chapter 13 more than two years ago. 

  1. You have a co-debtor on a personal debt. If you file for Chapter 7 bankruptcy, your creditor will go after the co-debtor for payment. If you file for Chapter 13 bankruptcy, the creditor will leave your co-debtor alone, as long as you keep up with your bankruptcy plan payments. 
  2. You have a tax debt. If a large part of your debt consists of federal taxes, what happens to your tax debts may determine which type of bankruptcy is best for you.


Chapter 13 cannot be filed unless:

The debtor received a discharge under Chapter 7, 11, or 12 more than four years ago, or the debtor received a discharge under Chapter 13 more than two years ago. When a motor vehicle was purchased within 910 days (2 1/2 years) of the filing and a secured creditor has a lien on it, the creditor retains the lien until payment of the entire debt has been made. 



The following debt is NOT discharged: 



Debts for trust fund taxes; taxes for which returns were never filed or filed late (within two years of the petition date); taxes for which the debtor made a fraudulent return or evaded taxes; domestic support payments; student loans; drunk driving injuries; criminal restitution; civil restitutions or damages awarded for willful or malicious personal actions causing personal injury or death All tax returns for the four years prior to filing Chapter 13 must be filed. 


Debtors must provide to the trustee, at least seven days prior to the 341 meeting (Meeting of Creditors), a copy of a tax return or transcript of a tax return for the period for which the return was most recently due, as well as evidence of income and copies of your driver's license and social security card.

LEARN HOW TO STRIP OFF AN UNSECURED

2ND MORTGAGE ON YOUR RESIDENCE

It is possible to strip off an unsecured second (and third) mortgage on your residential real property if the property is currently valued at less than what you owe on the first mortgage as of the date your case is filed. The second (and third) mortgage(s) are then treated the same as the other unsecured creditors in your case, who can receive as little as 0% of what you owe them. The amount you have to pay your unsecured creditors is different in every case. Once you successfully complete your Chapter 13 plan, the second and third deeds of trust are no longer liens against your property.



 Call to make an appointment today for a free consultation with the attorney.

Taxes and Bankruptcy

You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of these five conditions are true: 

 

  • The taxes are income taxes. Taxes other than income, such as payroll taxes, trust fund recovery penalties, or fraud penalties, can never be eliminated in bankruptcy. 
  • You did not commit fraud or willful evasion. You did not file a fraudulent tax return or otherwise willfully attempt to evade paying taxes, such as by using a false Social Security number on your tax return. 
  • You pass the three-year rule. The tax return was originally due at least three years before you filed for bankruptcy. 
  • You pass the two-year rule. You actually filed the tax return at least two years before filing the bankruptcy; having the IRS file a substitute return for you doesn't count unless you agreed to and signed the substitute return. 
  • You pass the 240-day rule. The income tax debt was assessed by the IRS at least 240 days before you filed your bankruptcy petition or has not yet been assessed. 

If any of the following situations apply to you, you will have to add time to the three-year, two-year, or 240-day rules for your debts to qualify for discharge in bankruptcy: 

  • If you submitted an Offer in Compromise, the 240-day rule is delayed by the period of time from when the offer is made until the IRS rejects it or you withdraw it, plus 30 days. 
  • If you obtained a Taxpayer Assistance Order from an IRS Problems Resolution Officer preventing the IRS from collecting, the bankruptcy court may require that you add the time collection was suspended to the three-year, two-year, and 240-day requirements. 
  • If you filed a previous bankruptcy case, all three time periods stopped running while you were in the prior bankruptcy case. You must add the length of your case plus six months to all three.
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Caution!

A Chapter 7 bankruptcy will wipe out only your personal obligation to pay the debt. Any lien recorded before you file for bankruptcy remains. 


After your bankruptcy, the IRS can seize any property you owned at the time the bankruptcy was filed. But this doesn't mean that after your bankruptcy case is over, the IRS will come and grab your property. Post-bankruptcy, the IRS tends to seize only real estate and retirement accounts or pensions. And even then, IRS seizures generally take place only when a taxpayer has made no efforts to otherwise resolve the problem. Furthermore, IRS collectors must obtain approval from their supervisors before seizing a house or pension. The IRS is very concerned about negative publicity.

DO'S AND DON'TS

DO...

1. Commit yourself to a budget

Yes, that is always the easiest thing to tell someone facing financial chaos and is sometimes impossible to achieve. But if you face a very tight financial situation, you need to try to maintain daily, weekly, and monthly budgets. It may be impossible to stick to an artificial, inflexible budget, but over the long run, you will have more and more success living within the budget.

2. Find out the current value of your property

Many people who are unable to make the payment on their first and second (and sometimes third) mortgages might have options to extinguish their mortgages in bankruptcy. Be open to the fact that most property values have decreased in the past few years and look at all viable options. You can start by looking at comparable sales of real estate at www.zillow.com. You may need to obtain an appraisal, and we can help you locate a low-cost professional appraisal. You can find out the value of your vehicles at www.kbb.com. 



For example, some lenders, but not many, will work with borrowers to lower their monthly payment even when the lender knows there is no equity in the property to secure the loan. We can explain to you how you can remove the junior, unsecured mortgages on your property and treat them like unsecured credit card debt through Chapter 13 bankruptcy.

3. Accept your current financial situation

Many of our clients come to us after all other options have failed. They have a judgment against them, and wages are being garnished or a bank account is being levied. Avoid the ostrich approach to your financially precarious situation. Don't stick your head in the sand and hope someone will come to your rescue.

4. Call for a FREE consultation

Susan J. Salehi has been helping people deal with their financial problems through Chapter 7 and 13 bankruptcies since 1992. Free consultations are offered in the Ventura, Bakersfield, and Woodland Hills offices. You will consult directly with the attorney, who will evaluate your particular situation and let you know if either a Chapter 7 or 13 bankruptcy can help you resolve your debts. Please bring the following information: 



1. Paystubs or proof of income for the previous six months;

2. A credit report from www.annualcreditreport.com;

3. The last two years tax returns; and foreclosure documents, if applicable.

DON'T...

1. Transfer property out of your name

Trying to hide assets is risky and illegal. If you have an asset that cannot be protected in a bankruptcy filing, you need to discuss your situation with a competent professional. There are legal ways to protect assets, and transferring an asset out of your name and immediately filing bankruptcy is not a smart way to begin the new year.

2. Take large cash advances from your credit cards

People always say to me, "I have $5,000 of available credit on a credit card. Should I use it before filing bankruptcy?" This is fraud because you obviously have no intention of paying that money back. It is hoped creditors will catch this type of conduct and make you pay back every penny of recent spending.

3. Buy a car that overextends your budget

Car purchases are one of the most common drains on your monthly income. Be very careful about taking on a new car payment, especially if your household already has one car payment. That second payment could be the tipping point to financial insolvency.

4. Try to comfort yourself with 'retail therapy'

Many people believe that their self-worth is based on the newness of their clothes or the gifts they buy their friends. One act of unbridled exuberance can be the difference between a happy new year and one filled with more financial uncertainty.

5. Take out your financial frustrations on those closest to you

When faced with financial challenges, many people will take out their anger and frustration on the people closest to them. This is easy to do but completely unacceptable. All you will do is alienate those that care the most about you.

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