» Bankruptcy

Will my payday loans be wiped out in my bankruptcy?

Malcolm Ruthven — Sun, 29 Jan 2012 17:26:25 +0000

I've taken out several payday loans that I can't pay back and now I owe them a lot of money as well as owe a lot of other money. Will those payday loans go away if I file bankruptcy?

Payday loans are short-term loans with a very high interest rate. If you can't pay them off as planned, they can become a large debt burden. To get those loans, you give the lender a post-dated check which they will deposit if you don't make the payments. In the case of online payday lenders, you agree to let them take their money from your bank account if you don't keep up with the payments.

You may not owe enough on payday loans to make it worthwhile to file bankruptcy, but if you also have debts from credit cards and other things, possibly bankruptcy would be valuable for you. Your entire financial situation would need to be reviwed by an experienced bankruptcy attorney, but for now let's say that you've decided to file bankruptcy and are wondering about your payday loans.

Many pages have been written on this subject which you can find on the internet, but here's the short version.

1. In general, your payday loans would be treated just as any other unsecured debts (like credit cards) and would be discharged (eliminated) in your bankruptcy.

2. The post-dated check you gave them (or the agreement to take the funds from your bank account) should be dealt with before you file bankruptcy by closing that bank account. But first open a new one so you know you have some place to put the money from that old account. If you don't do this, the payday lender will simply cash the check and take the money. You might be able to get that money back by suing the lender as a part of your bankruptcy case (called an adversary proceeding) but that might cost more than the amount of money taken by the lender. It's much better to just avoid the problem.

3. If you took out a payday loan close to filing bankruptcy, the lender could claim that you knew at the time that you weren't able to pay it back. The lender may not bother to claim that, but I'd prefer that you wait three months after the last payday loan to file bankruptcy.

4. You will NOT go to jail for causing the post-dated check to bounce. The lender knew at the time it took your check that you didn't have money in the account to cover it, so it wouldn't become a "bad check" in the criminal sense regardless of what the payday lender may tell you.

Of course the best advice is to never take these very expensive payday loans. It's too late for that to help now, but think about it in the future.

What happens at my Creditors Meeting?

Malcolm Ruthven — Sun, 22 Jan 2012 17:10:38 +0000

About one month after your bankruptcy case is filed, you and your attorney will appear in front of the trustee assigned to your case. This event is called a Creditors' Meeting, Creditors' Hearing, 341 Hearing (for the bankruptcy code section that provides for this meeting), or various similar terms. This meeting will probably be your only required appearance with the court or trustee so it's understandable that you may be concerned about it. Let's take a look at what will happen at your Creditors' Meeting.

• The trustee will ask questions about your financial condition and give creditors the opportunity to do the same. Creditors almost never appear at this meeting, especially for credit card debts. You can sit and watch these meetings all day and seldom see a creditor appear.

• The trustee is responsible to see if there are any assets (things you own) that are available to pay the debts you owe to unsecured creditors (for example, debts owed on credit cards). You can think of the trustee as representing the creditors interests just as your attorney represents your interests.

• You'll be under oath to tell the truth, just as in a court of law, although this is not a court and the trustee is not a judge.

• You must have your photo ID (usually a driver's license) and proof of a Social Security number.

• The trustee will ask you a series of standard questions about your identity and whether you reviewed your bankruptcy papers before they were filed, plus possibly other questions based on your filed schedules. For example, the trustee will usually ask about any real property you own or have owned in the recent past.

• The meeting is not a quiz or an inquisition and you won’t be asked trick questions. Here is some advice about answering the trustee's questions:

   – Listen to the question. Don't start answering before the trustee has finished asking the question.
   – Answer the question directly as asked. Don't add unnecessary material to your answer.
   – Always tell the truth.

You'll probably be surprised by how quickly your meeting is over!

After I file bankruptcy, can I keep the credit cards that I don't owe anything on?

Malcolm Ruthven — Sat, 14 Jan 2012 13:27:51 +0000

I have a few credit cards that I don't owe anything on. Will I be able to keep them after I file bankruptcy?

At first glance, it might seem that the answer would be "Yes" because you don't need to include those "zero balance" credit accounts in your bankruptcy filing. Schedule F is where you list credit card accounts on which you owe money. Since you don't owe money on those accounts, there is no need to list them.

However, and it's a big "however", credit card companies subscribe to services that notify them of all bankruptcy filings. The credit card companies routinely close all accounts of their customers who appear on those lists of bankruptcy filings. So the answer to the question is that it's very unlikely that you'll be able to keep those zero-balance credit cards after filing bankruptcy.

Do my wife and I need to file bankruptcy together?

Malcolm Ruthven — Tue, 10 Jan 2012 14:46:11 +0000

I have lots of debt, my wife has a little. Do we need to file bankruptcy together?

You are allowed to file bankruptcy together, called filing jointly, but you can also file separately. Which method is best depends on your situation. I'll hit some highlights here about this important subject.

• The simplest case is where all debts are in the name of one spouse and the other has no debts. That can happen with married couples who keep their finances, including credit accounts, separate. In this situation it's generally best for only the debtor spouse to file, leaving the other spouse's credit intact.

• If the other spouse has a small amount of debt, it might also be better for the debtor spouse to file separately for the same reason as above.

• A couple filing together might not pass the Means Test (an income barrier to a Chapter 7 bankruptcy) and therefore would need to file a Chapter 13 payment-plan type of bankruptcy. In certain situations, one of those spouses filing separately could pass the Means Test and therefore be eligible for a Chapter 7 bankruptcy that discharges (gets rid of) debts quickly.

• A couple may need a Chapter 13 bankruptcy, for example to pay mortgage arrears over time or to keep things that would be lost to creditors in a Chapter 7 bankruptcy, but have more debt than allowed for a Chapter 13. A spouse filing separately might be under the debt limits for a Chapter 13.

• The other spouse may want to preserve the ability to file bankruptcy later rather than wait the necessary time period.

In summary, it's usually better for a married couple to file bankruptcy jointly, but in certain circumstances it may be better to file separately. You really need to consult with an experienced bankruptcy attorney in your area about your own situation.

Bankruptcy for a collection-proof senior citizen?

Malcolm Ruthven — Tue, 03 Jan 2012 22:06:51 +0000

Senior citizens have contacted me to discuss the possibility of bankruptcy for them. Most of them have no assets that their creditors could get; they could "exempt" from creditors all of their assets. What do I say to them?

First, I explain that although a creditor could sue them and get a court judgment, the creditor wouldn't be able to collect anything from them on that judgment. Which means that the usual reason for filing bankruptcy, to prevent creditors from taking their money and other assets, doesn't exist. They are what is often called "judgment proof" but is more accurately "collection proof". Is that the end of the conversation? Not really. There may be other considerations regarding their situation that aren't obvious at first glance. Here are some examples:

• Estate planning – A man (or woman, of course) has $150,000 equity in a home, his only income is Social Security benefits, and he has not many other assets. That home equity is fully protected from creditors by California's homestead exemption ($175,000 if you're 65 or older). He also owes $140,000 in credit card debt. A Chapter 7 bankruptcy would discharge (get rid of) all those debts, but why bother since those creditors couldn't collect anything from him? Consider this … If he has someone he wants to leave that house to when he dies, without a prior bankruptcy the house would be sold from his probate estate after he dies and his creditors would be paid from that money, leaving next to nothing to pass on. If he did a Chapter 7 bankruptcy before his death, there would be no debts at the time he died so the house would pass on to whomever he specified in his will.

• Late-life planning – Same situation as above but not necessarily with the wish to leave the home to someone. What if this person later needed to reach that equity in the house to pay for his living expenses, either by selling the house or by taking out a reverse mortgage? That $140,000 of debt might be a serious obstacle to doing that. With that debt eliminated by bankruptcy, those options would be available.

• The dangers of being collection-proof – Yes, creditors may not be able to collect anything from you, but there can be complications. When a creditor gets a court judgment and the Sheriff’s department is directed to levy on a bank account, they won’t know whether or not the account has exempt Social Security benefits and the bank might not know that either. The money could be tied up for a long time if the person doesn't know what action to take to get the levy released. You still have to figure out how to get that money back (and probably pay an attorney to do it).

• Stopping the aggravation – Aggressive debt collectors can seriously bother someone for a long time. Bankruptcy stops that and provides peace of mind.

Only the particular person knows if it's worth the effort and expense of a bankruptcy in his or her situation, but the possible consequences of both ways, filing bankruptcy or not, should be fully considered.

A moment of reflection at this holiday time

Malcolm Ruthven — Sat, 24 Dec 2011 16:54:14 +0000

A moment of reflection at this holiday time …

This holiday time is significant in multiple spiritual practices and not in others. But for many, regardless of religious or spiritual persuasion, it is also a time of coming together for family and friends. That makes it a time for remembering what is really important, and also for remembering that the situations we consider to be problems are transient and are able to be handled in one way or another. In some spiritual practices, this season is a time of hope, of celebrating a new beginning. I don't think it's a stretch to say that, often, situations we face as problems turn out later to be the platforms for new beginnings in our lives.

Here's to new beginnings in 2012!

Bankruptcy sounds scary. Just what is involved in a bankruptcy?

Malcolm Ruthven — Thu, 22 Dec 2011 16:22:21 +0000

A recent prospective client told me "Bankruptcy sounds scary" and wanted to know how it all worked. That was a clear statement of the issue that comes up often as people start to come to grips with the fact that their financial life isn't working and that filing bankruptcy may be a good path for them. So I've outlined here how a "normal" Chapter 7 bankruptcy works in California. Chapter 7 is the type of bankruptcy that gets rid of (discharges) your debts quickly and is the type that most people want. All specific numbers below are for California in December 2011. I'll put links at the end of this article to additional material for those who want more information.

In General

A Chapter 7 bankruptcy will eliminate ("discharge") your unsecured debts, meaning those debts (like credit card debts) that are not secured by your property (like your car loan or home mortgage). It will do that quickly, normally in 3-4 months after filing. It's the one most people want.

What would you have to give up in a Chapter 7 bankruptcy?

Often, nothing or not much. You get to keep all of your assets (money and other things you own) that are "exempt" under the exemption laws of your state. In California, if you don't have equity in your home (the amount it's worth less the amount you owe), you get to exempt from creditors $23,250 worth of anything you own, including cash and bank accounts. In addition there are specific exemptions such as $3,525 of the equity in your car and all of your household goods as long as none of them are worth more than $550 each (at a garage sale, on craigslist, ebay, etc). There are other specific exemptions.

Do you qualify for a Chapter 7 bankruptcy?

If you don't make much money, you probably qualify. See the links at the end for more information.

What is the process?

• You give your bankruptcy attorney the information he or she requests. You do the required credit counseling (easy and low cost). Your attorney prepares your filing papers and you review and sign them. Your attorney files your Chapter 7 case with the court. You do the required financial management course (easy and low cost).

• Approximately one month after filing, you and your attorney attend a "Creditors Meeting" with the bankruptcy trustee assigned to your case. It's usually a short meeting with no creditors showing up.

• You wait another 2-3 months and you get your discharge of debts. You now have your Fresh Start!

That sounds simple. Is there more to it than that?

Of course. There's a lot of work involved for both you and your attorney, but the outline above is the usual course of a Chapter 7 bankruptcy case.

Additional information

More detailed information about bankruptcy and the different chapters under which you can file. http://ca-bankruptcylaw.com/bankruptcy-info

How do I work? http://ca-bankruptcylaw.com/how-do-i-work

What is this bankruptcy "Wild Card" I keep hearing about?

Malcolm Ruthven — Sun, 18 Dec 2011 05:41:32 +0000

I keep hearing about a "Wild Card" and how important it is. Exactly what is it and how can it help me in my bankruptcy?

The "Wild Card" you've heard about is the so-called "Wild Card exemption". Exemptions are things you own that you get to keep away from the bankruptcy trustee and your creditors when you file a Chapter 7 bankruptcy (the one that gets rid of your debts quickly). As you can imagine, the subject of exemptions is a very important one.

California's two sets of exemptions

California has two sets of exemptions for bankruptcy, the 704 set and the 703 set, each named for the section of the California Code of Civil Procedure in which the exemptions are specified. You have to choose one set; you can't "mix and match".

The 704 set

The 704 set is sometimes called the Homestead set of exemptions because it contains larger exemptions for the home you live in if you need to protect the equity in your home from your creditors. The 704 set of exemptions does not contain a Wild Card exemption. If you don't own a home or are "underwater" in your home (you owe more than it's worth), you can use the 703 set of exemptions.

The 703 set

The 703 set of exemptions, sometimes called the Wild Card set of exemptions, contains a Wild Card exemption. It's written in an awkward way, spread across two code sub-sections, but simply stated it is an exemption of $23,250 that you can use to exempt anything you own including any combination of things. That includes using it to "pick up" and exempt parts of assets that have been partially exempted from other specific exemptions.

Examples of the Wild Card exemption in a Chapter 7 bankruptcy

For simplicity, assume that you have no equity in a home to protect from creditors.

? You own a car worth $10,000 and still owe $3,000 on it, meaning that you have an equity of $7,000 in the car. The California 703 motor vehicle exemption is $3,525, which means that there would be $10,000 – $3,525 = $3,475 of equity in your car that you could not exempt. That means the bankruptcy trustee could take your car and sell it, paying you the $3,525 that you exempted, and give the rest of the proceeds to your creditors. BUT, instead of that happening, you can exempt that unprotected $3,475 equity with the Wild Card exemption, leaving no unprotected equity remaining in your car. Therefore you get to keep it. You would then have $23,250 – $3,475 = $19,775 remaining of the Wild Card exemption to apply to other assets.

? You have $5,000 in the bank and $8,000 worth of corporate stocks (not part of a retirement plan). You can exempt both of those, $13,000 total, with the Wild Card exemption. That leaves $19,775 (from the prior example) – $13,000 = $6,775 remaining of the Wild Card exemption to apply to other assets.

I think you get the idea. Also, note that compared to most other states, California has a generous Wild Card exemption.

The Wild Card exemption in a Chapter 13 bankruptcy

Since you get to keep your assets in a Chapter 13 bankruptcy, is the Wild Card exemption important in a Chapter 13? Yes, it's important because the minimum amount you have to pay your unsecured creditors (credit card debts, etc., not auto or home loans secured by property) over the life of your Chapter 13 payment plan is the amount those creditors would have received if you had filed a Chapter 7 bankruptcy. As we've discussed, the Wild Card exemption is very important in that Chapter 7 calculation and therefore it is very important in a Chapter 13 bankruptcy.

Will a bankruptcy get rid of the payments to my ex-wife?

Malcolm Ruthven — Sat, 10 Dec 2011 15:54:28 +0000

I got divorced three years ago and have to pay my ex-wife $2,500 a month under our divorce agreement. If I file bankruptcy, will that go away?

That depends on what chapter of the bankruptcy code you use (7 or 13) and what that $2,500 is for. Let's start with the difference between a Chapter 7 bankruptcy (gets rid of your debts quickly) and a Chapter 13 bankruptcy (you pay your debts, all or in part, over time).

Chapter 7 – Since the bankruptcy laws were changed in 2005, the following types of debts are not dischargeable (can't be eliminated) in a Chapter 7 bankruptcy: All debts to a spouse or former spouse or a child that were incurred in connection with a divorce or separation. It doesn't matter whether the amounts owed are a part of a property settlement or for support of the ex-spouse or children, they simply are not dischargeable. That means that none of that $2,500 monthly payment would go away after a Chapter 7 bankruptcy.

Chapter 13 – Amounts owed for a "Domestic Support Obligation", whether called alimony, spousal support, or child support, are not dischargeable in a Chapter 13 bankruptcy. Amounts owed for other purposes, including as a part of a property settlement or distribution, can be discharged in a Chapter 13 bankruptcy.

What about an order or agreement to pay your ex's divorce attorney fees? Most courts find those to be in the nature of support. However, if they are a penalty, they may found not to be in the nature of support. We're now is a gray area for which you need to consult with your attorney.

In addition, if you're in a Chapter 13 bankruptcy, you need to keep up with your support payments owed after your filed bankruptcy or you may not be able to get your discharge of debts.

What that means is that it is very important to be clear about what your payments to your ex are really for. You need to get a copy of the settlement agreement or, if there was no settlement agreement, the court divorce judgment. Read it carefully and also give it to your bankruptcy attorney.

If I inherit money after my bankruptcy, can I keep it?

Malcolm Ruthven — Thu, 08 Dec 2011 04:41:37 +0000

I need to file a Chapter 7 bankruptcy. My father is elderly and quite ill. If he dies after my bankruptcy and I inherit money from that, can I keep it?

In general, when a person files bankruptcy, his or her "bankruptcy estate", the assets that would go to creditors unless "exempted", is determined at the time the bankruptcy is filed. Assets acquired after that are not included in the bankruptcy estate and therefore have nothing to do with the bankruptcy. The important exception to that is if the person gets money or property because of someone dying within 180 days after the bankruptcy filing, for example from an inheritance or life insurance proceeds. If that occurs, those assets are also included in the person's bankruptcy estate and can be taken for the benefit of creditors unless they can be protected by exemptions.

But, you say, how can that inherited money have been exempted in your bankruptcy filing when you didn't know at the time that you would get that money? The answer is that you get to exempt it later, after you get the money or other asset. Of course you must (1) have enough exemptions remaining to cover that money and (2) properly claim the exemptions and file the amended schedules with the court. So when anything like this happens, immediately tell your bankruptcy attorney for proper handling.

Are all bankruptcy attorneys created equal?

Malcolm Ruthven — Fri, 02 Dec 2011 13:43:51 +0000

This is a touchy subject for a bankruptcy attorney to write about, but a recently-received email contained the following sentence that got my attention. "Completely pay up one or more of your credit cards before filing for bankruptcy."

I followed the link and it went to an article published by a bankruptcy law firm that had an impressive website. I followed a link in the article and found the same article on the blog of the bankruptcy law firm. That article includes this paragraph:

"Completely pay up one or more of your credit cards before filing for bankruptcy. You may need to raise some cash to pay off your card by liquidating some assets that have fewer consequences. Do it, because by bringing your card balance down to zero, this card will not be listed as one of your creditors and hence, even after filing for bankruptcy, you can keep the card to build up credit at a lower interest rate than you could possibly get after bankruptcy."

Is that good advice for people contemplating bankruptcy? No. Why not? Let me count the ways:

1. The person would probably lose that paid-off and not-included-in-bankruptcy-filing credit card account anyway. Credit card companies routinely monitor bankruptcy filings and close existing accounts of filers even if there is a zero balance and the debt isn't listed in the filing schedules. That's not 100% certain to happen, but highly likely.

2. The payment to the credit card company would need to be listed in in the bankruptcy filing (Statement of Financial Affairs, item #3) if it was more than $600 within 90 days before filing. That payment would be recoverable by the trustee (as a preferential payment) to be distributed to all creditors, negating any supposed benefit from paying off that card.

3. The person would lose that in-short-supply cash, which might have been able to be "exempted" (protected from creditors and therefore kept following bankruptcy), for no good reason.

The point is that this advice from a bankruptcy law firm, with a very impressive website, is not only not valuable but would likely cause financial harm to anyone who followed it prior to filing bankruptcy. Last but not least, that same article from the bankruptcy law firm said "You should be wary of bankruptcy specialists who charge high fees." Would you trust your bankruptcy preparation and filing to this low-fee law firm?

What's the moral of this story? Be very careful out there when choosing a bankruptcy attorney.

Can I file a Chapter 7 bankruptcy with a reverse mortgage and keep my home?

Malcolm Ruthven — Thu, 01 Dec 2011 19:14:05 +0000

In general, reverse mortgages are treated in bankruptcy the same as any other mortgages, but "in general" isn't enough in this situation. As they say, the devil is in the details.

Reverse mortgages can be valuable to many people, in particular to people on a fixed income who have significant equity in their home and who need additional monthly income Typically, a reverse mortgage provides a line of credit that either allows loans to be taken periodically or pays a set amount per month (from loans taken) for a period of time which may be the remainder of the person's life. As the person receives money from the lender, the person's equity in the home is reduced by the increased amount borrowed.

If a person with a reverse mortgage files Chapter 7 bankruptcy, several issues pop up.

• What is the remaining equity in the home? Whatever it is, it's treated as any other home equity and must be protected by available exemptions (a very important subject in bankruptcy) or the home may be lost to creditors. You must get an accurate current valuation of your home and then obtain from the reverse-mortgage lender the current mortgage balance on the property.

• The unused line of credit is not an asset in the bankruptcy, to be taken by the trustee for credotors, in spite of information to the contrary that seems to get published on the internet.

• The reverse mortgage agreement may contain provisions that the amount owed becomes due and payable when filing bankruptcy, which would mean that the lender could foreclose and take the house. If the agreement doesn't contain such a clause, it nevertheless may provide that the remaining credit line (if any) will be closed upon filing bankruptcy.

• If the payments for the lender continue after filing bankruptcy, the Chapter 7 trustee might tell the lender to stop disbursing money to the debtor because those payments reduce the equity in the property which is property of the bankruptcy estate.

So the answer to the original question is a strong "maybe" and an even stronger "be very careful". Filing a Chapter 7 bankruptcy when you have a reverse mortgage requires very careful examination and evaluation.

Will I have to sell my home to pay creditors in a Chapter 7 bankruptcy?

Malcolm Ruthven — Mon, 21 Nov 2011 18:01:42 +0000

The answer to that question, like many answers to questions about bankruptcy, is "it depends". As an overview, it depends on the equity you have in your home and the "exemptions" you have to protect your home from creditors. For starters, "you" would never have to sell your home, but the bankruptcy trustee might do that.

Equity in your home – Your equity for bankruptcy purposes, or the amount that creditors would get (not considering exemptions), is the current market value of your home less the total amount you owe on it, less another approximately 10% for cost of sale and another approximately 10% for the trustee's fee. If that's a positive number, you need to protect it using the exemptions available.

Exemptions – In California you get a homestead exemption of the following amounts:
• $75,000 – Single person
• $100,000 – Married person, spouse living in the house
• $175,000 – Debtor or spouse (living in the house) is one of the following:
– 65 or older
– Physically or mentally disabled so as to be unable to engage in substantial gainful employment.
– 55 years of age or older with a gross annual income of not more than $15,000 or, if the debtor is married, a gross annual income of both debtor and spouse of not more than $20,000.

If your equity as calculated above, less your exemptions available, is small, say less than $20,000, you'd probably use the alternative set of California exemptions that provides a smaller homestead exemption but gives you a "wildcard" exemption you can use to protect cash and bank accounts, etc.

Also, if you do have unprotected equity in your home, you can probably offer the trustee a cash payment in exchange for keeping your home. The trustee has no use for your home except as a vehicle to get money for your creditors, so paying the trustee money accomplishes the same thing. The amount you'd need to pay the trustee would be negotiable.

As you can see, this whole subject is both complex and very important, so please retain a qualified bankruptcy attorney so you're assured of the best possible outcome.

If I stop making payments on my car after bankruptcy, can they sue me?

Malcolm Ruthven — Fri, 18 Nov 2011 14:32:32 +0000

I received a discharge of debts in a Chapter 7 bankruptcy and now I can't keep making payments on the car. If they repossess the car, can they also sue me?

The answer to that question is a strong "it depends". If you signed what's called a reaffirmation agreement and it was approved by the bankruptcy judge, then the answer is yes, the auto lender can sue you and collect the amount of your loan balance that wasn't paid off from the repo sale. A reaffirmation agreement says you agree to pay that auto loan debt even though your personal liability for it was discharged (eliminated) in your bankruptcy.

Why would you sign such an agreement? Because in some court jurisdictions, if you don't sign a reaffirmation agreement during your bankruptcy, an auto loan lender can repossess your car even if you continue to make the payments. Why would a lender want to do that? Ask Ford Motor Credit because they are known to do that. Many other lenders do not. So the decision to sign a reaffirmation agreement or not depends on your specific court jurisdiction, your specific lender, and the amount of risk of a repossession you're willing to take. Needless to say, you should discuss this subject with your bankruptcy attorney during your bankruptcy.

Since it's now after your bankruptcy, you need to find out from your bankruptcy attorney whether you signed a reaffirmation agreement and whether it was approved by the judge. If you didn't sign such an agreement or if you did and the judge didn't approve it, your auto lender can't collect from you any amount of your loan balance that wasn't paid off from the repo sale.

I filed bankruptcy and can't open a bank account!

Malcolm Ruthven — Tue, 15 Nov 2011 14:00:37 +0000

I filed bankruptcy. I now want to open a new bank account but can't because "Chex Systems" has me listed as having an overdrawn bank account. Why did this happen and what can I do?

It happened because you or your attorney didn't list Chex Systems in your bankruptcy filing. If they had been listed, they would have had to remove you from their "bad list" which banks subscribe to. You can fix this by faxing the following items to Chex Systems at 602-659-2197.

- A letter with your Social Security Number and a demand that they remove any negative information about you from their report.

- If your bankruptcy case is still in progress, include a copy of the "Notice of Chapter 7 Bankruptcy Case" sent to you by the court or your attorney.

- If you've received your discharge of debts in your bankruptcy case, include a copy of the "Discharge of Debtor" document that was sent to you by the court or your attorney.

Chex Systems should send you an acknowledgment within a few or several days and then your bank overdraft information should be gone from their report.

Can I Sell Things Before I File a Chapter 7 Bankruptcy?

Malcolm Ruthven — Fri, 11 Nov 2011 05:28:35 +0000

I have lots of "stuff" that is worth significant money, like two paid-off cars, restaurant equipment (restaurant is closed), a boat, etc. Can I sell those things before filing Chapter 7 bankruptcy and use the money to pay my bankruptcy attorney and for other things I need to pay for?

In general, you can sell anything you want before filing bankruptcy as long as you receive a fair market price for the items. However, if you sell a car to your brother for $100, you didn't receive fair market value for it and it could very well be considered bankruptcy fraud. If you do sell things before filing bankruptcy, be sure to keep good records of the transactions and also of where the money went. The trustee assigned to your case may very well want to know those things.

Now, how can or should you use the money you receive from selling assets before filing bankruptcy? Using it to pay your attorney for your bankruptcy is fine. Using it for household or automobile expenses, including needed maintenance, is fine. Paying off debts that you want to pay despite your bankruptcy (like debts to family members) wouldn't be wise because the trustee could sue the recipient of your payments to recover the money to give to your creditors because you preferred some creditors over others.

That's an overview of an answer. You definitely should consult with a qualified bankruptcy attorney in your area to discuss the specifics of your situation so you don't make mistakes that could cost you serious money during your bankruptcy.

My car is paid off and worth more than the auto exemption. Can I keep it if I file a Chapter 7 bankruptcy?

Malcolm Ruthven — Tue, 01 Nov 2011 04:03:46 +0000

You can keep your car in a Chapter 7 bankruptcy by one of the following ways:

1. If you can exempt (protect from creditors) the rest of the value of your car, you can keep it. California has a "wildcard" exemption of approximately $23,000 if you don't need to exempt equity in your home (because you either don't own a home or don't have any equity in it). You can use that $23,000 to exempt anything you own that isn't exempted some other way, like the additional exemption amount you need for your car.

For more details about California exemptions available to keep you car, see this prior article.

2. However, if you've used all of your available exemptions to protect other things you own, or you don't get the California wildcard exemption because you need a large exemption for the equity in your home, then you need to do some pre-bankruptcy planning.

If you have a legitimate need to get a new car, for example because yours has high mileage, no remaining warranty, and you won't be able to get a loan to replace it after you file bankruptcy, then you could trade in your car for a new one for which you would owe more than the new car is worth on the resale market. You would then have no equity in your car and therefore there would be nothing available for your creditors from selling your car. Therefore you could keep that new car in a Chapter 7 bankruptcy.

I'm reminded of the adage "Don't try this at home" about pre-bankruptcy planning such as described above. Please consult with a qualified bankruptcy attorney in your area before you do something like this.

I am a few months behind in mortgage payments. Can I file Chapter 7, not Chapter 13, and keep my home?

Malcolm Ruthven — Sat, 22 Oct 2011 00:40:57 +0000

Only if you could pay all the mortgage arrears (back payments) at one time, which is very unlikely or else you wouldn't be in your current situation. If that's not possible, the mortgage holder could successfully ask the judge to remove the "stay" (protection) that prevents them from foreclosing on your home.

In a Chapter 13, you get to include the arrears in the monthly payment plan and pay it off over three or five years.

Can Filing Bankruptcy After a Foreclosure Sale Eliminate HELOC, HOA, and Credit Card Debt?

Malcolm Ruthven — Fri, 21 Oct 2011 20:31:12 +0000

After a foreclosure sale, HELOC, HOA, and credit card (regardless of a foreclosure) debts are generally all unsecured (not secured by a lien on your property). Because of this, these debts can be discharged (eliminated) completely and quickly in a Chapter 7 bankruptcy, which would be the best choice if you qualify for it and if it's otherwise a good thing for you. Some of the key elements in considering a Chapter 7 bankruptcy are:

- Your last six months gross income (for the Means Test)

- Your looking-forward monthly net income less expenses

Whether or not you would have to give up things to your creditors that you want to keep. This depends on what you have and California "exemption" laws.

If you don't qualify for a Chapter 7 or if you would have to give up too much to your creditors, a Chapter 13 bankruptcy would also discharge these debts after completing a three or five year monthly payment plan in which those debts might be paid only in part. A Chapter 13 bankruptcy has its own set of requirements and considerations, a few of which are:

- Debt restrictions – The limit on unsecured debt is $360,475 and the limit on secured debt is $1,081,400.

- Income property operating with a monthly loss would probably have to be sold so your creditors could be paid more each month.

These elements and others for a Chapter 7 or 13 are often not straightforward. You should definitely consult with a qualified bankruptcy attorney in your area.

Can I Keep My Car in Bankruptcy?

Malcolm Ruthven — Tue, 28 Jun 2011 16:47:29 +0000

"Can I Keep My Car in Bankruptcy?", or a similar question, is one I hear frequently as a bankruptcy lawyer. The question reflects the fear that all your things will be taken away from you if you file bankruptcy. What's true is that the bankruptcy laws provide for a wide range of "exemptions" that can't be taken from you for the benefit of your creditors. Needless to say, the subject of exemptions is a very important one in bankruptcy. It's also a complex subject.

Let's start by saying that the specific exemptions you'll be allowed are governed by state law, so where you live is important. We'll be discussing California exemptions here, and if you live outside of California you need to discuss this subject with a qualified bankruptcy attorney in your area.

Also, if you haven't lived in California for all of the last two years, determining the set of exemptions you need use is too complex to discuss here. You definitely need to consult with a bankruptcy attorney about it as a part of discussing your entire financial situation.

This discussion assumes that we're talking about a Chapter 7 bankruptcy, the one in which you get rid of your unsecured debts (like credit cards) quickly. You are also in danger of losing things to the bankruptcy trustee in a Chapter 7. In a Chapter 13 (payment plan) bankruptcy, you get to keep your things in exchange for making monthly payments to the trustee. A Chapter 13 bankruptcy is often a good alternative for someone who would need to give up too much in a Chapter 7.

Here are some details of the exemptions you get to claim in bankruptcy in California:

If you don't have equity in a home that you want to keep, you can protect (exempt) up to the following:

$23,250 – Any combination of things (referred to as the "wildcard" exemption)
$3,525 – One vehicle (the resale value of it above the amount owed on it)
$11,075 – Life insurance (the current cash value to you of that policy)
$1,425 – Jewelry (at the resale value – craigslist, ebay, etc. – not the replacement value)
$2,200 – Items used for your occupation
All of your household items and clothing that individually are not worth more than $550
All (usually) of your retirement accounts
Note that the $23,250 wildcard exemption may be used to “pick up” excess amounts from any number of exemption categories, such as a car that's worth more than $3,525 above the amount owed on it.

If you do have equity in a home ("homestead") that you want to keep, you can protect (exempt) different amounts of that equity based on your age and other factors.

$75,000 – Single person, age 64 or younger
$100,000 – Married person with the spouse living in the house, age 64 or younger
$175,000 – Debtor or spouse (living in the house) is one of the following:
– 65 or older
– Physically or mentally disabled so as to be unable to engage in substantial gainful employment
– 55 years of age or older with a gross annual income of not more than $15,000 or, if the debtor is married, a gross annual income of both debtor and spouse of not more than $20,000.
If you need to use this set of homestead exemptions to exempt the equity in a home, you do not get the "wildcard" exemption, but some of the other specific exemptions are larger.

Lastly, and this is important, you must claim, and claim properly, your specific exemptions in the schedules that are filed in your case. Otherwise you could lose things that you could have kept.