Introduction
    If you’re thinking about filing bankruptcy, chances are you’re pretty stressed out about now. Unfortunately, people who are under a lot of stress don’t always make the best decisions. So we ask that you read over the following information before you file your bankruptcy petition forms. It may save you a great deal of trouble later.
   Bankruptcy is a rather complicated and often frustrating experience. We have, however, made it as painless as possible by providing as much information about the process as practicable.
   The following general information is provided herein not as legal advice, but as general information with the hope that it will help you understand the advantages and pitfalls generally experienced by persons filing for bankruptcy.

What To Expect In the Bankruptcy Process
    For most consumers, two kinds of bankruptcy plans are available, Chapter 7 (which typically wipes out unsecured debts like credit cards, medical bills, etc.) and Chapter 13 (debt rescheduling, which may allow you to repay as much of your unsecured debts as possible over a 3 - 5 year period). The type of plan you choose will usually determine how long the process takes.
   In a Chapter 7 filing, the entire process takes about three to four months, and requires filing fees of $299 which must be paid directly to the Bankruptcy Court Clerk in the form of a U.S. Postal Order.
   Typically, you will make just one appearance before the Bankruptcy Trustee. Most likely you will wait until your name is called, and will then sit at an table where the trustee will quickly review your petition and will ask you to produce a valid photo identification and an original social security card.  If you don't have an original SS card, you can show an original pay stub that has both your name and SS number on it.  If you don't produce proof of SS number, the trustee will NOT hear your case, and may give you a one-time only additional hearing date to do so.
    If you prove your identity, the trustee will then ask you a few questions about your petition and schedules, i.e., whether you listed all of your debts and property, etc. Sometimes, but not often, a retail creditor such as a department store, credit card company, etc., may appear to monitor the proceeding. But this is unusual since most people file for Chapter 7, and notice is normally sent to such creditors advising that no assets will be available for liquidation to pay them.
   To file bankruptcy through our office, you simply need to make an appointment for an interview where the attorney will ask you questions about your property and debts, and will fill in a work sheet as the interview progresses.  You will be asked to sign the worksheets proving that you, not the attorney, provided the information..
    To assure that as much correct information is provided the U.S. Trustee as possible, the attorney will run a statewide public record for real property, autos, watercraft, judgments, liens, real property, watercraft, autos and pending civil actions, if any. This is included in the fee.
    Additionally, and only if you grant permission, the attorney will run a nationwide credit check to assure that all of your known creditors are included in your schedule of debts.  Again, accuracy and completeness are key to a successful bankruptcy, so we are very thorough in researching property and debts.  PLEASE NOTE THAT SO-CALLED "PARALEGALS" PROVIDE NONE OF THIS EXTRA PROTECTION.
    This is the most involved part of the process, and usually takes about an hour to complete, depending on how organized you are and how quickly you can find account numbers, correct names and addresses of creditors, etc.

Qualifying Under the "Means Test"
    Under the new law, debtors are subjected to a "means test" to determine whether they are eligible to file and, if so, whether the case may be filed as a Chapter 7 (typically wipes out most, if not all, unsecured debts such as credit cards, medical bills, etc.) or a Chapter 13, which compels the debtor to pay as much of their unsecured debts as possible over a 3 - 5 year period.
    In California, you may file under Chapter 7 if the total household income before deductions (including all wage earners living in the same home) is under $44,499 for a single wage earner, $59,086 for two wage earners, $64,118 for 3 wage earners, and $72,996 for 4 wage earners. If total household earnings exceeds these amounts, chances are great that Chapter 7 may not be available, and the debtor may be compelled to file under Chapter 13.

What Property You Can Keep
   The most frequently asked question before filing for bankruptcy is "What property can I keep?" The answer is that the typical consumer debtor will keep all of his or her property, provided such property is exempt from creditors, and depending on the type of bankruptcy filed and how much property you own. Under Chapter 7, debtors enjoy a broad spectrum of property exemptions allowing them to keep just about everything they need for a fresh start.  The Trustee may, however, look carefully at property which a debtor may not really need.  For example, a public school teacher may have a tough time convincing the court that an extra pickup truck and camper shell is necessary for the job of teaching school, or that an RV is essential in your efforts to get on your feet, financially.
    If you file a Chapter 13 bankruptcy, there is usually no danger of losing property since you're simply rescheduling your debts, not wiping them out.

The Automatic Stay
   Immediately upon filing your petition, an "automatic stay" (halt) goes into effect. This means that all creditors must halt any legal or collection activity against you. They cannot write or call you (except to send monthly statements), and any pending lawsuits are put on hold until further notice. If a creditor wants to be removed from the Stay Order, it must make a formal motion to the Federal Bankruptcy court.
   Sometimes the motion is granted, sometimes not. If the debtor has no equity in the property, chances are pretty good that the order will be granted, and the property removed from bankruptcy protection, thereby allowing the creditor to proceed with efforts to collect.
   In any event, until the court rules on the motion, the creditor cannot proceed against you. Further, until the bankruptcy process is completed, all of your financial problems are in the hands of the court, which assumes legal control of all your property, and the debts you owe. After filing, you can sell nothing without the trustee’s permission. Generally, however, you will control all of the property you acquire after your bankruptcy petition is filed.
   The Federal Bankruptcy Court will exercise its authority over your assets and debts through a court-appointed "Bankruptcy Trustee Administrator", usually an attorney or accountant hired by the U.S. Trustee's Office. The trustee will examine your assets and debts and look for any property that may be sold to pay your unsecured creditors. Secured creditors will be paid first; that is, those who have a lien against property, e.g., the bank who holds a trust deed on your home, the lender who has legal title to a car, etc. Unsecured creditors (those who are not using property as collateral to assure payment of the debt) are paid only after all secured creditors have been paid. In Chapter 7 bankruptcies, unsecured creditors typically are paid little, if anything.
   - A few weeks after you file your petition, the trustee will review your papers and ask you a few questions at a very short interview known as the "meeting of creditors" (sometimes called the "341(a) Hearing").  This interview is NOT in a courtroom and there is no judge or bailiff; just the trustee (usually an attorney or accountant) and another staff assistant.  You MUST attend this hearing/interview or your petition will be continued to another date or even dismissed.
   If you’re a party to a contract or lease and are still obligated to make payments under the contract, the trustee may cancel the lease to relieve you of the burden unless it is believed that keeping the lease will produce income that will help pay creditors. This usually applies only to petitioners who own a business.

You Can Change Your Mind
   After filing your petition, if you change your mind, you may ask the court to voluntarily dismiss your case, and the court will likely do so, provided it won’t harm any creditors, or cause undue expense to the trustee or the Court.  If so, you may be asked to reimburse the U.S. Trustee's Office for any costs incurred in processing your petition.

When It’s Over
   Once your bankruptcy case has been completed (commonly known as "discharged"), most, if not all, of your debts are wiped out by the court. You will no longer have any legal obligation to pay these debts. You must know, however, that you cannot file for Chapter 7 bankruptcy again for the next 6 years.  Keep in mind, also, that the Trustee is keenly aware of debtors who attempt to file bankruptcy again after the 6-year period of ineligibility.  If it looks like you orchestrated your indebtedness in order to seek relief again after 6 years, the Trustee may seek to have your petition dismissed under Bankruptcy Code 707(b), arguing that you are abusing the bankruptcy system.

When Can You NOT File Bankruptcy?
   If you have filed for and obtained discharge of another Chapter 7 bankruptcy petition within the previous 8 years, you may not file again until 8 full years has passed. If, however, you obtained a Chapter 13 discharge in good faith, and paid at least 70% of your debts under that plan, you may file a Chapter 13 after 3 years from the date of discharge of a prior Chapter 7 or 13.
   You should know, however, that there are certain circumstances where you must wait 180 days to file either a Chapter 7 or Chapter 13 petition. These typically include circumstances where you violated a court order, or requested the dismissal after a creditor asked for relief from an automatic stay.

What Happens to a Friend Who Co-Signed Your Loan?
   If a family member or friend co-signed a debt on your behalf, please understand that if you file bankruptcy, they will remain liable even if you’re not. But you can generally make arrangements after the bankruptcy to continue paying the co-signed debt in order to protect the co-signer. If you decide to file, you should probably advise the co-signer in advance so he/she won't be surprised by it.  This also applies to a present or former spouse to the extent that, under California's Community Property laws, any debts incurred during the marriage are generally (but not always) deemed to be the responsibility of BOTH spouses.  The effect is that even if a spouse incurs a debt for his or her own purpose during the marriage, the creditor will probably have a legal right to pursue payment from the non-bankrupt spouse, even a former spouse.

Can I Keep My Car?
    Whether you can keep your car is, for the most part, up to you.  The 2005 Bankruptcy Abuse Prevention and "Consumer Protection" Act requires that your car payments be current at the time of filing of bankruptcy, and that you sign a Reaffirmation Agreement which recommits you to the original purchase or lease agreement.  In other words, the balance owed to the lender will not be wiped out in bankruptcy.  If, however, you choose to surrender a car, boat or motorcycle, you can do so and you will be relieved of any legal obligation to pay the balance owed.

 What Creditors Look For When Suspicious of Credit Card Fraud
    Some banks have a very aggressive policy of recovering as many purchased goods as possible if they believe that the purchase was made too close to the date of filing bankruptcy, even if they can’t prove credit card fraud.
   The kinds of behavior that these lenders look for are:
    1.    Any indication in the customer file that the customer has met with an attorney;
   2.     Any unusually high volume of purchases quickly followed by a 60-90 period of little no activity;
    3.    The date the customer consults an attorney; they will ask for, and are permitted to receive, a copy of any attorney fee statement.  Note that where fraud is an issue, the timing of your filing may be also, and that means that knowledge of the dates you meet with an attorney is not protected by the attorney-client privilege.

Creditor Abuses
   Yes, some creditors tend to ignore the court’s Stay Order and attempt to collect the debt anyway. Sometimes, they’ll even try to visit you and ask that you enter into a new contract after the date you file your petition. Don’t buy it. Before doing so, you should consult with an attorney so that you will understand your rights.
   If a creditor continues attempts to collect despite the Court’s Stay Order, you can notify the Trustee who will then contact them. Creditors are not usually this blatant, however, because they can incur substantial fines for such wrongful conduct.  

Public Benefit Overpayments
   If you owe a public agency payments due to having received and accepted any overpayment of a public benefit, i.e., AFDC, Food Stamps, tax refund, veteran’s benefits, etc., filing bankruptcy will NOT interrupt your obligation to pay these back payments.

Affect on Married Couples
   If you are married and have accumulated a substantial amount of debt during your marriage, you may want to consider filing a joint petition for bankruptcy since the Trustee may go after the community property interest of the non-filing partner anyway. If, however, you’re newly married, and/or haven’t accumulated much joint debt, you may want to file separately in order to face a burdensome inquiry by the trustee as to which property and debts are separate and which are not.
   California is a community property state and under California law a spouse’s separate property may possibly be used to pay the debts of the defaulting spouse, even though the non-debtor spouse was not married to the debtor at the time the debt was incurred.

Will All of Your Debts Be Discharged?
   Absent proof of extreme personal hardship (and we do mean extreme), certain debts cannot be discharged under federal law. These debts typically include the following:
    1.    Student loans that became due fewer than seven years ago. Note, however, that any periods of deferment will be "tolled"; that is, the 7-year period will be extended for such periods of deferment.  Moreover, any credit card debts incurred to pay student loans are not likely to be discharged.  Under the previous rules, a debtor could wipe out student loans that were not federally insured.  The new rules, however, provide that NO student loans, federally insured or not, are dichargeable without a showing of extreme hardship.
    2.    Back child and/or spousal support, and debts which the Family Law Court has deemed to be in the nature of support, i.e., payments for a child’s health insurance, school tuition, etc.
    3.    Court-ordered restitution which the debtor owes either to the court or to a crime victim;
    4.    Income taxes if payment became due within 3 years before the date of filing for bankruptcy, you filed your tax returns, and no lien has been filed by the tax authority, i.e., IRS or State Franchise Tax Board.
    5.    Condominium or other homeowner dues or fees;
    6.    Court judgments for injuries or death to someone if the debtor was convicted or plead guilty or nolo contendere (no contest) to drunk driving or driving under the influence of alcohol or drugs.

   The Bankruptcy Court may also refuse to discharge certain other debts arising out of the debtor’s "bad conduct", such as:
    1.    Debts incurred as a result of the debtor’s fraudulent conduct, e.g., lying to obtain credit, intentionally writing a bad check;
    2.    Debts arising from an intentional tort, such as battery, assault, intentional infliction of emotional distress, trespass to property or chattel, libel or slander;
    3.     Debts arising from certain crimes, such as theft or embezzlement;
    4.    Debts arising from a marital settlement agreement or divorce judgment, e.g., credit card debts which the court has ordered a spouse to pay, or payments to a spouse to offset distribution of marital property.

    Generally, you cannot discharge such debts as these unless you can show the court that it is essential to do so in order to provide yourself with basic support, i.e., shelter, food, transportation, medical treatment, etc.

Can You Sell Any Property Before You File?
   Whether you should sell some of your property before filing for bankruptcy depends, for the most part, on your motivation for doing so. For example, if you’re thinking about selling a recreational boat for an unreasonably low amount ( $100.00) when the real market value is $1,000, but the "buyer" agrees that you can use it whenever you want, then the Trustee will rightfully see this transaction as an intent to defraud creditors and will probably void the sale, take back and sell the property, and distribute the proceeds to creditors.
   If, however, you sell property that is not exempt, e.g., that same boat, and want to use the proceeds to buy exempt property such as a transportation car to get to work, the Trustee is likely to find that such a transaction is a valid effort to get back on your feet and meet future obligations.  

What Debts Should I Pay Off Before Filing?
   While you don’t want to pay off any debts that can be wiped out in bankruptcy because you’ll likely need that money to get a fresh start, you may want to do so if you need to continue your relationship with that creditor.
   For example, if you want to keep good relations with your family dentist or to assure that a relative who loaned you money to go into business won’t be hurt, or to prevent a co-signor from getting stuck with your debt, you can reaffirm the debt by continuing to make payments after your bankruptcy petition is filed.  Some larger creditors such as banks, may require that you sign a Reaffirmation Agreement before accepting future payments.  Be sure, however, that such an agreement has NOT changed the repayment terms from the original contract.
   Also, be very careful about selling unsecured property to pay off a secured, nonexempt creditor where it will accomplish nothing for you. For example, if you sell exempt property (household furniture) to pay off a secured creditor who had this property as collateral, the property’s non-exempt status will allow the Trustee to still take and sell it to pay other secured creditors. All that you would have accomplished is to lessen the amount of money you will have available for your fresh start.
   Further, if the amount of nonexempt property you sell before filing would have been sufficient to pay most or all of your debts, the Court will very likely dismiss your case.

Be Honest In Your Pre-Bankruptcy Dealings
   Above all, be honest in all dealings prior to filing for bankruptcy. Remember, you are asking the court to order your creditors to abandon most, if not all, of their claims against you. In exchange, however, you are expected to be honest in your dealings with your creditors and the Court. If you are not, your case could be dismissed. Worse, if you intentionally lie to creditors, the trustee or the court, (commit fraud), you could be subjected to criminal as well as civil penalties.

Avoid Playing "Games" With Title To Property
   The U.S. Trustee's Office is able to find every piece of real estate you own in the U.S. and some foreign countries in minutes through a system known as Lexis-Nexis Research.  We use the same system in our office and conduct the same search on every client as part of our "due diligence" requirement.  So, it's important that Clients disclose ALL property, real estate and personal, prior to filing.
   You should know, too, that merely changing title to property may not protect it from surrender.  For example, if Husband owns a vacation cabin in Big Bear as his separate property acquired before marriage and changes title to "Wife, as Her Sole and Separate Property" before filing bankruptcy, the Trustee will quickly spot the transfer and the Court will very likely void the title change as an attempt to hide the asset from creditors and the court.
   Also, if Husband owns a house as his separate property, and incurred virtually all of his debts entirely on his own before marriage, and if the homestead exemption amount is $75,000, but Husband has $150,000 equity in the home, Husband may be tempted to deed half of his property to Wife in order to increase the amount of equity protected by the homestead exemption. But because Husband didn’t create a new exemption by selling such portion at fair market value, but merely changed the form of ownership, the Court will view such change in title as an attempt to defraud creditors, and will almost certainly void the title change.

Should You File Chapter 7 or Chapter 13 Bankruptcy?
   The decision whether to file under Chapters 7 or 13 is yours.  As a general rule, however, if the Bankruptcy Court is not likely to discharge at least 50% - 60% of your debts, then you may want to consider filing Chapter 13, which will allow you to reschedule your debt payments to make it easier to pay them off.  Typically, you can have from 3 - 5 years to pay off most, if not all, of your debts under a Chapter 13 plan.  One of the great advantages of Chapter 13 is that you can often reduce or even eliminate interest.  This is particularly advantageous with credit cards because the interest rates are very burdensome, some over 30%.
    Under the new law, however, the Federal Bankruptcy Code may make the decision for you - and not to your advantage.  For a more thorough explanation, please refer to the Home Page "New" article regarding this law.

Bankruptcy and Your Credit Rating
   Everyone wants to know whether filing bankruptcy will forever ruin their credit. The answer is a resounding NO!
   First, a bankruptcy will appear on your credit report for up to ten (10) years. After that, it must be removed. So if you pay your bills in a timely manner after filing of bankruptcy, you may actually have a relatively decent credit rating; much quicker than most people realize.
   Second, if you’re seriously thinking about bankruptcy, chances are you’re substantially behind in your payments already, and if your creditors report to national credit reporting bureaus such as Experian, TransUnion, or Equifax, your delinquent record has already affected your credit worthiness. Also, if you’ve been sued or are facing a collection agency trying to collect a judgment, again your credit has already been severely harmed.
   Keep in mind, however, that just because you’ve been sued or are your bills are past due, such problems may not be reason enough to file bankruptcy; there are many more factors to consider than just those.  But on the whole, if you’re in over your head and are facing foreclosure, eviction, repossession of a necessary vehicle, or shut off of utilities, or simply don't bring enough money home to pay your monthly bills, then you may want to consider filing bankruptcy.  Again, a free consultation with bankruptcy attorney Dale Hardeman at (949) 283-0756 may prove very helpful to making your decision.

What If A Creditor Challenges My Bankruptcy Petition?
   In the unlikely event that a creditor challenges your bankruptcy petition, then you must be prepared to respond to that challenge. Bankruptcy courts are just like other courts in that they abide by rules of evidence. In that regard, if a creditor presents evidence that you’ve engaged in fraud prior to or during the filing process, and you fail to respond with adequate evidence in your defense, your petition may be dismissed altogether.
   If such a challenge arises, you must obtain legal counsel from a licensed attorney who will understand how the bankruptcy court operates, who can advise you of your legal rights, and who can advocate your side of the issues.
    Please refer to Home Page and click on "What Will Bankruptcy Cost?", where a description of typical creditor challenges and the costs associated with them, may be found.

Other Questions?
   Bankruptcy attorney Dale Hardeman will be happy to answer any other questions you may have. Please call Dale at (949) 753-2854