Chapter 7 bankruptcy is for individuals and business entities who intend on completely liquidating all non-exempt assets. Most unsecured debt is discharged and the trustee takes over the estate of the bankruptcy debtor. Unlike a Chapter 13, the debtor does not intend on repaying any creditors to the extent possible. A debtor may reaffirm certain debts and potentially avoid the loss of a car, home, furniture, or other necessary items. In Riverside County, the average amount you can expect to pay for a "straight 7" consumer filing is $1500.00-$1800.00, not including filing fees, out of pocket costs, and other incidental items (credit reports, due diligence documents, credit counseling). The filing fee due to the Clerk of the Court is $299.00. The average cost for a credit report is around $35.00 through the attorneys office, but may be free if you order it online from www.annualcreditreport.com. There may be special appearance fees for contract attorneys and other costs.
Is an Attorney Necessary? What About the Means Test?
An attorney is not necessary for filing. In fact, attorneys are generally required to disclose to you that there are alternative means to accomplishing a filing and you are entitled to know exactly what it is that the attorney will be doing for you. Most of the time, the attorney will simply prepare your petition and make an appearance at the "meeting of the creditors." Most attorneys, unless a separate retainer has been paid, DO NOT represent you during motions for relief from stay, adversary proceedings, or other pleadings and motion matters. You should know, however, that not having an attorney can result in missed deadlines, incomplete petitions, and other problems that would not ordinarily be identified by an ordinary consumer. Also, the attorney may need to help you overcome the "means test" in order to file at all. If you do not meet the means test, a presumption of abuse of the bankruptcy laws may be asserted against you and will have to be overcome.
Can I Keep Credit Accounts that I Like?
Technically speaking, if you have a zero balance with a creditor, you do not owe them as a "creditor." As a practical matter, however, once you file the petition, the major creditors will find out about your filing and your accounts will likely be closed. You must assume that you will need to learn how to live on a "cash-only" basis for some time after your filing. As to your car or home, you may be able to work out a future payment arrangement during the course of the bankruptcy. You should have solid legal advice on the pitfalls of reaffirming debt on your house or other 'big items.' Reaffirming the debt means that you do not have a discharge as to the debt, even if you can't afford your payments later (i.e., after discharge). Keeping credit is also antithetical to the reason you are filing bankruptcy in the first place. Generally speaking, your ability to give preference to certain creditors over others may also create legal problems with your petition and discharge.
What Information Will I Need?
At a minimum, you will need to have the following: 1.) Driver's license or other state-issued identification; 2.) A Social Security Number; 3.) Tax returns for the last several years; 4.) A list of ALL current creditors (including family, credit cards, secured debt, medical bills, etc.); 5.) 6 months of paystubs or other proof of income; 6.) Proof of credit counseling completion; 7.) A complete list of all assets. DO NOT hide assets or think that you can fail to list creditors. Chapter 7 filing requires an honest disclosure of all assets and liabilities. See, 11 U.S.C. A? 527(a)(2). If you do not have a Social Security card, you may get proof of your number from the Social Security office at 7880 Mission Grove Pkwy S, Riverside CA 92508. A reissuance of your driver's license may take 6-8 weeks.
What is Credit Counseling?
Before you may file your petition, you must have completed a certified debt counseling session. Most of the time, this can be accomplished on the phone, through online services, or in person. Many clients in Riverside County choose to complete the process on the phone or online. The online version is very similar to online traffic school and is not difficult to complete. The counseling company will provide you with a proof of completion that MUST be filed along with your petition. If you fail to file the certificate within 15 days of filing, your bankruptcy case may be dismissed and/or closed. If your case is dismissed or closed, you will have to refile it or file a motion to reopen. In either event, it will cost over $200.00 to refile or reopen. After your meeting of the creditors ( a few weeks from filing ), you will have to complete a debt management course and file a Form 23 with the Court within several weeks after your meeting of the creditors.
What Property is Exempt?
You must be familiar with the statutory exemptions that apply to your assets. Failure to properly implement these exemptions could result in your loss of valuable assets, your home, or other bad effects. Please seek competent legal advice on protecting your exempt property or negotiating with the Trustee about how to handle non-exempt property. All non-exempt property is to be liquidated and used for the payment of creditors. Only a portion of the equity in your home may be exempt and the exemptions on cars and other property may be insufficient to protect all of your assets from eventual liquidation.
What is the Meeting of Creditors?
This is a "341" meeting that takes place at the U.S. Bankruptcy Court in downtown Riverside. The actual meeting will take about 5-10 minutes and you will be asked various questions about the truth and accuracy of your petition. If the Trustee has discovered any problems with your petition, you will likely hear about them at this meeting. Creditors do have the right to show up and also ask questions about your petition. If you have been honest, have not been using credit recently (within the last year or two), and bring all of your necessary documentation (above) with you, the meeting should go smoothly. If you do not have the required information, or problems arise, the meeting may be continued to a future date for further consideration or action. If you have lied to the Trustee, an adversary proceeding may be filed against you or your discharge may be denied completely. Honestly is absolutely required as to all assets and liabilities.
What is the Chapter 7 Timeline from Intake to Discharge?
Most Riverside County attorneys should be able to file your petition within 1-3 weeks after your initial interview. After filing, your meeting of the creditors will take place within 3-4 weeks from filing. If you have done everything that you are supposed to do, the discharge should follow within 90 days or so of the meeting of the creditors. If you have been honest on your petition, showed up with the necessary information at your meeting of the creditors, and have had no questionable transactions within the last couple of years, the whole process should be done within 6 months from the time you see an attorney.
I Want New Credit After My Bankruptcy . . .
You need to be realistic. The United States' credit markets are not readily open for consumer credit at this time in our economic history. While it used to be that credit offers would be made to debtors almost immediately after a discharge, this is no longer the case. It will take a you a long time to rebuild your credit and you must learn to live within your means. You will not be able to refile another bankruptcy for 8 years. If you desperately need to maintain credit (for business purposes, etc.), you must seriously consider whether bankruptcy is in your best interest. A debt workout may be a better solution, but could be just as costly or even more than bankruptcy in attorneys' fees and other costs.
Is Everything Discharged After Bankruptcy?
No. Generally speaking, state and federal taxes, criminal penalties/fines, student loans, wages, familial support, and many other obligations are NOT dischargeable in bankruptcy. Again, knowing this information is critical to the decision about whether to file and what will happen to you after filing. While you may stall certain collection activities during the pendency of the bankruptcy, it does not mean that some debts will not come back to haunt you later. Also, fraud-related debt may not be dischargeable as well. This includes fraudulent transfers of assets to others within the four years preceding your filing. Under certain circumstances, a creditor may even be able to look back as far as 6-7 years. The Uniform Fraudulent Transfers Act is a very powerful tool that can be used against a debtor who tries to hide assets or move them prior to filing his/her bankruptcy petition. The Trustee or a creditor can sue you for illegally hiding or transferring assets. Be honest.
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