Who files for bankruptcy?

Over 1,000,000 American people or businesses filed bankruptcy petitions in 2008, and probably over 1-and-a-half million in 2009.  There have been over 20,000 filings in our San Diego Bankruptcy Court in 2009.  (It’s easy to keep track: the case numbers are simply applied sequentially; my New Year’s Eve filings were assigned numbers above 20K.)  People of all stripes file, including doctors and. . .  lawyers.  Even the big corporations and the financial gurus behind them commonly file for bankruptcy protection.  If the so-called masters of the fiscal universe can embrace Title 11, then you, the hardworking individual can do so also and without shame.  Moreover, we’ve seen the titans of industry receive bailouts: money poured into their coffers.  Filing for bankruptcy is certainly a more humble and dignified proposition than that.  The number of filings are rising now.  You are not alone.

Should I keep paying my bills if I am going to file for bankruptcy?

You need to keep paying necessary bills like health insurance, utilities and rent or else find yourself sick, in the dark and without a roof.  If you're facing foreclosure and plan to surrender the property, it makes no sense to keep paying the mortgage.  If you plan to keep your home and car, please keep current on the payments.  If you’ve fallen behind, we can catch you up with a chapter 13 bankruptcy payment plan.

Should I keep paying my credit card bills if I am going to file for bankruptcy?

This may depend upon how far out you’re going to file for bankruptcy.  When you cease payments, creditors begin to hound and they may sue you, obtain judgment and garnish you.  However, assuming you will file for bankruptcy soon, then the answer is no. While we should all pay debt if we can, it makes no sense to do so once you’ve decided to file for bankruptcy.  That decision implies that you no longer have the means to repay the debt and that continued struggle to pay imposes undue hardship.  If you have always paid on your credit cards (albeit not in full, of course), then it’s not easy to suddenly stop.  It may require a dramatic departure from your old mindset.  But, there are no bonus points granted for maintaining minimum payments up to the very moment of filing.  No corporate entity will call to thank you for extra last-minute sacrifices that deprived your family.  It defeats the purpose to keep paying off interest and penalties on the same debt that you plan to discharge through bankruptcy.  Current debts can be wiped out.  But, please do not incur new debt.  Do not buy on credit what you cannot pay for.  Tear up those cards today. 

I have always made the minimum payments on my credit cards, but now I can't. Should I file for bankruptcy?

The credit card debt can start increasing exponentially.  You're facing a slippery slope.  If you can't make the minimum payments, it's a wake-up call.  You need a ladder to climb out of the hole.  Bankruptcy can provide that ladder.

If I file for bankruptcy, will the canceled debt count as income on my taxes?

No.  Bankruptcy is about a fresh start.  Wiped out debts do not create capital gain. 

Can I lose my tax refund in bankruptcy? 

Yes, if you’re not careful.  That’s why you should definitely hire a bankruptcy attorney to handle your bankruptcy (as do 97% or so of the chapter 7 petitioners): then there’s little chance you’ll lose it.  It’s our job to save your assets in bankruptcy including your tax refund: we won’t overlook its importance.  Now, this FAQ lends itself to the opportunity of combating 4 of the most common spelling mistakes:  “definite(ly)” has 2 i’s and no a’s.  To misplace something is to “lose” it (not “loose;” that’s the problem Kevin Bacon had with his foot),  The contraction of “it is” would be “it’s,” as in, it’s our job to save your assets.  But if you refer to the possessive quality of an item, then you’d omit the apostrophe and spell it, “its,” meaning belonging to  “it" as in, we won't overlook its importance.

I’m all for multi-tasking, but I think my wife’s right: I probably shouldn’t update

my Web site while reviewing my son’s spelling words for the next day’s exam.

If I file for bankruptcy personally, can I keep my business?  

You can certainly keep your business, but it can't be separated from your bankruptcy filing. All of your business assets must be listed in your bankruptcy petition.  If you have considerable business assets, you'll likely need to enter a Chapter 13 bankruptcy plan to pay back at least part of your debt, but under the protection of the Bankruptcy Court and over manageable time.

What is a “chapter 20” bankruptcy?

Fortunately, the Bankruptcy Code is not a never-ending story; it concludes with Chapter 15.  Chapter 20 bankruptcy is the colloquial coinage for following up a Chapter 7 bankruptcy with a Chapter 13 bankruptcy.  It can address those debts that weren’t discharged by the chapter 7 bankruptcy. 

Are there any debts I cannot discharge through bankruptcy?

Yes, certain types of debts are excluded by bankruptcy law.  These include child and spousal support as well as student loans and debts arising from illegal or negligent activities (such as debts from a drunk driving accident).  Taxes are generally not dischargeable through bankruptcy, but older income tax can be discharged under certain circumstances.  We’ve eliminated some scary amounts of income tax debt.  Ask us how.

What is the Bankruptcy Court?

The Bankruptcy Court is a rather cool, old-fashioned building on West F Street in downtown San Diego.  This is the destination of the bankruptcy petition we file for you.  However, our clients rarely enter the bankruptcy court.  That is fortunate.  Except for jury duty, it's best to go through life without entering a courtroom.  But the bankruptcy courtroom is where your attorney will get your chapter 13 bankruptcy case confirmed or litigate disputed matters.  It's my job to ensure that those appearances are not even necessary.  We don't want delays in your bankruptcy case.  And I don't like to have to drive there.  It's a real hassle to always have quarters on hand for the parking meter.  There are 4 Judges presiding over bankruptcy cases in San Diego.  The panel of bankruptcy judges is comprised of 3 women and one man.  Not too shabby considering it was in this lifetime that women were disallowed from attending law schools.

Who is the Bankruptcy (Case) Trustee? And what is the meeting of creditors?

It’s hard to answer one without the other, so you get 2 for 1: who is the trustee and what is the meeting of creditors?  The role of the trustee in a chapter 7 bankruptcy is very different than the role of a trustee in a chapter 13.  We’ll address them separately and start with the chapter 7 trustee.

Chapter 7 case trustee:

There is a panel of 7 chapter 7 bankruptcy trustees who handle a massive workload for the Southern District of CA Bankruptcy Court.  That's where we file your bankruptcy if you're a San Diego or Imperial County resident. 

Initially, they're considered interim trustees assigned to your case.  Absent objections (haven't seen one yet), they'll become the permanent trustee in your case.  While we file the bankruptcy petition with the court, it is the case trustee who will examine it for truth and accuracy.  The trustee's job is to study the content of the bankruptcy petition and confirm that it conforms to supporting documentation that you'll have provided.  They also examine you personally under oath at what's called a “meeting of creditors.”  That is a misnomer.  Except for rare circumstances, the meeting of creditors is limited to an interview with the bankruptcy trustee and we don't encounter creditors there.  It's a formal, but usually brief affair: it may only last a few minutes, during which you're asked to confirm your identity, address, occupation and the accuracy of your bankruptcy petition.  Other questions vary by case and vary by trustee: they are individuals with distinct styles and expectations.  In certain cases, more information and documentation may be required and your meeting may even be continued to a different date.  The meeting of creditors doesn’t take that long, but for the uninitiated, it can be an intimidating thing. 

Throughout the meeting with the bankruptcy trustee, yours truly is sitting by your side representing your best interests.  There is an adversary element between debtors and case trustees.  However, we maintain very respectful and positive relationships with the trustees by performing due diligence in providing the information they need.  We show them professional courtesy and advise our clients to treat the process with equal respect and attention.  This best serves the interests of all clients. 

Now, the chapter 7 case trustee has another job and that is to liquidate (sell) your assets in in order to pay off some of your debt.  They receive a commission for doing so.  Liquidations rarely occur in chapter 7 bankruptcy, because we apply the correct “exemption” laws that protect a certain amount of property.  We anticipate possible liquidation prior to jumping in the water and filing your bankruptcy petition.  We take care that it will not happen.  If liquidation is unavoidable, we will advise you, so you may consider whether it’s a reasonable calculated cost. 

Chapter 13 bankruptcy:

For chapter 13 bankruptcies, there are only 2 trustees in our district.  Like the chapter 7 case trustees, the chapter 13 case trustees will also examine your bankruptcy petition and examine you at a meeting of creditors.  However, rather than liquidating assets, it is their job to assess the viability of your chapter 13 bankruptcy payment plan that your attorney has proposed.  Basically, they test whether our proposed payment plan provides for high enough payments and whether you have the ability to pay them.  Both the bankruptcy trustee and the creditors can object to the figures entered into your plan.  That is why legal representation is essential to get your plan confirmed.  Confirmation (court approval) cements your chapter 13 bankruptcy plan and puts you on the path to receive your chapter 13 bankruptcy discharge.  The chapter 13 bankruptcy trustee is in charge of administering your payments.  He (they are both gentlemen, I'm not being sexist) will collect your payments and distribute them among your creditors.  The chapter 13 bankruptcy trustee receives an approximate 10% commission from all your payments.  Yours truly may also receive payment of attorney fees through the plan, 'cause I have bills to pay. 

Who is the United States Trustee?

We’ve discussed case trustees.  The U.S. Trustee is a different kind of trustee in bankruptcy.  The United States Trustee’s office is a branch of the Department of Justice.  This office is designed to "detect and combat" bankruptcy fraud (e.g. bust-out schemes involving incurrence of debt without intent to pay and concealment of assets).  As a short-cut, I refer to them as the F.B.I. of bankruptcy, except they don't seem to make a lot of movies about ‘em.  Most bankruptcy petitioners will only deal with the case trustees, whom we described above.  However, the U.S. Trustee’s office investigates and audits a certain number of cases.  The US Trustee may send a representative to your meeting of creditors to ask you some questions relating to the nature in which you incurred debt.  

The U.S. Trustee’s office serves an important function.  They appoint the panels of chapter 7 and chapter 13 case trustees.  They ensure that the bankruptcy protection provided to Americans remains a safeguard that is not abused.  And let's keep in mind that bankruptcy is government protection.  Nothing compels the government to provide it: bankruptcy is a privilege.  In seeking out bankruptcy, the least we can do is abide by the laws the government lays out.  Of course, bankruptcy laws are subject to interpretation.  Your lawyer will present the interpretation most favorable to you.

What is a debtor's attorney?

Well first of all, what is a debtor?  It's the rather clinical term for someone with debt.  It's certainly not very personable.  I don't refer to my clients as debtors when I introduce them at the meeting of creditors.  They have names.  So, the debtor's attorney is... the debtor's attorney.  Debtors' attorneys are analogous to plaintiffs' lawyers.  They are what stands between the debtor and the giants of the financial world.  While bankruptcy law favor the granting of a discharge where there is no clear abuse of the process, debtors remain a type of underdog.  As a debtor's attorney, it feels good to represent David, not Goliath.  But we still respect Goliath and make sure we have a clear shot before we let loose your bankruptcy petition to knock the big guy down.

General Bankruptcy Questions

General Bankruptcy Questions

1. background and chapters
   

2. eliminating debts
   

3. your home
   

4. your car and other property
   

5. exemptions
   

6. credit score
   

7. spouse/co-signers
   

8. automatic stay
   

9. filing for a second time
   

10. residency requirements
    

11. miscellaneous
    

Chapter 7 Bankruptcy

Chapter 13 Bankruptcy

What NOT to do

Why do I need an attorney to file?

Rates and Payment Methods