Asaph Abrams Attorney at law

San Diego Bankruptcy

San Diego bankruptcy attorney

To discuss your particular situation, please call (858) 344-0500 to schedule your free consultation.

 

What is Chapter 7 Bankruptcy?

The 7th Chapter of Title 11 of the U.S. Code relates the procedure for many debtors’ preferred form of bankruptcy.  A chapter 7 bankruptcy petition can completely cancel (discharge) a substantial part of one’s unsecured debt, including credit card, healthcare, and lawsuit obligations.  Chapter 7 bankruptcy can eliminate deficiencies on secured loans.  It can abolish capital gains tax.   And in most chapter 7 bankruptcy cases, you will be able to keep all of your assets.



Who can petition (file) for chapter 7 bankruptcy?

Persons or business entities can file for chapter 7 bankruptcy.  If you are a  sole proprietor and are not incorporated, you’d likely just file for bankruptcy in your name to tackle both your consumer and business liabilities.   If you are incorporated, you may want to file for bankruptcy personally and file an additional bankruptcy on behalf of the corporation.  However, a corporate bankruptcy filing is not always necessary.


If unmarried, you must file for bankruptcy alone.  If you are married, you can file a bankruptcy petition with or without your spouse.  Whether to file  for bankruptcy singly or jointly is a matter to discuss with your attorney.


If you previously received a chapter 7 bankruptcy discharge, you cannot file another chapter 7 bankruptcy until 8 years have passed since the date the prior bankruptcy petition was filed. 


If you previously received a chapter 13 bankruptcy discharge, you cannot file a chapter 7 bankruptcy until 6 years have passed since the date the chapter 13 was filed.  An exception applies if the prior chapter 13 bankruptcy provided for payment of 100% of your unsecured debt or 70% of the unsecured debt if payment was coupled with “good faith” and “best effort” per 11 U.S.C. §727(a)(9)(B)(ii).



Who can qualify to file a chapter 7 bankruptcy?

Generally, chapter 7 bankruptcy is available to those who earn at or below the gross state median income based on size of household. A chapter 7 bankruptcy is also often available to those whose debts are primarily related to their business.


In California, the median income is $47,683 for a household of one, $61,539 for a household of two, $66,050 for three, $74,806 for four*.  If most of your debt is from your business, your earnings won’t disqualify you from filing a chapter 7 bankruptcy.  The above median income figures are valid as of November 1, 2011.  Beware!  The figures change often.


*For each individual in excess of four, add $7,500.



Can I file a chapter 7 bankruptcy even if my income is over  the median?

Maybe.  If most of your debt is business debt, then above-median income doesn’t bar a chapter 7 bankruptcy filing.  In distinguishing business from consumer debt, keep in mind that home mortgages are consumer debt.  If most of your obligations are consumer debt, we must perform the Means Test, which means your financial means to repay a... meaningful portion of your unsecured debt.   The test entails an involved formula to determine whether you can still file a chapter 7 bankruptcy or instead need to consider a Chapter 13 bankruptcy plan.   



What is the bankruptcy Means Test?

It’s a pass or fail proposition.  If your income is above the gross median in the state, then you must perform this test to determine if you qualify for chapter 7 bankruptcy.  The starting point is gross income.  Then subtractions are made based upon necessary paycheck deductions like taxes, your secured loan payments and standard IRS allowances for living expenses.  If the resulting figure is negative or nominal, then you can still do a chapter 7 bankruptcy.  


What debts are discharged are bankruptcy?

Chapter 7 bankruptcy generally discharges a vast majority of the non-secured debt that overwhelms millions of Americans.  Your healthcare providers’ and credit card companies’ crushing charges for full principal, interest and penalties will be eliminated in bankruptcy.   In addition, bankruptcy will wipe out monetary judgments, older tax liabilities and the balance or deficiency on loans for surrendered or repossessed property.  The capital gains tax from cancellation of debt is also removed in bankruptcy. 


Debts that can’t be discharged through bankruptcy are often excluded as a matter of public policy: they’re the debts that society feels must be paid.  These include alimony, child support and debt arising from certain criminal acts. Student loans are notoriously difficult to discharge through bankruptcy.  When your debt is secured by property you want to keep, then you’ll need to keep paying on the loan.



How long after filing for bankruptcy will it take to stop creditors’ collections?

As soon as I file your petition for bankruptcy, the Automatic Stay goes into effect.  This means all lawsuits, assessments and repossession efforts are suspended. The stay is in effect until your bankruptcy case concludes and debts are permanently wiped out.  



When will my debts be discharged through bankruptcy?

A chapter 7 bankruptcy takes about three months from the date of filing.



Can I keep my home if I file a chapter 7 bankruptcy?

Yes: if you’re current on payments and your equity meets state or federal bankruptcy exemption limits.  You will have to keep making your house payments throughout and after your bankruptcy.  If you’re in arrears or your equity is too high, then a chapter 13 bankruptcy can catch you up on payments and help save your home. 


For California residents of two or more years, the equity you can protect in your home depends on different variables: marital status, age, income, disability status, date of purchase and the source of the purchase funds.  The range is $22,075 to $150,000 when California bankruptcy law is applicable and depends on which state bankruptcy exemption system you employ.   Ask your attorney about recent bankruptcy changes, which have increased the homestead exemption in California.



Will filing for chapter 7 bankruptcy prevent a foreclosure?

The automatic stay halts foreclosure in bankruptcy.  However, your bank can file a “motion for relief” from the automatic stay.  That entails obtaining court permission to proceed with foreclosure notwithstanding the bankruptcy. However, overcoming the stay is a process, which necessarily takes time. Thus, a chapter 7 bankruptcy will postpone the sale of the debtor’s home.  Additionally, a chapter 7 bankruptcy will relieve you of further debt obligations and capital gains tax from deficiencies on certain loans.  If you have sufficient income, a chapter 13 bankruptcy payment plan allows you to catch up on the mortgage arrears and permanently stop foreclosure. 



Can I keep my car if I file a chapter 7 bankruptcy?

If you’re current on loan payments or own your car, you can keep it, unless your equity exceeds the amounts exempt from liquidation through bankruptcy.   Under California bankruptcy law, the amount of protected equity varies depending upon what other properties you need to protect.



The Details: How do we do a chapter 7 bankruptcy


  1. 1.We’ll meet: The bankruptcy consultation if free.  And this attorney is a nice guy, so it’ll be painless.

  2. 2.You’ll complete an online questionnaire: This includes almost all of the information we’ll need in order to complete your bankruptcy petition.

  3. 3. We’ll collect some paperwork: paystubs, tax returns, credit reports, property valuations, payoff statements, registrations, etcetera. We’re here to help direct you to find the right stuff.

  4. 4.You’ll complete your Credit Counseling: about an hour-long class online or by phone.  From your home.  Not so bad. 

  5. 5.Interview with the Attorney: to make sure all the t’s are crossed and i’s dotted.

  6. 6.We file your petition with the Bankruptcy Court: it’s our job to do it right and ensure the process is smooth.

  7. 7.The Automatic Stay goes into effect: immediately, we’ll have  the Bankruptcy Court order a stay or stop on all your collections, repossessions and foreclosures.  Breathe a sigh of relief.

  8. 8.Your property becomes an Estate: the Estate is  technically owned by a bankruptcy Trustee, an attorney appointed by the Department of Justice to oversee your bankruptcy case and represent creditors’ interests.   If the estate is too big, the trustee can sell some of it to pay back your debts.  But when applied correctly, state (or sometimes federal) bankruptcy law will protect all your property if your assets are not excessive.  And if they are too great, we’ll advise filing a chapter 13 bankruptcy, so you’ll lose nothing.  

  9. 9.Creditors Meeting: about a month later, we’ll do a brief formal meeting with the bankruptcy trustee downtown (by which I refer to location; it ain’t the police “take you downtown” kind of downtown).  It’s an interview to check on the facts in your petition. I’m there by your side to ensure your case is accurately represented.    

  10. 10.You complete your debtor education: Another approximately one-hour online or telephonic course.  It’s called a Financial Management Course and it’ll give you some ideas how to manage your limited budget.

  11. 11.Debts be gone (Notice of Discharge): 60 days after your meeting of creditor (or 3 months since the filing date) we’ll get your official notice of discharge from the Bankruptcy Court.  Some debts, like student loans, child support, alimony, and certain back-taxes won’t be covered. 


And that’s Chapter 7 bankruptcy . . . in a nutshell.  But bear in mind that your financial situation cannot be summarized in a nutshell.  Legal counsel is strongly advised in order to consider all variables and contingencies.


Further reading about chapter 7 bankruptcy?

Chapter 7 bankruptcy - Liquidation


Chapter 7 Bankruptcy

San Diego bankruptcy attorney