Asaph Abrams Attorney at law

San Diego Bankruptcy

San Diego bankruptcy attorney

Unlike Monopoly, Parker Brothers’ classic board game, bankruptcy does not mean Game Over.  It is a clean slate; a starting point.  

What is bankruptcy?

It depends on the bankruptcy chapter, but to offer it up in a tweet: bankruptcy either eliminates debt or provides for its full or partial repayment, with the intention of preserving all one’s assets. 

U.S. legislation consists in part of Codes broken into Titles, Chapters, sections, sub-sections, sub-sub-. . . well, you get the picture.  U.S Code, Title 11 is devoted to bankruptcy.  Some of its chapter numbers, like 7 and 13 encompass distinct types of bankruptcy.  These chapters balance the protection of the debtors who owe money with the interest of creditors to whom they owe.   Bankruptcy is designed to eliminate as much debt as possible, with the intention of preserving the maximum amount of property.  Most debtors will not lose property through bankruptcy because exemption laws protect a substantial amount of one’s property, including normal household goods, limited equity in vehicles and tools of trade, and retirement accounts.  Consider that a family in California can protect up to $100,000 in home equity.  Seniors can protect up to $175,000 of interest in their homes.  If you don't own a home, you can utilize a so-called wildcard exemption of $23,250 of value in any property.  Bankruptcy law is designed to protect what Americans reasonably need and deserve to keep.  The figures above are a few examples of exemptions valid as of April 1. 2010.  2010: can’t believe we made it; it sounds so science-fictiony.

So, what are these different bankruptcy “chapters,” anyway?

What is Chapter 7 bankruptcy?

By chapter 7, we refer to a petition to the Bankruptcy Court for debt relief under chapter 7 of the bankruptcy code.  Chapter 7 bankruptcy is called liquidation, because technically one’s property can be sold for repayment to creditors.  However that rarely occurs because bankruptcy exemption statutes protect most debtors’ assets from sale.   Unsecured credit card and medical bills can be abolished without limitation through chapter 7 bankruptcy.   Of course, indications of fraud, e.g. incurrence of debt without original intention to repay it, are bad news that can place limits on the relief you seek.  Bankruptcy is designed for the honest debtor who needs a second chance and who’s willing to play by the rules.  Bankruptcy is a privilege provided for by our government; it is not an absolute right.  The reason almost all bankruptcy petitioners seek legal counsel is because they can’t afford to lose that privilege.

Chapter 7 bankruptcy is generally available to those who earn below the state median gross income as it relates to household size. 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*.  To see if you qualify, we measure your average gross monthly income over the six-month period prior to the month in which you’d file your bankruptcy petition.  If that average is below the median, then you’re normally eligible to file a chapter 7 bankruptcy.  If your average monthly gross income over that prior six-month period was higher than the median, you may be able to file a chapter 7 bankruptcy.  If you earn above the median,  you carry the burden to demonstrate why you are unable to pay at least some of your debt back through a chapter 13 bankruptcy. The way that’s done is through the “means test.”  This is a calculation of what your disposable (left-over) income “should be” after deducting only certain allowable expenses from your monthly income.  You can still do a chapter 7 bankruptcy if your means test produces either a negative or a nominal balance that wouldn’t permit any meaningful repayment of debt.  Regardless of the means test results, we must also look at your actual income and expenses.  If you’re able to save money at the end of the month, then that remainder should presumably be used to pay back debt, rather than be kept or saved.  Note that the median income figures are updated frequently and we’ve experienced a downward trend in 2009 and 2010.  This means that a delay in filing can prevent you from doing a chapter 7.  Look at bankruptcy as an opportunity that can be here today and be gone tomorrow.

If most of your debt is from business, however, then you don’t have to go through the means test hoop.  There is also a rare exception for certain military service members.

A successful chapter 7 bankruptcy can fully cancel (discharge) a majority of one’s debt, without causing loss of property.  Unsecured debt like credit card and medical charges are fully eliminated in chapter 7 bankruptcy. There is theoretically no limit on the dollar amounts that can be extinguished.  Lawsuit judgments and older income tax assessments can be likewise forgiven. 

Secured debts, such as mortgages and car loans are likewise discharged through a chapter 7 bankruptcy. However, the lender retains its security interest and can repossess or foreclose if the loan is in default.  If your payments are current and your equity is not excessive, then you can keep such secured properties. 

Certain debts are considered priorities that cannot be discharged in bankruptcy due to public policy.  Current taxes and domestic support are examples of priority debts that may not be discharged.

Most household furniture, clothing and appliances are immune to liquidation in bankruptcy.    Retirement accounts and certain insurance avails are kept from being sold.  Secured properties like homes and vehicles are protected, subject to limits in equity.  For example, bankruptcy filers get to keep between $75,000 and $175,000 in home equity.   Equity in motor vehicles is exempt to $2,725 or $3,525.  If you are not protecting substantial home equity, you can keep up to another $23,250 of value in any property, including vehicles.  The above exemptions apply to California law.  Exemptions vary based on factors such as the petitioner’s familial status, age and the types of properties that need protection.

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

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy permits debtors to reorganize and fully discharge their debt through relatively minimal monthly payments over 3- or 5-year periods. Chapter 13 bankruptcy is available to debtors who earn too much money to qualify for a chapter 7.  It is also an option for those who want to keep property that might have to be sold in a chapter 7 bankruptcy.  However, even debtors who qualify for a chapter 7 bankruptcy, may prefer to do a chapter 13 bankruptcy.  By distributing payments over a longer period, a chapter 13 bankruptcy can catch you up on arrears for secured debt payments.  It can let you reduce the principal you owe on personal property including motor vehicles.  And it can let you remove a second mortgage from your home.  Not too shabby. 

Chapter 13 bankruptcy can completely cancel out unsecured debt like credit card and medical bills, with little to none of it paid back.  Though, the chapter 13 bankruptcy plan must provide for payment of certain secured debts.  Priority debts like those on back taxes and child support have to be paid during the course of your bankruptcy.

A successful chapter 13 bankruptcy can help the petitioner catch up on car and mortgage payments that have fallen behind.  The principal debt on vehicles purchased over 910 days past can be reduced to current market value.  When you owe more on your first mortgage than your home is worth, then chapter 13 bankruptcy allows you to “strip” the second mortgage and discharge it just like credit card debt with little or no payment. 

The funds allocated to the chapter 13 bankruptcy payment plan are based upon disposable income, which refers to the remainder of monthly income subtracted by expenses.  The determination of disposable income is objective because expenses deducted are limited to IRS local standards.  However, one may also deduct secured payments (vehicle loans and mortgage dues) and certain actual expenses if they are proven justifiable. 

Thus, in a chapter 13 bankruptcy, you have to pay into the plan an amount at least equal to your disposable income.  However, you also have to pay your unsecured creditors at least an amount equal to any nonexempt property you have.  In other words, the value of equity exceeding allowed exemptions would constitute the threshold for unsecured debt payment in a chapter 13 bankruptcy.   In a chapter 7 bankruptcy, nonexempt property is property that could be sold to pay back debt.  (The logic is that your creditors can’t be worse off because you opted for a chapter 13 bankruptcy instead of a chapter 7 bankruptcy.) 

Out of curiosity, are there other bankruptcy chapters in the Bankruptcy Code (Title 11)?

Yes.  Chapter 11 (of Title 11) is usually utilized by corporations seeking reorganization, though it may be used by individuals as well. 

Other chapters are specific to certain entities and occupational groups.  Chapter 9 bankruptcy addresses reorganization of municipalities; chapter 12 bankruptcy applies to adjustment of debt by farmers and fishermen.  Chapter 15 bankruptcy addresses cases of an international nature.  The other chapters of Title 11 address general definitions and administration requirements

There is also a fictitious chapter 20 bankruptcy.  Colloquially coined, it implies the filing of a chapter 13 bankruptcy right after a chapter 7 bankruptcy, hence 7 + 13 = 20 (and they told me I wouldn’t have to do any math when I applied to law school).

What debts does bankruptcy discharge (cancel)?

At the conclusion of your successful bankruptcy case, you will receive a general discharge order.  Absent rare objections by creditors or the U.S. Trustee, all debts that CAN be discharged/canceled are considered to be discharged.  The effect of the discharge depends on the type of debt in question.  Let’s start with the bad news.

In addition to debts acquired through fraud, there are two types of debt that are presumed to be nondischargeable (yes, that’s a word): student loans and priority debts.  Student loans are the cost for that diploma.  Priority debts are your societal obligations: recent taxes, domestic support and fines/penalties relating to wrongful acts.  Now, on to the good news.

In a  chapter 7, unsecured debts like credit cards and medical bills are wiped out completely.  A chapter 13 wipes them out too, except that you have to pay a usually small and affordable portion of the debt back.

Secured debts are not different in that a discharge relieves you from all personal obligation on their payment.  However, lenders will maintain their security interest in the collateral.  If you default on your mortgage or your car loan, you’ll still lose the property.  But due to the bankruptcy, you won’t owe on the unpaid balance.  However, in a chapter 13 bankruptcy, you can re-define secured debts in full or in part as unsecured debts.  This is accomplished when secured debts are no longer secured by actual value in the property, as a result of depreciation.  Thus, you can reduce the principal owed on car loans to the current market value (i.e. the secured portion of the loan), though you can only do this if the car was purchased more than 910 days prior to filing.  You have to pay for the principal + interest, but the remainder of the loan is considered unsecured and can be discharged in bankruptcy even if it’s not paid for.  In a chapter 13 bankruptcy, you can also discharge second mortgages, if they “become” unsecured due to depreciation.  This is called a “strip off” of a second mortgage.  It can be done when the balance on your primary or senior mortgage exceeds the property value. The strip-off converts or changes the second mortgage into unsecured debt.  As unsecured debt, it can be fully discharged in bankruptcy even if it’s not paid for in full. 

If you have a judgment lien on your home, you can avoid (remove) it in bankruptcy if there is no value to secure it after you apply mortgage interests and and exempt the amount of equity you’re allowed to keep.  Through avoidance, the judgment lien becomes an unsecured debt that is dischargeable in bankruptcy.  Consider Courtney, the cosmetician’s condo in Coronado.  The condo’s worth $225K and Courtney owes $150K on it to the bank.  Courtney is sued by frivolous Farrah for five facials gone bad to the tune of $50K.  Farrah wins her suit and a $50K judgment lien attaches to the condo. Courtney files for chapter 7 bankruptcy protection; she can exempt (protect from liquidation) her $75K of equity in the condo (as of a 2010 increase in the exemption amount).  Of the condo’s $225K value, $150K belongs to the bank and $75K belongs to Courtney.  There’s nothing left to secure the judgment lien.  Farrah’s lien can be avoided and discharged through bankruptcy.  A special motion must be made to the court to avoid liens; it is not accomplished automatically through a bankruptcy petition.

Bankruptcy will not discharge debt arising from willful malice, fraud, theft, drunk driving or breach of fiduciary duty.  Both the United States Trustee and creditors can attempt to prevent bankruptcy discharge based upon such allegations. 

Will I keep all my property?


Federal and state bankruptcy laws describe what property is exempt, meaning what you get to protect from creditors and keep to yourself.  In a chapter 7 bankruptcy, none of your exempt (protected) property can be liquidated (sold) for the purpose of repaying creditors. 

If you’ve lived in California for at least 2 years, then California’s bankruptcy exemption statutes apply.  Otherwise the Federal bankruptcy exemption laws or your former state’s bankruptcy laws apply.  Other states may have more or less generous provisions than California.  In California, you’ll choose from two sets of exemptions.  Under both systems, normal household goods, from clothing to furniture, TVs, etc. are generally protected.  Under both systems, retirement accounts are generally exempt.  However, there are differences between the systems.  System 1 emphasizes protection of home equity.  System 2 gives you more freedom to protect a great variety of personal property.  When we consider values, we’re looking at used values or what the items would fetch at auction. Here are some highlights that distinguish the two sets of exemptions available in California:

California’s “System 1” derives from the Code of Civil Procedure §704.  That funny-lookin’ S means “section.”  For verbose people, lawyers sure like their abbreviations.  System 1 has a large protection for equity in your residence:  the amount depends on the type of ownership, your age, family situation and other variables.  The range is $75K to $175K.  For motor vehicles, System 1 lets you protect $2,725 in equity.  So, let’s say you owe Ford $20,000 on your Mustang, and the pony’s worth $22,725.  You have $2,725 of equity in the sports car, which is all exempt from liquidation.  Under System 1, jewelry, heirlooms and art are covered up to a value of $7,175 total.  Equity in goods used in your occupation are covered up to $7,175 or twice that amount if you work with your spouse.

California’s second exemption system derives from the Code of Civil Procedure §703.  This system is designed primarily for debtors with minimal or no home equity.  There are some limited specific exemptions, such as $3,525 of equity in a vehicle, $1,425 in jewelry and $2,200 in tools of trade.  However, System 2 also gives you an allowance of $22,075 to protect any type of personal property, from cash to that first edition, first printing of Harry Potter and the Sorceror’s Stone signed by J.K. herself.  Let’s say you have a limited Dark Highland Green Mustang GT Bullitt, worth $25,600 and you own it free and clear.  Well, you can apply the $3,525 vehicle exemption AND the $23,250 “wildcard” allowance and thus protect the car, (if not your gas costs at 15 mpg in the city). 

Here is the primary or official source for these exemptions, however the amounts therein are not current.  Beware: a lot of secondary sources also don’t update the amounts (Web sites are a pain to update).  But no worries, we keep apprised and will keep you covered.

What happens if my property is liquidated in a chapter 7 bankruptcy?

The bankruptcy exemption protections still apply.  If a property is sold in bankruptcy, you’re still entitled to the exemption amount taken from the sale proceeds.  You won’t lose the shirt off your back (unless, maybe, if Mr. Armani threaded it, himself).

What if my equity is right near the bankruptcy exemption limit?

In weighing whether to sell the property, the bankruptcy trustee will consider the sale costs and the trustee’s own commission.  Those factors essentially increase the amount of equity.  This is particularly significant when it comes to the high sales and closing costs for homes.  Also, a non-exempt property may have no market and not be readily sold.  The bankruptcy trustee might then abandon the property and let you keep it, even though technically, it’s not exempt.

What if I’m from out of state?

Obscure background:

When the Bankruptcy Act was overhauled in 2005, Congress addressed a phenomenon whereby petitioners would shop for superior state exemptions.  For example, in the Lone Star State, you can protect unlimited home equity. . . well, it’s limited to 10 acres in town (or 100 to 200 out in the bush, as my old Aussie friends would put it).  So, to protect (Texas) courts from overcrowding, the House established residency requirements. 

The answer:

You need to abide by residency requirements in order to use California’s bankruptcy exemptions.  Otherwise, you’re to use federal bankruptcy exemptions or your former state’s bankruptcy exemptions.

You must have made California your home for 2 years in order to use its bankruptcy exemptions.

If you’ve lived in California for less than 91 days, it’s not just a question of exemptions: you need to actually file your bankruptcy in your former state (or wait out the 91 days).

If you’ve lived in CA between 91 days and 2 years, you will use the bankruptcy exemptions of the state where you resided the majority of the time during the 180 days preceding the 2 years before filing your bankruptcy petition.  Yes, that’s all worded correctly.  Federal bankruptcy exemptions may sometimes apply in lieu of state bankruptcy exemptions.

What if I’m from CA, but not San Diego County?

You will need to file your bankruptcy petition within the federal district where you resided for the majority of the last 180 days.  San Diego and Imperial Counties belong to the Southern District and its Bankruptcy Court is the handsome, columned building on West F. St.  If you’re from Rancho Cucamonga, for example, you’d need to file your bankruptcy petition in the Central District’s Riverside Division.  I just like saying Rancho Cucamonga.  Sorry.

What is the downside to bankruptcy?

Bankruptcy will be listed on your credit report for 7 or 10 years.  Yet, when you’ve defaulted on your debts, your credit has already suffered.  Within relatively short time, a diminished credit score will increase because of the bankruptcy.  Bankruptcy washes away debt so you may rebuild credit over time  and better provide to your family.

Bankruptcy is technically public record, but it’s not readily or practically available.  A nosy neighbor cannot Google you to discover your filing. Anyway, bankruptcy has become commonplace.

Landlords routinely ask if you’ve filed bankruptcy.  But as a part-time property manager myself, I know that a tenant who’s clear of debt is better able to pay rent than one who’s paying hundreds of dollars each month on credit card debt. 

Fear of a bankruptcy stigma can have adverse consequences. As Thoreau and FDR put it, “there’s nothing to fear in bankruptcy but fear itself.”  Not entirely true, because you need an attorney to address concerns, and I’m not sure if I quoted correctly, but delay can limit your options with regard to bankruptcy. 

Often individuals come to me when they’re already suffering garnishment of a quarter of their paycheck.  While creditors must abide by due process, the culmination of the collection process, the snatching of your earnings, still catches debtors off guard and unprepared.  When bankruptcy is warranted, putting it off can cause needless suffering and loss. 

In Hamlet, old Polonius admonished his boy, Laertes to neither borrow nor lend.  But insofar as one must borrow at some points in life, consider this: after filing for bankruptcy, you are a better loan candidate.  You can better pay off new debt, since you’re not saddled by the old, stale obligations you discharged in bankruptcy.

Also know that eligibility for bankruptcy is very income-centric.  If you have suffered job loss or diminished income, you are a better candidate for filing a chapter 7 bankruptcy petition and not having to enter into a lengthy payment plan.  Even if you do a chapter 13 bankruptcy, the lower your income, the lower your payments will be.  After discharge, when you do regain your footing, then increased earnings will be yours to keep to build a new future.  They won’t have to be directed to old obligations you’d rather leave behind.  Earnings can also increase indirectly by virtue of a future marriage, since a spouse’s income is counted as your income for purposes of the bankruptcy income test.  If you file after economic recovery or after marriage, then you may have lost an opportunity for more substantial debt relief.

It is illegal for employers to terminate you for filing bankruptcy.  Certain government employers even require you to file your bankruptcy petition prior to beginning a new job so that you won’t be burdened by debt. 

And if you cut up that plastic and pay cash, that can be a pretty good thing.  Going green is today’s thing, isn’t it?

Who files for bankruptcy?

About 850,000 American people or businesses filed bankruptcy petitions in 2007, and over a million in 2008.  There will have been about 20,000 filings in our San Diego Bankruptcy Court in 2009.  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 bankruptcy filings are rising now.  You are not alone.

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 bankruptcy in your name to tackle both your consumer and business liabilities.   If you are incorporated, you may want to file bankruptcy personally and file an additional bankruptcy on behalf of the corporation if you wish it to cease operation (you’d continue working without the corporation).  A corporation can be put to rest through a chapter 7 bankruptcy; it would simply cease to operate (there wouldn’t be a discharge like there would be for an individual).  But as one practitioner noted recently, a corporate bankruptcy may be akin to providing it with an awful fancy funeral.  It’s often unnecessary.   Be sure to discuss these issues with your attorney.

If unmarried, you must file bankruptcy alone.  If you are married, you can file a bankruptcy petition with or without your spouse.  Whether to file bankruptcy singly or jointly depends upon your situation and is a ripe area for discussion with your counsel.  Same-sex spouses cannot file jointly because bankruptcy law is primarily federal; it does not accommodate California’s recognition of gay marriage.

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 filed and received a chapter 13 bankruptcy discharge, you cannot file a chapter 7 bankruptcy until 6 years have passed since the date the chapter 13 bankruptcy 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 petition for chapter 13 bankruptcy?

Only people can. 

No joke.  But the distinction is limited to that between persons and businesses.  Only persons can file a chapter 13 bankruptcy.  Businesses can’t.  However, if you own your business, you can still file a chapter 13 bankruptcy to address business debt you are liable for. 

Here’s an oddity.  If you owe too much, you can’t do a chapter 13 bankruptcy.  Your unsecured debt must be under 360,475.  Your secured debts must be under $1,081,400.  For more discussion on these debt limits please see this entry in my blog.   

If you received a prior chapter 7 bankruptcy discharge, you can’t get a new 13 bankruptcy discharge unless the chapter 13 bankruptcy is filed at least 4 years after you filed the chapter 7 bankruptcy.  If you have a prior chapter 13 bankruptcy discharge, you can’t get a new chapter 13 bankruptcy discharge unless you file two years after the first chapter 13 bankruptcy was filed. 

There is no bar to filing a chapter 13 bankruptcy before the applicable waiting periods expires.  You would benefit from court protection and from distributing debt over time.  However, if you don’t wait the prescribed period, then your chapter 13 bankruptcy plan will not discharge any portion of your debt that is not actually paid for.  In other words, you wouldn’t get to pay pennies on the dollar.  

Can I file for bankruptcy protection more than once?

How long do you have to wait to file for bankruptcy protection again?  It seems a simple enough thing to ask. You’ll probably find your answer immediately below. However, in some cases, the answer’s convoluted.  As always, hasty assumptions are not salutary.  Let’s break it down:

Can I file a chapter 7 bankruptcy if I previously filed a chapter 7 bankruptcy?

If you had previously filed a chapter 7 bankruptcy AND received a discharge (successfully completed your case), you cannot file another chapter 7 bankruptcy until 8 years have passed since the date the prior chapter 7 bankruptcy was filed. 

Can I file a chapter 7 bankruptcy if I previously filed a chapter 13 bankruptcy?

If you had previously filed a chapter 13 bankruptcy AND received a discharge (successfully completed your case), you cannot file a chapter 7 bankruptcy until 6 years have passed since the date the chapter 13 bankruptcy was filed.  [An exception applies if the prior chapter 13 bankruptcy provided for payment of 100% of your unsecured debt or 70% of your ALLOWED unsecured CLAIMS if payment was coupled with “good faith” and “best effort” per 11 U.S.C. §727(a)(9)(B)(ii).  If this algebraic language upsets you, please contact your Congress-person.

Can I file a chapter 13 bankruptcy if I previously filed a chapter 7 bankruptcy?

If you had previously filed a chapter 7 bankruptcy and received a discharge, you can’t file a chapter 13 bankruptcy that results in a chapter 13 discharge until: at least 4 years have passed since you filed the prior chapter 7 bankruptcy.

There is no bar to filing a chapter 13 bankruptcy within 4 years (or immediately) after filing a chapter 7 bankruptcy. However, if you don’t wait the prescribed 4-year period, then your chapter 13 bankruptcy will not end in a discharge, meaning you won’t eliminate any debt that you don’t actually pay for.  In other words, you wouldn’t get to pay pennies on the dollar; though even without a discharge, you might benefit from court protection and the ability to distribute payments of debts over the course of up to 60 months.

Can I file a chapter 13 bankruptcy if I previously filed a chapter 13 bankruptcy?

It’s an uncommon fact pattern (since in most cases, chapter 13 bankruptcies take at least 3 years), but if you had previously filed a chapter 13 bankruptcy and received a discharge, you can’t file another chapter 13 bankruptcy that results in a chapter 13 discharge until: at least 2 years have passed since you filed the prior chapter 13 bankruptcy.

There is no bar to filing a chapter 13 bankruptcy within 2 years after filing a prior chapter 13 bankruptcy that resulted in a discharge. However, if you don’t wait the prescribed 2-year period, then your subsequent chapter 13 bankruptcy will not end in a discharge, meaning you won’t eliminate any debt that you don’t actually pay for.  In other words, you wouldn’t get to pay pennies on the dollar.  Though, even without a discharge, you might benefit from court protection and the ability to distribute payments of debts over the course of up to 60 months.

Confusing, right?  Well, write your Congress-person. The rules are not my concoction.  and I’m glad to explain what it means to you.

180-day bars (not referring to pubs open six months):

Commencing upon dismissal, a 180-day bar to re-filing a bankruptcy case applies if the court dismissed your case after you willfully failed to abide by a court order or failed to appear before the court in proper prosecution of the case.

Commencing upon dismissal, a 180-day bar to re-filing a bankruptcy case also applies if you voluntarily dismissed (withdrew) your bankruptcy petition after a creditor objected to the automatic stay (suspension) of its claim. What does that mean? At the moment of filing, the automatic stay is issued; it grants immediate protection from collections, repossessions and foreclosures.  Yet, secured creditors can make a motion to the court to lift the stay as it pertains to them. That is called a motion for relief from stay.  A creditor would make such a motion if you were in foreclosure or in default on your auto loan.  There is some delay between the time of filing a bankruptcy petition and the time a secured creditor can lift the automatic stay.  To file for bankruptcy repeatedly would be an attempt to successively exploit that lag time.  Bankruptcy is designed for debtors to complete its requirements and ultimately obtain a discharge of their debt.  It is not designed for enabling serial bankruptcy filings merely to exploit temporary benefits of the automatic stay.  Note that chapter 13 bankruptcies can be voluntarily dismissed; chapter 7 bankruptcies do not have a provision permitting voluntary dismissal.

180 days is a long time to repent when you’re in dire economic straits.

Limitations on the automatic stay if you re-file

If you had one prior bankruptcy case that was pending and got dismissed/closed prematurely within one year of refilling, then the automatic stay expires the 30th day after you file the subsequent case. If you had more than one prior bankruptcy that was pending and got dismissed/closed prematurely within one year of refilling,, then there is no automatic stay. Period. Without the automatic stay you don’t have bankruptcy protection from collections, repos, foreclosures and other ills prior to your discharge.  The good news is that you can file a motion to either extend the stay or to instate it, but the stay can’t apply again to a creditor that had already filed a motion for relief from stay in the prior case.  The motion itself must abide by strict deadlines and criteria. 

Within the above parameters, there is no limit to the number of times you can file bankruptcy.  Here’s a doozy:

Methuselah was born 100 years ago, today and he died today.  Methuselah filed his first bankruptcy on his 19th birthday.

Over the course of his life, he filed the same number of chapter 7s as chapter 13s and he received a discharge for every filing. Each chapter 13 lasted 36 months.

Applying today’s law: what is the maximum number of times he could have filed bankruptcy?

Have at it, but don’t ask me.  I’m assigning it to my son for extra-credit homework.

What is the automatic stay?

The moment your chapter 7 bankruptcy or chapter 13 bankruptcy petition is submitted, an automatic stay is issued.  This is a court order that immediately stays or stops all adverse creditor action.  All collections, repossessions, lawsuits and garnishments are “stayed.”  The automatic stay is designed to last throughout your bankruptcy case until debts are gotten rid of.   

However, a landlord seeking eviction or a creditor with a lien can usually file a successful objection to the stay (a motion for relief from stay).  If you are behind on payments, home and car lenders can overcome the stay and still repossess unless another solution is reached.  If you file a chapter 13 bankruptcy petition, its payment plan can provide for the means to catch up on those arrears and retain the property.  Unsecured creditors won’t benefit from opposing the automatic stay.  However, they can later object to the discharge of the debt through bankruptcy.

Certain other actions aren’t subject to the automatic stay, such as collection of child support.

The automatic stay is limited to 30 days if you had a prior bankruptcy case going on during the last year. The automatic stay won’t be in effect at all if you had two bankruptcy cases going on during the last year.  The court frowns upon multiple bankruptcy filings and voluntary dismissals designed to postpone collections without intent to complete a bankruptcy. 

Will bankruptcy protect my co-debtors or co-signers?

If you file a chapter 7 bankruptcy, co-debtors and co-signers get no protection; they’re still fully on the hook. 

If you file a chapter 13 bankruptcy plan and it provides for payment on a debt, your co-debtor or cosigner will get credited for what you pay. The automatic stay that protects you, also affords them temporary protection. 

If I file for bankruptcy, how will my spouse be affected?

If married, you have the choice whether to file for bankruptcy individually or jointly with your spouse.  If all the debt is in one spouse’s name, there is likely no reason for the other to file bankruptcy.  If spouses have debt in both their names, they often file for bankruptcy protection together.  However, one should examine the nature of the spouses’ debts.  If all the debt is community debt (debt acquired after marriage), then it is not strictly necessary for both spouses to file bankruptcy.  A bankruptcy discharge eliminates liabilities of the filing debtor and of the community (i.e. husband and wife). Suppose Jack separately files for bankruptcy.  He lists all the joint credit cards he and wife, Liz used after they married.  When he gets his discharge, the debt collectors won’t be able to pursue Liz for payment by virtue of her marriage to Jack.  If a spouse has separate debt, meaning debt acquired before marriage, they would want to put their name on the petition.  Thus, if Liz still owed on credit cards from her bachelorette days, she may want to jointly file with Jack. 

Additionally, one must keep in mind that the bankruptcy estate (which is subject to liquidation) consists of all community property.  In California, all acquisitions and earnings after marriage (with certain exceptions such as inheritance) belong to both spouses.   Consider Michael and Holly, recently hitched.  If Holly files separately for bankruptcy, Michael’s PT Cruiser acquired prior to marriage won’t be part of Holly’s estate.  However, the couple’s Honda Odyssey purchased post-marriage will be part of the estate even if it’s only under Michael’s name. Holly should seek legal counsel to ensure the Honda is fully exempt from liquidation. 

I have equity in my home. Will I be able to keep it?

No property is more sacred than one’s home, one’s castle.  (Unless you’re a car person, I guess.)

In terms of liquidation, it doesn’t really matter how expensive your home is.  Bankruptcy is only concerned with your interest in the property: your equity.  This is not a common problem these days.  The precipitous drop in home values has made equity a scarce thing.  But if you do have equity, here are some figures. The equity protected can range from $75,000 to $175,000.  Determining factors include whether it’s a joint or single petition, type of home ownership, petitioner’s age, date of home purchase, source of funds for the purchase, disability status, and income.  If you do have equity to protect in your home, despite the drop in home values, there’s still a good chance you won’t lose it if you file for bankruptcy.  Note: if you’re protecting substantial home equity, you can’t exempt as much personal property as a non-homeowner.

The following instances arose pursuant to downsizing in the paper industry . Figures reflect the pending year 2010 increase in the homestead exemption amounts:

Example 1: Jim, a paper salesman, inherits his parents’ home, worth $165,000.  Jim and his wife, Pam take out a $65K home equity line.  When J&P file a chapter 7 bankruptcy, their $100K  homestead exemption protects all the equity in the home and they keep it.  (Note, homestead exemption amounts increase in 2010.  The above figure is the updated amount, but if you file in 2009 the exemption amount is less)

Example 2: Happily married, Dwight and Angela purchase a beet farm upon which stands a $250,000 home.  Their mortgage balance is $75K.  When they fall behind on their mortgage, they could petition for chapter 13 bankruptcy to catch up on the arrears.  However, they’ve decided to forego the property.  The chapter 7 bankruptcy trustee sells the home and pays the mortgagee bank its $75K.  The trustee also pays D&A the $100K they’re entitled to in home equity.  The trustee distributes the remaining $75K (less closing, sales and her trustee fees) to D&A’s creditors.

I have equity in my car. Will I be able to keep it?

Maybe.  It depends on what exemption (protection) laws you choose.  If you use California’s exemption system 1, which provides greater protection for your home, then you can only protect $2,725 in a vehicle and it can’t be doubled if you’re filing for bankruptcy protection with your spouse.  You can also protect $4,850 in a commercial vehicle (e.g. pick-up truck integral for hauling equipment; not just commuting) and that can be doubled if both spouses work together.  If you’re using California’s exemption system 2, you can protect $3,525 in equity in a motor vehicle.  However, if you haven’t used system 2’s $22,075 homestead (residential home) exemption, you can apply that amount to any property or asset. You can also throw in a $1,175 wildcard allotment.  Added up, you’d have $26,775 in possible vehicle equity protection.  Note, we often lump together the $22,075 unused homestead exemption with the $1,175

wildcard exemption and just call it all a wildcard.  I’d be flattering myself to think you’d read this whole site to be able to note the inconsistency, but flattery isn’t the worst vice.

What happens if my property is liquidated in a chapter 7 bankruptcy?

The exemption protections still apply.  If a property is sold in the course of your bankruptcy, you’re still entitled to the exemption amount taken from the sale proceeds. 

What if my equity is right near the exemption limit?

In weighing whether to sell the property, the bankruptcy trustee will consider the practical implications of sale and trustee commission costs.  Those factors essentially increase the amount of equity.  This is particularly significant when it comes to the high sales and closing costs for homes.

Also, a non-exempt property may have no market value and not be readily sold.  The trustee might then abandon that property and let you keep it.

I am upside down on my mortgage. Can I keep the house and file for bankruptcy?   

Sure.  Moreover, if you're behind on payments, a Chapter 13 bankruptcy will enable you to catch up on the arrearage.  However, you'll still be responsible for your mortgage payments.

We are thinking of declaring personal bankruptcy. Should we buy a more inexpensive home and let ours go first?

You'll need to see an attorney before selling your home.  There is no obligation to sell your home.  Even if it's an expensive property, you can keep it if you can afford the payments, and your equity is less than permitted amounts ($50,000 for singles, $75K for married couples filing together, more--- between $136,000 to $150,000 if you're a senior or disabled, though there are many additional variables to examine).  Bankruptcy exemptions amounts will increase as of 2010.

How long does a bankruptcy stay on your credit report?

A chapter 7 bankruptcy is reported for 10 years.  A chapter 13 bankruptcy will be there for 7 years.

Will I be able to get credit after declaring bankruptcy?

Credit repair is an industry unto itself.  Generally, one starts with secured credit cards, and rebuilds their credit from there.

Usually, if bankruptcy is on the table, your credit is already bad. 

I’m still paying Sears for my stove. Will they come take it if I file for bankruptcy?

Only if the purchase contract created an explicit lien or security interest.  If you simply acquired the stove with a Sears credit card (hard to resist those 10% one-time savings-- but please do, next time), then there's no need to fear the repo man.  Like all other credit cards, the debt is viewed as unsecured, and will be wiped out in the course of your bankruptcy.  If there is a lien, then usually you need only keep your payments current, though you may also reaffirm (re-sign) the loan, so that your repayment of debt can be reflected on your credit report.

If I file for bankruptcy and return my car would I still be liable for the car payments?

If you return the car, bankruptcy wipes out the balance on the loan.  It protects you from deficiency claims.  You can then buy a new (used) car that you can afford and owe the lender nothing on the first car.  However, if you really dig the current vehicle, you can try to redeem it from the lender by paying its current worth in a lump sum (if the lender agrees) or simply maintain the contract by reaffirming it (if necessary) and continuing the payments (if you can afford them after your other debts are gone).

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.

It makes no sense to keep paying interest and penalties on credit card bills absent the means to do so.  Current debts can be wiped out through the course of your bankruptcy.  Please do not incur new debt.  Please do not buy on credit what you cannot pay for.

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 relief.

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 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).   Generally, taxes cannot be discharged through bankruptcy, but there are considerable exceptions to that rule.

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 by creditors (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 favors 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

Frequently Asked Questions

San Diego bankruptcy attorney

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