Frequently Asked Questions (FAQ)

FORECLOSURE INFORMATION

Filing bankruptcy will stop, if only temporarily, a bank from foreclosing on your home.  Typically, when you fall more than 2 months behind in your mortgage payments, the lender will notify the Note Trustee who will then notify you that you are in default of the terms of your loan.  The property trustee then records the Notice of Default (“NOD”) in the county in which the property is located, which starts a 90-day clock running.  If the account is not paid current within 30 days, the property trustee will then file a Notice of Trustee Sale (“NTS”), alerting you that the property can be sold at auction after the 90th day from the date of filing of the original NOD.  Many properties are so “upside down” (have no equity) that few investors have shown an interest in offering the minimum bid, which is usually the amount needed to pay off the mortgage lender.  Once an Orange County bankruptcy attorney has filed a bankruptcy, it typically takes about a week to 10 days for the lender to receive notice.  Our office, however, gives special notice to the lender and the property trustee to assure that a pending sale is blocked until the court removes the house from bankruptcy protection, which takes a little over a month to achieve.

Effect on Loan Modifications – Many debtors are attempting to modify their loans with the hope of reducing their loan principles to a point where they can afford the payments.  BEWARE OF THE MANY SCAM ARTISTS MASQUERADING AS “LOAN MOD SERVICE FIRMS”.  While there may be some legitimate ones, we haven’t seen many.  Rule of Thumb:  if you’re asked for money in advance, walk away.  The loan modification process is relatively simple, and the need for an attorney is uncommon.  Though our office does not provide loan modification services, Sean Vahdat an expert bankruptcy attorney in Orange County will provide you with expert guidance free of charge.

Introduction to Other Issues

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. As Orange County bankruptcy lawyers we make 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 $338 which must be paid to the attorney who then pays the court at the time of filing.  Since attorneys are now required to file electronically, the court will debt the attorney’s business account, and will issue a receipt.
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 a 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 W2, 1099, or pay stub that has both your name and full 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 best bankruptcy lawyer in Orange County will ask you questions about your property and debts, and will fill in a worksheet 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 to the U.S. Trustee as possible, the attorney will run a public record search for real property, autos, watercraft, judgments, liens, and pending civil actions,
Additionally, and only if you grant permission, the attorney will run a nationwide credit check to ensure 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 Orange County bankruptcy attorneys in researching property and debts.  PLEASE NOTE THAT SO-CALLED “PARALEGALS” NOT WORKING DIRECTLY FOR AN ATTORNEY 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.

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 wide range of property exemptions allowing them to keep virtually everything they need for a fresh start.  The Trustee may, however, look carefully at property that a debtor may not need.  For example, a public school teacher may have a tough time convincing the court that an extra pickup truck and camper shell are necessary for the job of teaching school, or that an RV is essential in your efforts to get on your feet, financially.  Every case is a bit different, and our attorneys can explain everything to you. 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” (freeze) 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 (request) to the bankruptcy judge; a process that typically takes about a month.
Sometimes the motion is granted, sometimes not. If the debtor has no equity in the property, chances are very high that the order will be granted, and the property removed from bankruptcy protection, thereby allowing the creditor to proceed with efforts to foreclose.
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 the property, e.g., the bank that 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 “First Meeting of Creditors” (sometimes called the “341(a) Hearing”), a misnomer since creditors rarely appear.  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.

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 6 years of ineligibility.  If it looks like you orchestrated your indebtedness 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 a discharge of another Chapter 7 bankruptcy petition within the previous 8 years, you may not file again until 8 full years have 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 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 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 for 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.

Credit Card Fraud – Avoid it At All Cost!

Bankruptcy laws were enacted to give honest people a fresh start, not to help dishonest people defraud creditors. In that regard, the Bankruptcy Court and the Trustees will look very closely at your petition to see if they can spot any signs of fraud – and, they are very good at it!
In particular, they will look to see if any of the following occurred soon before filing:

1. Whether a short time occurred between incurring substantial credit card debt and the filing of the petition;
2. Whether you’ve made any recent bigger than normal charges;
3. Whether you’ve made an unusual number of small charges;
4. Whether charges or cash advances were made more than your limit or were taken to purchase nonessential items.
5. Whether you made any charges after a creditor ordered you to stop using the card;
6. Whether there is a noticeable change in your purchasing habits, e.g., purchasing a gym set when you’ve never before worked out, or a musical instrument you can’t play;

7. Whether you made charges after knowing that you were unable to pay for them (you were insolvent) because you lost your job, had medical expenses, etc.;
8. Whether you’re sophisticated enough to understand how to avoid getting in over your head, i.e., your level of education, etc.;
9. Whether you’ve recently charged expensive items such as TVs, computers, cosmetic surgery, etc;

10. Whether you made multiple large charges on the same day.

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 to 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.

Child and Spousal Support

Filing bankruptcy will NOT erase your legal obligation to pay back child or spousal support, or court-ordered attorney’s fees in connection with obtaining or enforcing a child support order. The Court will, however, consider these obligations when determining the legitimacy of your insolvent situation.

Public Benefit Over-payments

If you owe a public agency payments due to having received and accepted any over-payment 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.  The non-filing spouse’s share is typically not at risk, but be aware that if the trustee determines that a given property may be sold for the benefit of unsecured creditors, then the trustee will offer the non-filing spouse first opportunity to “buy” the filing spouse’s interest and, if the non-filing spouse chooses not, or cannot, do so, then the trustee may take the property, sell it, and give the non-filing spouse his or her share of the funds.  This is rare, however.
If, however, you’re newly married, and/or haven’t accumulated much joint debt, you may want to file separately 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 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 years 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 dischargeable without a showing of extreme hardship.
2. Back child and/or spousal support, and debts which the Family Law Court has deemed to be like 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 that are not older than three (3) years;
5. Condominium or other homeowner dues or fees incurred AFTER the date of filing of bankruptcy (all HOA dues, assessments, and fees that were incurred before filing may be discharged (wiped out).
6. Court judgments for injuries or death to someone if the debtor was convicted or pleaded guilty or nolo contendere (no contest) to drunk driving or driving under the influence of alcohol or drugs.
7. Court judgments that have been “perfected”; that is, where an Abstract of Judgment has been filed in a county recorder’s office.  There are exceptions, however: a lien may be “avoided” to the extent that it encroaches into an exempt asset’s equity.  The attorney can explain this further.

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 or malicious tort such as injuries arising from driving under the influence of alcohol and/or drugs, battery, assault, intentional infliction of emotional distress, trespass to property, 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 to provide yourself with basic support, i.e., shelter, food, transportation, medical treatment, etc., and convincing the court is rare.

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.