SOUTHERN CALIFORNIA BANKRUPTCY LAWYERS

In some instances, removing "negative entries" on credit reports will remove the need to file bankruptcy; but in the event removing negative entries on your credit reports is insufficient, you will need to consider filing bankruptcy as it will discharge your debts completely.

While it may surprise most people, due to the high-cost of living in the State of California, California has one of the highest "poverty rates" in the nation. Its high cost of living increases debt in the absence of increased earnings. This is one of the main reasons for the increase in poverty rates in California.

Because bankruptcy law is federal, many of the same principles apply in bankruptcy cases regardless of where the case is filed. For example, whether you’re filing in California or any other state, a bankruptcy estate is created when bankruptcy protection is claimed. For the time you are in the bankruptcy system, the court will have control over the proceedings and what you may or may not do with your property.

That said, each state, including California, has its own set of laws or rules that control how much property a debtor can shield from his or her creditors. These laws are called exemption laws.

When filing for Chapter 7 or Chapter 13 bankruptcy, California allows you to choose between two different sets of exemptions. Exemptions protect your property in any bankruptcy chapter that you file.

• In a Chapter 7 Bankruptcy, the trustee will sell the property you cannot exempt and use the funds to pay unsecured debts, such as credit card balances, personal loans, and utility bills.
• In Chapter 13 Bankruptcy, the trustee does not sell your nonexempt property; instead, you keep the property and pay the value of it to your unsecured creditors through your three-to five-year repayment plan that is constructed as part of your structured settlement.

Determining which form of bankruptcy filing is best for you and your needs depends on an analysis of your situation and of course, your end goal. You should contact an experienced Southern California Bankruptcy Attorney to assist you in determining which option is best for you and your family.

Those struggling with debt may feel that they have nowhere to turn; thus making bankruptcy the only option to stop the harassing calls from debt collectors and/or an increase in the number of negative entries on your credit reports, which make it impossible to obtain additional funding to pay your debts. If you find yourself in this type of financial situation, you need to speak with a Consumer Rights/Bankruptcy Attorney to determine whether it is better to repair your credit or file bankruptcy. The Consumer Rights/Bankruptcy Attorneys of the Law Office of Peter F. Iocona are the lawyers you should call to ascertain the answer to that all important question of whether you should repair your credit or file bankruptcy.

In California, the exemption laws are often more complicated than in other states because there are two (2) sets of exemptions. Additionally, California is what is referred to as an “opt-out” state, which means federal exemptions are not available. Thus, if you have lived in the State of California for two (2) years or more, you will eventually need to decide between the exemptions outlined in Sections 703 and 704 of the California Code of Civil Procedure.

Please remember that your property is only vulnerable to attack from creditors when it has a value over and above any outstanding liens. This is called "positive equity". Property that has positive equity can be and often will be attacked by creditors. Conversely, property that has "negative equity", meaning you owe more on the property than what it is worth, cannot and will not be attacked by creditors.

In a Chapter 7 Bankruptcy case, your property is vulnerable to attack because your property could be sold as part of a "liquidation sale" by the bankruptcy trustee. You may have heard Chapter 7 Bankruptcies being referred to as a “liquidation,” and this is technically correct because in a Chapter 7 Bankruptcy, any property you own that exceeds the applicable exemption limit could be subject to sale by the bankruptcy trustee. As a practical matter, though, most people are able to retain their property through the Chapter 7 process; but protecting your property from being vulnerable to attack is complicated and must be carefully constructed to be protected. An experienced bankruptcy attorney can increase your chances of retaining your property as part of a Chapter 7 Bankruptcy proceeding.

A Chapter 13 Bankruptcy case works significantly differently than a Chapter 7 Bankruptcy case because the bankruptcy trustee will not sell or liquidate your non-exempt property, but you will likely have to pay the non-exempt value to the creditors as part of your re-payment plan.

What follows is a list of some of the more common Section 704 and Section 703 exemption paths; however, the list is not complete and the figures are updated every three years for both exemption paths. Thus, to be sure these exemptions are applicable to your case, contact an experienced Southern California Bankruptcy Attorney to discuss the pros and cons of each scenario to your factual situation.

California Code of Civil Procedure Section 704 is most commonly used by debtors who wish to protect their residence and personal property in their homestead. The homestead exemption applies only to a home in which you reside and which is considered your "primary residence".
Consequently, an "investment property" is not protected under the homestead exemptions. (See California Code Civil Procedure § 704.010).

• Note: In California, neither exemption path permits married couples to "double their exemptions" despite the fact that some states permit this practice.

The homestead protection offered by section 704 is far greater than 703, with single debtors under 65 able to protect up to $75,000 of their home's equity. Married couples and heads of households can exempt up to $100,000, and section 704 provides $175,000 of protection for persons over age 65, disabled persons, or certain low-income individuals over the age of 55 who have creditors seeking to force the sale of their home and personal property contained within the home.

Personal Property Exemptions

Personal property includes household items and health aids; building materials to repair or improve your home up to $3,200.00); jewelry, heirlooms, and works of art worth up to a total of $8,000.00; tools of the trade, including a commercial vehicle, worth up to a total of $8,000.00; and $3,200.00, (or $4,800.00 if the debtors are married) in Social Security bank deposits.  

Vehicle Exemptions

Under Section 704, you can protect as many vehicles as you’d like, so long as their aggregate value does not exceed $3,050.00, which, for the price of vehicles today, this figure is relatively low.  

Wage Exemptions

Under Section 704, up to 75% of wages paid within thirty (30) days before filing for bankruptcy are exempt, in addition to public employee vacation credits.  

Retirement/Pension Exemptions

Per federal law, tax-exempt retirement accounts are exempt, in addition to IRAs and Roth IRAs, with some limitations. Public and private retirement benefits are also typically exempt. 

California Code of Civil Procedure Section 703 contains California’s second exemption system, typically referred to as the “wildcard” exemptions. Typically, debtors without much equity in their home or those who do not own a home or other real estate elect to utilize the exemptions under Section 703 because it provides greater protection for personal property. (See: Code of Civil Procedure §703.140(b)).

The homestead protection offered by Section 703 only applies to a home in which you resided and only up to $26,800.00 in equity, making it less advantageous for those who own a home with considerable equity.

Personal Property Exemptions

A burial plot of up to $26,800, if the homestead exemption is not taken, plus $675.00 per article of clothing, household items, furnishing, animal(s), book(s), and crop item(s). Up to $1,600.00 in jewelry, $8,000.00 in tools of the trade, plus personal injury recoveries of up to $26,800.00. The "wildcard exemption" also allows for $1,425.00 plus any unused amount of burial or homestead exemption in any property.

Vehicle Exemptions

Section 703 allows you to protect up to $5,350 of value in one or more motor vehicles. Keep in mind though, that if your vehicle should exceed the exemption limit, you can utilize a portion of the wildcard to exempt the rest.

Wage Exemptions

Section 703 currently provides no exemptions relating to wages and earnings.

Retirement/Pension Exemptions

The same exemptions as under 704 apply, though fewer benefits for public employees.

The Bankruptcy Code evaluates candidates for Chapter 7 based on income. Those who earn income below the California median, for a family of the same size, are presumably entitled to file for Chapter 7. In such a case, they can bypass a government test, known as the "means test", which those who earn more than the state median are forced to take.

Currently, the California median income for a single earner is $52,416.00. For a family of four, it is currently $84,059.00. If you are below the median, you can file Chapter 7. If you earn more than the median, the "means test" will determine whether you can file for Chapter 7 Bankruptcy.

If you have “too much” disposable income after expenses, the means test tries to force you into Chapter 13 bankruptcy based on the idea that if you can afford it, you should pay something back to your unsecured creditors. At least that is the theory behind the means test. The means test is complicated to administer — if you have specific questions, ask an experienced Southern California Bankruptcy Attorney.

The cost to file Chapter 7 bankruptcy is currently $335.00 nationwide, but there is a catch. The $335.00 only covers the filing fee to initiate the bankruptcy proceedings. If you want an attorney to represent you, which you should, you will likely have to pay anywhere between $500.00 on the low end and up to $2,000.00 on the high end depending on the complexity of your matter.

The Chapter 13 filing fee is currently $310.00, but cases themselves may be more expensive as you need to work out repayment plan with the court, which will take more of your attorney’s time and thus increase the cost of the representation. Thus, if you want an attorney to represent you, which again, you should, you will likely have to pay anywhere between $750.00 on the low end and up to $2,500.00 on the high-end; but this range could change depending on the complexity of the repayment plan with the Bankruptcy Court.

As previously stated, bankruptcy law is federal law and thus, the bankruptcy courts are located in federal courthouses. Each state is divided into federal districts, which are then further divided into federal divisions. Typically, each division has its own courthouse to serve locals and to ensure that people are not forced to travel to far-away district courts when they file bankruptcy, bring a lawsuit, or even participate in jury duty.

California is divided into four districts: the Eastern, Central, Northern and Southern districts. Below are links to each court’s bankruptcy website if you are looking for information on court locations in your area and their contact information.

• Central District of California Bankruptcy Court
• Northern District of California Bankruptcy Court
• Eastern District of California Bankruptcy Court
• Southern District of California Bankruptcy Court

Utility Disconnections - If you are behind on utility bills and the companies are threatening to disconnect your water, electric, gas, and/or telephone service, the automatic stay will prevent the disconnection for at least 20-days. Although the amount of a utility bill rarely justifies a bankruptcy filing, it might make sense if you have other debt that you can discharge. Be aware that the utility company will likely be able to require that you pay a deposit to ensure future payment.

Foreclosure - If your home is being foreclosed on, the automatic stay will stop the proceedings; however, this will depend on the type of bankruptcy chapter that you filed. For instance, if you want to keep your home, a Chapter 13 Bankruptcy is usually better because you can catch-up back payments through a three-to-five-year repayment plan. By contrast, a Chapter 7 Bankruptcy does not have mechanisms that will allow you to retain your home if you are behind in your payments.

Eviction - If you are being evicted from your home, the automatic stay might provide some relief, but it is usually only temporary. If your landlord already has a judgment of possession against you when you file, the automatic stay will not affect these eviction proceedings. Thus, the landlord can continue just as if you had not filed for bankruptcy. Additionally, if the landlord alleges that you have been endangering the property or using controlled substances there, the automatic stay will not apply either. Thus, the automatic stay might buy you a few extra days or weeks, but the landlord will be permitted to request that the court lift the stay to allow the eviction to proceed and the court will grant the landlord's request because the property is owned by another party who only leased the property to you.

Collection of Over-Payment of Public Benefits - If you receive public benefits and were overpaid, the agency is normally entitled to collect the over-payment out of your future checks, or, if you no longer receive the benefits, the can collect from you directly. The automatic stay prevents this collection; however, if you have become ineligible for future benefits, the automatic stay does not prevent the agency from denying or terminating benefits for that reason.

Multiple Wage Garnishments - Filing for bankruptcy stops most wage garnishments immediately. Not only will you take home your full salary, you also will be able to discharge the qualifying debt, such as credit card debt balances and personal loans, as part of the bankruptcy. Please be aware that commonly garnished debts, such as for ongoing child support and alimony, will not get discharged. What will happen to overdue support payments and back taxes will depend on the bankruptcy chapter that you file because you will likely remain responsible after a Chapter 7 Bankruptcy or pay off the debt entirely in a Chapter 13 Bankruptcy.

Certain Tax Proceedings - The IRS can still audit you, issue a tax deficiency notice, demand a tax return, which often leads to an audit, issue a tax assessment, and/or demand payment of such an assessment. However, the automatic stay does temporarily stop the IRS from issuing a tax lien or seizing your property or income. Whether you’ll be responsible for the tax after your bankruptcy will depend on whether the tax gets discharged in Chapter 7 bankruptcy or whether you pay the debt in Chapter 13 Bankruptcy.

Support Actions - A lawsuit against you seeking to establish paternity or to establish, modify, and/or collect child support or alimony isn't stopped by your filing for bankruptcy.

Criminal Proceedings - A criminal proceeding will not be stopped by the automatic stay. For instance, if you were convicted of writing a bad check, sentenced to community service, and ordered to pay a fine, your obligation to do community service will not be stopped by your bankruptcy filing and because the fine was assessed as a punishment, you will likely be required to pay the fine as well.

Pension Loans - Despite the automatic stay, money can be withheld from your income to repay a loan from certain types of pensions (including most job-related pensions and IRAs).

By filing for Chapter 7 Bankruptcy, you are technically placing the property you own and the debts you owe in the hands of the bankruptcy court. Thus, you cannot sell and/or give away any of the property you own when you file, or pay off your pre-filing debts, without the court's consent. That said, with a few exceptions, you can do what you wish with property you acquire and income you earn after you file for bankruptcy.

The court exercises this control over your finances through a court-appointed person called a "bankruptcy trustee." The trustee's primary role is to ensure that your creditors are paid as much as possible of what you owe them. Additionally, the more assets the trustee recovers for creditors, the more the trustee is paid.

The trustee will examine your papers to make sure they are complete and to look for nonexempt property to sell for the benefit of your creditors. The trustee will also review all of your financial transactions during the previous year to see if any can be undone to free up additional assets to distribute to your creditors. In most Chapter 7 Bankruptcy cases, the trustee finds nothing of value to sell.

A week or two after you file for Chapter 7 Bankruptcy, you (and all the creditors you list in your bankruptcy filings) will receive a notice that a "creditors meeting" has been scheduled. The bankruptcy trustee oversees the meeting and, after swearing you in, may ask you some questions about your bankruptcy and the papers you filed. In the vast majority of Chapter 7 Bankruptcy cases, this is the debtor's only visit to the courthouse.

If, after the creditors meeting, the trustee determines that you have some nonexempt property, you may be required to either surrender that property or provide the trustee with its value in cash. If the property is not worth very much or would be too time consuming for the trustee to sell, the trustee may "abandon" the property, which means you get to keep the property even though it is nonexempt.

Most property owned by Chapter 7 debtors is either exempt or essentially worthless for purposes of raising money for creditors. Consequently, few debtors are required to surrender any property unless the property serves as collateral for a secured debt.

The most common examples of collateral for a secured debt are houses and automobiles. If you are in behind on your payments, the creditor can request to have the automatic stay lifted to permit the creditor to repossess or foreclose on the property that served as collateral for the debt. However, if you are current on your payments, you can retain the property and continue making payments as before unless you have enough equity in the property to justify its sale by the trustee.

If a creditor has recorded a lien against your property because of a debt you have not paid (for example, because the creditor obtained a court judgment against you), that debt is also considered secured; but you may be able to remove the lien and thus the judgment through a Chapter 7 Bankruptcy.

 At the end of the bankruptcy process, all your debts are cleared or "discharged" by the court, except:

• Debts that automatically survive bankruptcy, such as child support, most tax debts, and student loans, unless the court rules otherwise, and
• Debts that the court has declared non-dischargeable because the creditor objected; for example, debts incurred by your fraud or malicious acts.

Once the bankruptcy is complete, and all your non-dischargeable debt has been cleared or discharged, you can begin rebuilding your credit so you can reestablish your credit-rating.

The Chapter 7 Bankruptcy process is relatively straightforward - it typically consists of six steps:

Step 1: Before filing, complete a mandatory credit-counseling course by phone or online.

Step 2: File the official bankruptcy forms (fillable forms are available online) listing all your property and creditors and providing information about your financial transactions during the previous two years.

Step 3: Mail the bankruptcy trustee, who handles the case for the court, a copy of your most recently filed income tax return, plus any other documents the trustee asks for.

Step 4: About 30 days after you file, attend a creditors’ meeting, usually the only personal appearance you’ll have to make. The creditors’ meeting occurs in a small hearing room and is conducted by the trustee. Creditors seldom appear. At this meeting, you are required to answer (under oath) any questions the trustee has about the information in your papers, or provide other information the trustee thinks is relevant. A typical meeting lasts five minutes or less. You are not required to have a lawyer represent you at this meeting and you will have to answer the trustee’s questions whether or not you have a lawyer with you.

Step 5: No later than 60-days after the creditors’ meeting, you must attend a mandatory budget counseling course, either by phone or online, and file a simple form telling the court that you have completed it along with a certificate of completion from the counseling agency.

Step 6: Thereafter, you wait. During this period, you cannot operate a business with inventory or sell or give away any property without the bankruptcy trustee’s permission. This continues until the court sends you a written discharge of your debts, which will occur within 60-to-75 days after the creditors’ meeting. During that period, creditors can, but seldom do, object to your discharging of a debt. The trustee arranges for you to turn over nonexempt property, if you have any, but most people who file for Chapter 7 Bankruptcy do not have any nonexempt assets and thus, are never required to surrender any of their property to the court.