Ten Questions About Bankruptcy

Some people are bankruptcy skeptics – you know, those who tell people bankruptcy can’t be helpful, or is somehow “wrong.” While there are certainly many times when we have better options than bankruptcy,  often bankruptcy can help you get rid of your debt and help you find your path to financial freedom. My goal here is to respond to those myths, particularly  for people considering bankruptcy in Ventura, Oxnard, Port Hueneme or Santa Clarita. Here are my top 10 bankruptcy myths:

BANKRUPTCY QUESTION #10:
Will I lose my house if I file Chapter 7 bankruptcy?

It is vanishingly rare that a person loses the house they live in after filing a Chapter 7 bankruptcy in California. However, there are two important factors that must be considered before filing Chapter 7 bankruptcy. First, are you current on your house payments? Second, how much equity do you have in your home? If you live in California, you are current on your house payments and you do not have excess equity in the house you live in (more than $50,000 if single or $75,000 if married and the house is deeded in both spouses’ names), you should be able to file Chapter 7 bankruptcy and keep the home you live in.

If you are current, or can become current, on your payments to your mortgage company or mortgage companies, home equity loans, city and county tax collector and homeowners association dues, you should be able to file Chapter 7 bankruptcy and keep your home. It is also important that you stay current on your house payments after filing your bankruptcy. If you are behind on your house payments, you may need to consider filing a Chapter 13 bankruptcy. Chapter 13 bankruptcy is specifically designed to help someone who is unable to bring their payments current before filing bankruptcy.

In California, you are entitled to protect/exempt $50,000 equity if single or $75,000 equity if married and the home is deeded in both spouses’ names. Remember, this only pertains to the house you currently live in, your residence. The equity in your home is determined by subtracting the amount you owe on all mortgages, equity lines, etc. from the value of your home. You can determine the value of your home from a recent appraisal, the tax value provided by the county tax office or a recent market analysis that compares your home to others in your neighborhood with adjustments for differences in square footage and other amenities. If you have more than $50,000 equity in your home or $75,000 if married and the home is deeded in both spouses’ names, you may want to consider a Chapter 13 bankruptcy.

It is important that you are current, or can become current, on your house payments and you do not have excess equity in your home to file a Chapter 7 bankruptcy and keep your house.

BANKRUPTCY QUESTION #9:
Will I lose my car or truck if I file Chapter 7 bankruptcy?

It is rare for a person to lose their car after filing Chapter 7 bankruptcy. However there are two important factors that we need to examine before filing Chapter 7 Bankruptcy. First, are you current on your car payments? Second, how much equity do you have in your car? If you are current, or can become current, on your car payments and you do not have excess equity in your car, you should be able to file Chapter 7 bankruptcy and keep your car. If you have multiple cars in your name, you should speak with a bankruptcy attorney to determine if all the cars can be protected.

Not only do you need to be current when you file bankruptcy, it is also important that you stay current on your car payments after filing your bankruptcy. If you are behind on your car payments and you cannot bring the payments current before filing Chapter 7, you may need to consider a Chapter 13 bankruptcy. A Chapter 13 bankruptcy is designed to help someone who is behind on their payments and unable to bring the payments current in a short period of time.

In California, an individual is entitled to protect or exempt $1,900 (or $2,775, depending on circumstances) equity in a single car or truck. The Central District of California bankruptcy court looks at the equity in a vehicle as the vehicle’s NADA Clean Retail value less the amount owed on the vehicle. If you have more than this much equity in a car, it is still possible to keep the car. By using the car exemption and another exemption, you may be able to protect more equity in your car.

As a reminder, you must be current on the vehicle and must not have excess equity in the car to file Chapter 7 bankruptcy and keep your car or truck.

BANKRUPTCY QUESTION #8:
Will I lose my 401(k) or retirement plan in bankruptcy?

In almost all cases you can keep your 401(k) if the retirement plan is an ERISA qualified plan. The Employee Retirement Income Security Act of 1974, or ERISA, plans have been determined to be protected or exempted . As a result, you may want to consider bankruptcy before withdrawing money from your 401(k) or pension plan. IRAs are usually protected.

BANKRUPTCY QUESTION #7:
What happens to my credit score after I file bankruptcy?

You should first consider the difference between your credit score and your ability to obtain credit. Your credit score is the number the credit reporting agencies assign to your credit. It is based on your history of making payments on your debts. Your ability to obtain credit is based on your ability to make payments in the future and looks at your income and your debts. If your debts exceed your ability to make payments, you may be unable to obtain credit even if you have consistently paid your debts on a timely basis. In other words, it’s entirely possible to have a good credit score and still be prevented from buying a car – because you have too many debts. Filing bankruptcy will eliminate many of your debts and will improve your ability to obtain credit in the future.

BANKRUPTCY QUESTION #6:
I’ve heard that I won’t be able to get credit for 10 years after bankruptcy?

THERE IS LIFE AFTER BANKRUPTCY! Believe it or not, you may be able to obtain a car loan or a credit card almost immediately after being discharged from your bankruptcy. Since you have eliminated most of your debts in bankruptcy, many finance companies believe you now have the ability to make timely payments on a vehicle or credit card. However, you will most likely be charged a higher interest rate the first few years after your bankruptcy is discharged. If you make timely payments on the credit cards or loans obtained after filing bankruptcy, the interest rates and credit scores should improve quickly.

BANKRUPTCY QUESTION #5:
Will I ever be able to buy a house after I file?

You will not qualify for a new home loan immediately after being discharged from Chapter 7 bankruptcy, but most clients can qualify for a mortgage in approximately one to two years after discharge. In those one to two years you will have time to reestablish your credit and save money for a down payment.  Obviously, the financial climate at the time you want to purchase a new home will have a bearing on your ability to get a loan.

BANKRUPTCY QUESTION #4:
Will I be able to refinance or sell my house while in Chapter 13 bankruptcy?

When you’re refinancing, the decision about whether you can obtain credit is up to the company refinancing your mortgage. Most companies are willing to consider refinancing after 12 months of continuous, on-time monthly payments to your mortgage company and Chapter 13 bankruptcy Trustee. It is critically important that you make payments to both on time. The company refinancing your mortgage will look at the payment history from the mortgage company and the Trustee. If you have an excellent payment history, you will probably receive preliminary approval for refinancing. Once a mortgage company provides preliminary approval, you will be required to obtain permission from the bankruptcy court before you can actually sign the papers to refinance your mortgage. If there are gaps in your payments to your current mortgage company or Chapter 13 Trustee, it’s not likely that you will get that refi.

BANKRUPTCY QUESTION #3:
I’m married. Do my my spouse and I both need to file bankruptcy?

No. It is not necessary that both you and your spouse file bankruptcy to save a home or car that is financed in both names. When one spouse files bankruptcy on a joint debt, an automatic stay goes in place (an injunction created by the Bankruptcy Court) that keeps your creditors from foreclosing on your home or repossessing your car. However, you should get  advice from your lawyer (which is NOT me, until we have a signed agreement) for your specific case. California is a community property state, so it’s generally true that credit card debt is discharged with respect to both parties, even if only one filed the bankruptcy.

BANKRUPTCY QUESTION #2:
If I earn good money and am above the “Means Test”, can I still file for Chapter 7?

If your income is above the Means Test (based on your household income and family size), you may still qualify for Chapter 7 bankruptcy. If you are above the Means Test and do not qualify for a Chapter 7 bankruptcy, you may still qualify for a Chapter 13 bankruptcy. A Chapter 13  can generally discharge the majority of your unsecured debts including credit cards, personal loans, and medical bills.

BANKRUPTCY QUESTION #1:
Will my (boss, mom, family, friends) know that I filed bankruptcy?

Unless you’re a high-profile or public person, it is exceedingly rare that anyone will ever know you filed bankruptcy. Although bankruptcy records are public, and the proceedings are public, I’ve rarely seen anyone learn of a bankruptcy unless the debtor themselves (you) tell them.

Those are my Top 10 Bankruptcy Questions. If you would still like to speak with a bankruptcy attorney then you need to call me right now.

When you call me, you will always speak directly to me – the attorney – rather than to a secretary or  paralegal.

Contact Eric Ridley, a Ventura, Santa Clarita and Port Hueneme Bankruptcy Lawyer, now to set up a free evaluation so that I can answer any further questions that you may have and help you during this difficult time. (805) 244-5291