What is 7?
Filing Chapter 7 bankruptcy is the fastest and easiest method for obtaining a debt-free fresh start. It is most commonly used for consumers (regular people), but may also be used for certain businesses. In fact, in the one-year period before September 30, 2013, there were 753,995 bankruptcy filings under this chapter in the country according to the Administrative Office of the United States Courts.* In as little as four-months, this option allows you to completely wipe out your unsecured debt.
Unsecured debt is debt for which there is no security interest (something that can be taken back in the event you fail to pay). Common types of unsecured debt include: credit cards, medical bills, payday advances, personal loans, and repossession deficiency claims.
Do I Qualify?
The Means Test
What is the Means Test?
In 2005, bankruptcy laws changed dramatically and added stricter requirements to file. Among those changes was the addition of a hurdle to file for Chapter 7 bankruptcy, known as the Means Test. Basically, the Means Test is a formula used to determine whether or not an individual or couple qualifies for this type of bankruptcy. The formula ensures that this is available to those who are truly unable to pay back their creditors. This is an amazing tool that allows a person to come out debt-free and the Means Test is a method of ensuring that this privilege is not abused.
You should be sure that your attorney has extensive experience with means testing. We often meet with people who were incorrectly advised by other attorneys that they do not qualify.
How Does It Work?
To determine whether you qualify using the Means test, we take your average household income over the past six months and compare it to the median income for a household of your same size. If you are below the median, there is no presumption that you are abusing the process; thus, you automatically qualify under the Means Test. For example, in 2013, the California median income for a household of two people was $63,030 per year.* Similarly, the 2013 California median income for a household of four people was $75,656 per year.*
Even if you are above this median, you may still qualify based on certain other factors. There are many things about your financial situation that may allow you to qualify. The test allows you to deduct certain expenses from your income to determine whether you have any disposable income to repay your creditors with. Thus, it is important to speak to an experienced attorney as soon as possible to ensure that your full financial situation is being taken into consideration.
Filings in Your Area
One reason many people are uncertain about filing is that they feel embarrassed about doing so. However, filing is fairly common in the Central District of California. We’ve been Chapter 7 bankruptcy attorneys in the Los Angeles area for years. We understand the process and the emotional aspect of filing. We’ll walk you through the entire process and will help with the uncertainty.
According to the United States Bankruptcy Court, Central District of California’s 2012 Annual Report, the Central District of California had the highest number of filings in the nation for the fifth year in a row. In 2012, there were 81,201 new Chapter 7 case filings in the Central District of California in 2012. This included 32,571 filings the Los Angeles Division, 8,340 filings in the San Fernando Valley Division, 24,452 filings in the Riverside Division, 11,920 filings in the Santa Ana Division, and 3,918 filings in the Northern Division.
From January through July 2013, there were 39,356 cases filed under this chapter in the Central District. Of those cases filed so far this year, 15,984 were in the Los Angeles Division.
In fact, almost nine percent (9%) of all bankruptcy cases filed in the United States were filed in the Central District.
What to Expect – A Timeline
Call Our Office or Submit an Online Request
When you call into our office for a free consultation, you will be greeted by one of our friendly staff members who will then gather a little bit of basic information about you. Almost immediately, the staff member will transfer your call over to an available Chapter 7 attorney to begin the consultation. During your first talk with an attorney, the attorney will ask you questions regarding your financial situation, such as your household income and the amount and kind of debt you have. Then the attorney will outline your options for you and determine what is the appropriate solution for your situation.
Retaining Our Office
Once you hire us as your Chapter 7 lawyers, you may begin to refer your creditor calls to us. That means you will no longer have to deal with the annoying and, often times, harassing collection calls. As your attorneys, we are here to answer your questions and help you throughout the entire process, so do not hesitate to contact our office with your questions or concerns. If you wish, you can also meet us in one our offices. We have offices throughout the Los Angeles, Orange County, Inland Empire and Antelope Valley areas.
Preparing Your Case
In order to prepare your case for filing with the court, we will need to collect some basic documents. For example, we will need to examine your proof of income (often paystubs or proof of Social Security Income) and your tax returns from the previous two years. The document we submit to the court to file your case is called a petition. We use that information to complete your petition and to ensure that you qualify under the Means Test analysis.
Credit Counseling Requirement
On October 17, 2005, a new law that increased the requirements for filing bankruptcy took effect. Among these changes is a requirement that you complete a credit counseling course from an approved credit counseling agency within six months prior to the filing. This requirement applies to all individuals who file for bankruptcy, even if the debts are primarily business-related. 11 U.S.C. § 109(h). The goal of the requirement is to help you understand your options and to make sure that you are informed. You must complete this course before we are able to file your case with the court. Fortunately, the entire course can be completed online and generally takes around one hour to complete.
After filing, you will have to complete a second similar debtor education course. The goal of the second course is to help you make a budget and to avoid debt in the future.
After the Filing of Your Case
The Automatic Stay
After your case is filed with the court, you will get a case number and a hearing date. At this time, something called the “Automatic Stay” takes effect. The Automatic Stay ensures that all collection activities are stopped during the pendency of your case. Essentially, the laws prevent any creditors from pursuing further collection efforts. This means all lawsuits, foreclosures, wage garnishments, repossessions, etc. will stop.
However, it is important to realize that a secured creditor who is not being paid has a right to file a motion for relief from the Automatic Stay. If the judge grants this motion, that creditor will no longer be subject to the Automatic Stay and will be allowed to resume collections. This is more likely to occur in a Chapter 13 due to the longer length of the bankruptcy.
Around four to six weeks after the filing of your case, you will be required to attend a hearing known as a “341(a) hearing” or “341(a) meeting.” This is not a court hearing and will not be in front of a judge! Rather, it is an informal meeting in front of your bankruptcy Trustee. The Trustee is the individual in charge of ensuring that your case is authentic and properly administered. At the meeting, the Trustee will ask you basic questions about your financial situation to confirm that the information in your petition is accurate and truthful. Although it can take a while for your name to be called at the hearing, once your turn comes up, your hearing will only last about five to ten minutes. We represent you at your hearing and make sure your case moves forward smoothly. We are often complimented by Trustees (and Judges) about how our cases are professionally prepared and presented.
There are 44 Chapter 7 trustees in Central Division of California. For a full list of the active trustees, please visit: http://www.justice.gov/ust/eo/private_trustee/locator/7.htm#cca
Because these meetings are not in front of a judge, they do not take place in a courthouse. The most common hearing locations are as follows:
- Los Angeles Division: 915 Wilshire Blvd., 10th Floor, Los Angeles, CA 90017
- Riverside Division: 3801 University Avenue, Riverside, CA 92501
- San Fernando Valley Division: 21051 Warner Center Lane, Woodland Hills, CA 91367
- Santa Ana Division: 411 W. Fourth Street, Santa Ana, CA 92701
- Northern Division: 128 E Carrillo Street, Santa Barbara, CA 93101
Sometimes, during this waiting period, we file certain motions on your behalf. For example, if you own a home that has judgment liens attached to it, we may be able to file a motion to wipe out the liens. More specifically, we can do this by showing that the liens impair your homestead exemption. Because you must meet very specific criteria in order to qualify for this kind of motion, it is important that you speak to an experienced attorney.
After the 341(a) meeting, there is a period of waiting before you receive your discharge. The discharge is the big moment you are waiting for, it means that you no longer owe on your debts. You will typically receive your discharge within three months after your 341(a) meeting. Shortly after you receive your discharge, the Trustee will close your case and you can begin your life with your debt-free fresh start!
Can I keep my car?
Typically, yes. If you have already paid off your car, then we can generally protect the equity in it. The amount of equity we can exempt from the reach of the bankruptcy trustee is limited, however. Thus, if your car has substantial equity this chapter may not be right for you. If your car is still being paid off, you must make your regular payments in order to keep it. Some lenders will require you to sign a reaffirmation agreement, under which you re-obligate yourself to the original contract. However, it is important to ensure that you can continue to afford the payments before entering into a reaffirmation agreement.
Can I keep my home?
Generally, yes. Fortunately, California laws provide generous exemptions that allow debtors to protect their assets from the reach of the bankruptcy trustee. These exemptions allow us to protect a significant amount of equity in your home. However, you must remain current on your mortgage payments if you intend to keep your home.
What if I have student loan debt?
Student loans are only dischargeable under very specific circumstances, generally involving extreme hardship. We are happy to discuss your options regarding student loans with you.
What if I have a business?
Many of our clients are self-employed and file while keeping their business alive. Others wish to file a corporate case. When you call our office for a free consultation we outline all of your options regarding your business.
Who will know that I filed bankruptcy?
Like any document filed with the court, your filings will technically be public record. Similarly, a filing will remain on your credit record for up to ten years. In reality, your friends and family will only learn of your filing if you let them know.