Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a process for people overwhelmed with debt and want a fresh start. You are able to eliminate (or Discharge) most or all of your current debts while keeping most or all of your possessions. California has really beneficial exemption laws for debtors and understanding and taking advantage of them can really give you a great way to start fresh. Almost all of Chapter 7 bankruptcy cases are No-asset cases which means you don’t have anything to give back that don’t fall under the California list of exemptions. When you file for Chapter 7, all the creditors that have been calling you non-stop are immediately notified, and from that moment they are not allowed to call you anymore and you get an automatic stay (meaning they can’t foreclose on your house or take your car until the stay is lifted). Meanwhile, in most cases, you can keep your house, and your car as long as you are current on the payments but the credit card debt and other unsecured debt will be erased (discharged). Student loans can now be discharged under some cases so please read the linked article if that applies to you. The process takes about 4 months and you will have to “appear” in court one time but currently since Covid-19, those appearances are over telephone or Zoom making it easy and convenient for those who are busy with life.
If your bills have become more than you make each month and you find yourself in an endless circle of losing more money because you don’t have enough money to pay the bills, bankruptcy is something that you may consider. With many Americans dealing with student debt, credit card payments, car payments, housing payments, along with record high costs of living, bankruptcy can be the best option for many people to get back on their feet.What Will You Need
It is not unheard of for people to file for Chapter 7 by themselves which is called “pro se”. However we do not recommend doing this as it can be a complicated process with a lot of nuances. Even those that manage to get it done without paying for a lawyer, may have missed a big opportunity on exemptions or inadvertently gotten their case dismissed because they missed crucial parts of the process or deadlines. If you want to move fast and impress your lawyer with how prepared you are, here is the basic documentation you will need but you can find a much more detailed list on our List of Documents page.
- California Drivers License and Social Security Card
- Last year’s State and Federal Tax Return
- Bank Statements (the amount and time frames can vary)
- W2’s or pay stubs or proof of all income sources
Please note there may be more documents required depending on your situation but for most simple cases this is all we need to get started.
Finding a good lawyer that makes you comfortable is very important and there are a lot of lawyers in Riverside County. I would recommend talking on the phone to at least 2-3 lawyers and if they are “too busy” to give you the initial consultation to get to know one another, move on to another lawyer. We of course recommend Contacting Us but make sure you find a lawyer you connect with and feel comfortable with how they talk to you and the knowledge they possess on the details pertaining to your case. They should have done thousands of bankruptcies in the past as we have to qualify as highly experienced bankruptcy lawyers in the Federal Court of the Central District of California Riverside Division which represents both Riverside and San Bernardino counties. We also have an office in San Clemente which is Orange County and that area is served by the Federal Court Central District of California Santa Anna Division. You have to be completely honest with your lawyer as they work for your rights not for the bill collectors or the court and you may be surprised how often people feel embarrassed about their situation and lie about it to their lawyer putting themselves in a possible precarious situation.Getting Started
Now you can meet with your lawyer and explain your exact situation regarding your debts, your income, your spousal support, your urgency and your lawyer should ask a lot of questions about your life in general to get a full understanding of where you are financially, and what is the best path forward for you. By doing a Chapter 13 Bankruptcy , your lawyer is able to obtain a list of every creditor that you owe money to, so if there are any that you forgot about, they will be added to the list during the process.
Not everyone can file for Chapter 7 Bankruptcy! It is meant for people with no means to ever be able to pay back these enormous debts. If you have ability and assets that are not exempt, you may have to file for Chapter 13 Bankruptcy which will mean you will have to pay back at least some of the debt you owe. Whether you are eligible for Chapter 7 is determined by the Means Test in California. To over simplify it, the means test determines if you are below the median income earner for a household of your size in California and if so, you qualify for Chapter 7. This is a gross oversimplification so I recommend reading the Means Test page on site for more information if you think you are close to the line.
Once your lawyer verifies that you have passed the means test, they will take all the information that you give them and use some special bankruptcy software to create a Voluntary Petition for Individuals Filing for Bankruptcy (Chapter 7). This document will have all the details of your debts, your income, your assets and any other details the court wants represented in different Schedules, which your lawyer will ask you along the way. Read this document carefully before signing it as you are stating before a federal court that all the information is true and correct. Now you are ready to file but it's important to keep in mind that your lawyer requires full payment before proceeding with filing your petition. Many people ask the question “How can I pay for a lawyer if I’m broke and filing for bankruptcy?”. This question is reasonable considering you are already struggling to make monthly payments for your credit cards, student loans, housing, vehicle and other bills. But addressing the root of the financial problem is similar to fixing a leaking boat, you can repair the hull and sail into the sunset or you are going to need to find bigger and bigger buckets to keep bailing out the mounting interest and fees.Filing Your Petition
As soon as your lawyer files your Chapter 7 petition, all of your creditors are immediately notified and your assets are put on an automatic stay. An automatic stay means that banks and creditors cannot take anything from you during your bankruptcy. If they are going to foreclose on your house tomorrow and you file bankruptcy today, they won’t be coming to take your house. It is absolutely immediate notification that you are in bankruptcy and for 30 days no action can be taken against you as far as collections or foreclosure. Most bankruptcy attorneys file petitions in batches and they do this because if they have 10 clients filing, all the court dates will line up and it makes it easier for everyone. However if you have an urgent situation like a foreclosure or repossession, we will make an exception.
Now that you have filed, the Federal court will issue you several things:
- Bankruptcy Number
- Date for your 341A Hearing
In a chapter 7 bankruptcy meeting of creditors the trustee not the judge will be the one to conduct the meeting. The hearing is usually telephonic or by Zoom and it is crucial that you and your spouse find the time to do it when the court says. The meeting will usually occur about 30-40 days after you file and you will get a letter in the mail stating the time and instructions to call in or use the Zoom link. If you have never used Zoom before, it is recommended you test it out before your crucial 341A meeting. It will usually take about 30 minutes depending on the trustee but our team will be able to tell you what to expect. Because the trustee represents the creditors they will ask the debtor questions about the bankruptcy petition you filed and the schedules that are included therein. During the hearing you are under the penalty of perjury so this is where it becomes a problem if you didn’t tell your attorney everything they need to know up front. If you are honest and forthcoming it is a pretty painless process just for the trustee to understand your petition and ensure there are no assets they can claim for the creditors. It is called a meeting of creditors as your creditors are invited to attend the hearing however they can and usually do waive that right. Both spouses must be present (on phone or Zoom) for the hearing and answer all the questions truthfully. We prepare our clients with a list of typical questions just so you have an idea of what kinds of things the trustee will ask to set your mind at ease.What's a Trustee?
A trustee is a lawyer who represents the court and they work in the best interest of the creditors. Their job is to make sure you are not taking advantage of the system and if there is something they can sell to pay the creditors, it is their job to do so. An experienced attorney knows all the trustees, and judges in Riverside and can help predict small differences of how they will go about the process. There are a limited number of trustees handling the Central District of California Riverside division, and an experienced attorney in this region will know them all quite well.
From filing your bankruptcy petition until discharge will last about 3-4 months and during that time you must:
- Stop paying credit cards unless advised otherwise by attorney
- Keep making mortgage and car payments
- Keep paying all utility bills
If you are paying a mortgage, it is important to note that you will not have access to online accounts. You must pay by mail or phone and your bank can help advise you how to go about keeping up with your mortgage payments.
If all goes well in about 60 days the trustee will declare your case to be a no-asset case and all your unsecured debts will be discharged. You can now move on with a fresh start and consider the best way to proceed with Life After Bankruptcy.