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Where can I get basic information?

The US Bankruptcy Court website has basic information.

How much does bankruptcy cost?

Asking this question is a little like asking how much it will cost to fix your car before the mechanic looks at it. So take this answer with that in mind. Also keep in mind that the attorneys’ fees are separate from things such as court filing fees (about $350) and debt counseling fees paid to third parties.

Most simple chapter 7 for individuals with primarily consumer debts and no special issues will run between $1,500 and $3,500 depending on issues such as whether the debtor(s) can assemble the needed documents in one attempt, whether they have debts they want to reaffirm past the bankruptcy case (such as a car loan), and other facts. Things can become a little more complex (and expensive) if the debtors have any questionable recent transactions.

A Chapter 13 case usually costs a little more, since it involves creating a repayment plan that must be approved by the court, in addition to the documents required in a Chapter 7. While every case will be different, the office of the US Trustee has adopted a fee schedule presumed to be reasonable.

Chapter 11 reorganization cases (usually reserved for businesses) typically are more involved and ongoing fees are scrutinized by the US Trustee’s office and the Court for reasonableness before the attorney can be paid for post-petition services.

 Can I file without my spouse?

You have the right to file for bankruptcy without your spouse joining you. In many cases, however, it is not advisable. First, if you file, all of the community property is still property of the bankruptcy estate. Next, your discharge, if you receive one, will act as an injunction against efforts by creditors against you and it will include efforts to reach the community property. In California, however, spouses’ separate property can be held liable for a number of debts incurred by the other, namely debts incurred for basic necessities of life. This has been interpreted to include food, shelter, and medical expenses. So, if you receive a discharge, but your spouse has separate property and the debt relates to necessities of life, your spouse may still be sued even after you receive your discharge.

How long does it take?

A Chapter 7 case with no complications can often be finished within about four months of filing. A Chapter 13 repayment plan is not finished until the plan has been performed, and that can take three to five years. A Chapter 11 plan can be completed as quickly as 6 months or can take several years.

Will this affect my credit score?

Credit reporting is governed in part by the federal Fair Credit Reporting Act. Under section 605(a) of this law (15 USC §1681c), consumer reporting agencies are generally prohibited from including a bankruptcy in a credit report after 10 years. However, this is not substantially different than the timeline permitted to report a negative inference for bad debt outside of bankruptcy – 7 years. And, some lenders may actually be more willing to lend to people who have just been through a bankruptcy, because the debtor has just been discharged of other debts and because the debtor cannot get another discharge for a number of years.

Is information about my bankruptcy case publicly available?

Your petition, schedules and other filed documents are part of your bankruptcy case, and are publicly available to anyone who desires to review court records. Certain information such as your social security number, however, will remain private.

What if I don’t qualify for a Chapter 7 bankruptcy?

Changes were made to the bankruptcy code in 2005 that limit the number of people who can file for Chapter 7 relief to those whose income when matched to their secured debts does not result in significant monthly disposable income. This is “means test.” If you don’t qualify to file a case under Chapter 7, you may qualify to file bankruptcy under Chapter 13 or Chapter 11, or you may be best served by doing an out of bankruptcy workout. These alternatives typically cost more and take longer, but may achieve your goals nonetheless.

Why should I declare bankruptcy instead of doing a debt repayment plan outside of bankruptcy?

Good question. Sometimes, bankruptcy is not the best alternative. Workouts outside of bankruptcy may be best when much of your debt would be non-dischargeable (such as repayment plans with the IRS), or the automatic stay would not apply to a particular claim such as ongoing alimony payments.

What Must A Chapter 13 Plan Do?

When a debtor cannot file for bankruptcy under Chapter 7, either because he cannot pass the means test, because of a too recent prior bankruptcy, or other reason, he usually will file for protection under Chapter 13 of the Bankruptcy code.

Chapter 13 is somewhat like Chapter 7 in that the filing of the petition results in the imposition of an automatic stay and the property of the estate is used to pay creditors. However, there are several significant differences between Chapter 7 and Chapter 13.

First, the property of the bankruptcy estate includes not only the debtor’s assets but also all earnings of the debtor for the duration of the case or until it is converted to a case under a different chapter. Second, the debtor must propose a plan, similar to a plan of reorganization under Chapter 11. This plan, which must be confirmed by the Court at a hearing, must contain several elements:

It must:

  • Pay all priority claims in full unless the claimant agrees to a different treatment. Priority claims include such things as administrative expenses of the case, trustee fees, filing fees, domestic support obligations, recent tax obligations, and allowed claims for death or personal injury occasioned by the debtor’s operation of a motor vehicle while under the influence. For a full list of “priority claims”, see 11 USC 507;
  • As to secured claims, provide either that the debtor surrender the collateral, or the secured claim is paid in full and the creditor retains the security interest until then or until discharge;
  • Provide for payments on unsecured claims that equal or exceed what each creditor would receive if the bankruptcy had proceeded under Chapter 7; and
  • Be proposed “in good faith”.

In addition, the debtor must demonstrate he can make all payments required under the plan, has paid all domestic support obligations since filing for bankruptcy, and has filed all tax returns that are due.

Finally, if the Chapter 13 trustee or an unsecured creditor objects to confirmation of the plan, the Court may only confirm the plan if the unsecured claim is paid in full, or the debtor devotes all disposable income during the life of the plan to paying unsecured creditors’ claims. “Projected disposable income” is generally described as all of the debtor’s income less amounts reasonably necessary for the maintenance and support of the debtor and his dependents or household. If the debtor’s household income exceeds the median in that state, the calculation of what is “reasonably necessary for the maintenance and support” is calculated by a special “means test” formula created in 2005 by Congress.

The length of the plan can be less than three years if it pays all unsecured claims before then, or is three years if the debtor’s household income is less than the median income for households of that size in the state where the debtor lives, or five years if the debtor’s income is greater than the median income in that state for a household that size.