Answers to the Top Bankruptcy FAQs

Answers to the Top Bankruptcy FAQs 4 th Edition Bill White Attorney at Law 4695 MacArthur Court, Suite 1430 Newport Beach, CA 92660 Office:

4 th Edition Copyright 2013 by the Author Attorney Bill White All rights reserved by the author. No part or portion of this book may be used or reproduced in any way without the written permission of the author. Printed in the United States of America

Table of Contents Read This First!... 1 Definitions of Important Terms... 3 Beware These Bankruptcy Myths... 5 I Can t File Bankruptcy If I Have A Job or Business... 5 I Will Lose Everything If I File Bankruptcy... 6 I Can t Get Credit After Filing Bankruptcy... 6 My Credit Score Will Be Ruined Forever... 7 I Can t Get a Job After Filing Bankruptcy... 7 Married Couples Must File Together... 8 My Medical Bills Can t Be Eliminated In Bankruptcy... 8 Must have a Minimum/Maximum Amount of Debt... 8 How Can You Protect Yourself?... 9 Bankruptcy Overview... 10 The Top Bankruptcy FAQ s... 13 What is the Bankruptcy Process?... 13 What Happens When I File Bankruptcy?... 16 What Bills Do I Have to Pay After I File Bankruptcy?... 19 Do I Need a Reaffirmation Agreement?... 21 What Debts Are NOT Eliminated in Bankruptcy?... 23 iii

Can Bankruptcy Eliminate My Back Taxes?... 25 Can Bankruptcy Save My Home From Foreclosure?... 26 How Chapter 13 Saves Homes... 27 How Chapter 7 Saves Homes... 27 What Do I Need To File Bankruptcy?... 28 What Does It Cost to File Bankruptcy?... 30 The Right Way to Choose a Bankruptcy Attorney... 33 The Dangers of a Cheap Attorney, Paralegal or Bankruptcy Service... 37 Where to Get More Free Information... 39 iv

Read This First! Congratulations, you have taken the right step to finding out if bankruptcy is the solution to your financial difficulties! However, the information in this book is not designed to make you an expert on bankruptcy law. There is a lot to know about bankruptcy and this book only scratches the surface. Before you make any decision regarding filing, or not filing, bankruptcy, be sure to have your complete situation carefully evaluated by an experienced, knowledgeable and caring attorney. Bankruptcy law is very complex and many of the outcomes depend on your situation. Your neighbor can have different results than you just because of the differences in your income, types of debt, amount of debt and a host of other issues. For example, you and your neighbor might both owe the IRS back taxes, yet, because of certain differences in your situation, you are able to eliminate the taxes in bankruptcy while your neighbor can t. So what are you supposed to do? Before you make any decisions regarding bankruptcy, get good competent legal advice from an attorney who will spend the time with you to completely evaluate your situation. 1

This Book Is Not Legal Advice This book is not intended to give you legal advice. To get current and accurate information about how bankruptcy will affect your situation, you need to discuss your situation with an experienced and competent attorney who will completely evaluate your situation. Please understand that the law does change and the information in this book could become wrong because of a change in the law. While I have made every attempt to verify the information provided here, I do not assume any responsibility for errors or omissions. This book has been distributed to you with the understanding that I am not rendering legal or other professional advice. I provide no guarantee of the accuracy of the information provided because the law can, and does, change frequently. I will not be liable for any direct, indirect, incidental, consequential or other loss or damage arising out of the use of the information in this document by any person, regardless of whether or not informed of the possibility of damages in advance. I am a debt relief agency, helping people to file for bankruptcy protection using the U.S. Bankruptcy Code. This may be deemed by state law to be legal advertising. Bill White The Orange County Bankruptcy Attorney 2

Definitions of Important Terms Trustee: The person assigned by the Bankruptcy Court to administer bankruptcy cases so the judge does not have to be involved in every case. Judge: The person who makes the final decisions on any disputed matter in a bankruptcy case. Creditor: Companies or people owed money by the debtor. Debtor: The person who owes the money to a creditor. Unsecured Debt: Debts that have no collateral pledged as security for the debt. Secured Debt: Debts that have some collateral pledged as security for the repayment of the debt, such as a car, house, boat, motorcycle, etc. If the debt is not paid, the lender can take the collateral and sell it to minimize any loss from non-payment of the loan. The Plan: In Chapter 13, the debtor must make payments to the trustee for a specific period of time. The debtor creates a plan that shows the amount of the monthly payments that the debtor will pay, who gets paid how much, and how long the payments will be made. to the trustee who will 3

then forward the payments to the creditors identified in the plan, typically the unsecured creditors. Discharge: At the end of the bankruptcy case, if the debtor has complied with all obligations and completed all tasks required under the chapter that was filed, whether Chapter 7 or Chapter 13, and no creditors have successfully objected to the debtor receiving a discharge, the Judge issues a court order stating that all debts that qualify are officially eliminated by operation of law. Equity: The amount of value over the existing debt. For example, a car has a market value of $10k and a loan of $7k, there is $3k in equity. Exemptions: The amount of equity that bankruptcy law allows a debtor to protect. The trustee in every Chapter 7 is looking for assets to sell. However, exemptions protect many assets from the trustee. For example, bankruptcy law exempts $3,750 in equity for one car. If the debtor s car has $3k in equity, that amount of equity is protected by the exemption so the trustee will not be able to take the car. If you have more equity than that, check with your attorney about the Wildcard exemptions available in California. 4

Beware These Bankruptcy Myths For some reason, there are many bankruptcy myths that continue to be believed. These myths continue to be repeated by well-meaning friends, neighbors, family members, newspapers and articles on the internet. There are even some people that claim to be experts that will repeat many of these myths. For example, a writer for a very well respected New York magazine recently wrote an article stating that taxes could never be eliminated in bankruptcy. Well, that is just plain wrong! Read these myths and remember them so you don t fall victim to them yourself. I Can t File Bankruptcy If I Have A Job or Business This is a big lie put out by credit card companies and banks that don t want you to file bankruptcy. The truth is, anyone can file for bankruptcy. The only limiting factor is whether you qualify for the chapter of bankruptcy you want to file. Both Chapter 7 and Chapter 13 have requirements that must be met in order to take advantage of the protections of those chapters. 5

I Will Lose Everything If I File Bankruptcy This is another big lie. Most people generally will keep all of their assets when they file bankruptcy. Bankruptcy law allows everyone to keep their personal belongings, especially household goods, appliances, furniture, clothing and many other items. The law provides protection of your personal assets to keep them out of the hands of the bankruptcy trustee and creditors. What the law generally will not allow people to keep are luxury items such as boats, airplanes, dirt bikes, RV s and other items having substantial equity. In a chapter 7, the trustee would want to sell these items to pay unsecured creditors. In Chapter 13, the debtor has the option of keeping these assets. Check with your attorney to see if you have assets at risk of being sold by the trustee. I Can t Get Credit After Filing Bankruptcy Don t you believe it. Most debtors start getting offers for new credit cards and car loans within days of receiving their discharge. Recently, a client of mine completed her Chapter 7 and received a discharge of her debts, including $225,000 of back taxes. Once she received the discharge paperwork, she bought a brand new car and obtained a loan with a 5.9% 6

interest rate. Remember, the banks know that when a person gets a discharge in a bankruptcy, that person can t file bankruptcy and request another discharge for 8 years. Therefore, the banks are willing to make loans after bankruptcy because they know that the person will not have the legal protection of bankruptcy in the event the person fails to pay the loan. My Credit Score Will Be Ruined Forever This is also not true. Take a look at your credit report. Most credit reports show an expected increase in the credit score of about 60-120 points within 12 months after filing bankruptcy. Depending on what steps are taken to rebuild their credit, many people see credit scores of 650-700 within 2 years after discharge. I Can t Get a Job After Filing Bankruptcy This is a holdover from the depression era when filing bankruptcy was considered to be a character flaw and only done by scammers and con-artists. Today, employers understand that bad things sometimes happen to good people and that filing bankruptcy is not a reflection on your character. Unless a company can demonstrate that 7

creditworthiness is a critical component of a job, using the filing of bankruptcy to exclude someone from a job is illegal. Married Couples Must File Together Actually, each spouse can file separately and there are situations where it is advantageous to do so. This area of bankruptcy law is loaded with landmines for the nonprofessional. So get good advice from an attorney before attempting to do this. My Medical Bills Can t Be Eliminated In Bankruptcy Absolutely not true! One of the biggest reasons for people filing for bankruptcy is due to debt arising from medical issues. Doctor bills, hospital bills, radiology expenses, and all other health care provider expenses can be eliminated through bankruptcy. Must have a Minimum/Maximum Amount of Debt This one has a speck of truth to it, so people think it must be always true, but it s not. Chapter 7 does not have limits on the amount of debt a debtor can have, but Chapter 13 does. Chapter 13 limits how much unsecured and secured debt a debtor can have to qualify to file Chapter 13. 8

How Can You Protect Yourself? There are other myths out there that are frequently repeated on the internet, by your friends and neighbors, and even by some attorneys, paralegals, and non-attorney bankruptcy services that don t take the time to keep up on the law on bankruptcy. To protect yourself from falling victim to these, and many other, myths about bankruptcy, sit down with an experienced, knowledgeable and caring attorney that will take the time to sit down with you, evaluate your specific situation, ask you lots of questions and then explain how bankruptcy will work for you. 9

Bankruptcy Overview Bankruptcy provides people with the opportunity to start over, to get a fresh start by eliminating debts, getting caught up on payments, resolving state and federal taxes, and stopping creditors from making life miserable because of a debt. Filing bankruptcy provides a debtor with protection from creditors actions such as harassing phone calls, filing lawsuits, collecting on judgments, taking wages through garnishments and bank levies, etc. The law requires creditors to stop all collection efforts when a debtor files bankruptcy. Bankruptcy Law is a set of federal and state laws administered by the federal courts to provide a legal process to resolve debts between debtors and creditors. Some debts can be completely eliminated and some can t. Bankruptcy can also allow debtors to become current on late payments on cars or homes to prevent foreclosure or repossession. For example, a person behind on house payments and in foreclosure can stop the foreclosure immediately upon the filing of the bankruptcy case. Then, that person has up to 60 10

months to pay back the past-due mortgage payments. At the same time, other debts are eliminated so that the person now has the cash each month to pay the mortgage. If there is a second mortgage on the home, and the home is underwater, the debtor may even be able to eliminate the second mortgage! However, bankruptcy will not eliminate all debts. Some debts such as child or spousal support that have been ordered by a court are not eligible to be eliminated. Debts resulting from fraudulent behavior, debts arising from injuries from car crashes where the debtor was found to be driving DUI, or criminal sanctions ordered by the court are also not dischargeable in bankruptcy. Student loans are typically not eligible for elimination. However, in some cases of extreme hardship, student loans can be eliminated in bankruptcy. The law is very complicated when it comes to taxes. Many taxes can be eliminated through bankruptcy as long as they meet the eligibility requirements. But taxes called Trust Fund Taxes can never be eliminated through bankruptcy. Trust Fund Taxes are taxes such as payroll taxes withheld by an employer in trust for the employee. 11

Sales taxes are another Trust Fund Tax as they are collected for the benefit of another, such as a state or county. Almost all unsecured consumer and business debts can be eliminated in bankruptcy. This includes credit cards, store charge cards, gas cards, doctor bills, hospital bills, personal loans, lease obligations, business loans, debts owed to vendors. But, there are some circumstances where an unsecured debt can t be eliminated in bankruptcy. If you want more information about bankruptcy, go to my website: and download the FREE books, articles and videos on various aspects of bankruptcy. 12

The Top Bankruptcy FAQ s The following are questions that clients frequently ask about bankruptcy. If you have a question that is not covered, you can always send it to me in an email me at BillWhite@TheOrangeCountyBankruptcyAttorney.com or call me at. I m happy to help any way I can. What is the Bankruptcy Process? The bankruptcy process starts when a debtor files a Bankruptcy Petition for protection (a case ) in the U.S. Bankruptcy Court. The debtor files the case in the county where the debtor has resided the majority of time preceding the 6 months before the date of filing the case. For example, if you live in Orange County now, but you lived in Riverside during 4 of the last 6 months, you would be required to file your bankruptcy case in Riverside. To file a case the debtor must first complete a credit counseling course from a court-approved provider and obtain a certificate showing completion of the course. This is the first of two courses that are required. The second one is completed after the case is filed and before the court will issue a discharge. The court can provide a list of credit 13

counseling companies that are qualified to provide these courses. Once the credit counseling course is completed, then the debtor files the bankruptcy petition and numerous documents that list all of the debtor s assets, liabilities, creditors, and any property the debtor has transferred recently. This is the action that files the case with the bankruptcy court. When the case is filed the court will assign a judge to the case and a person called the Trustee to administer the case. The court will also schedule all required hearings. Both Chapter 7 and Chapter 13 require a hearing called a Trustee Hearing, Creditors Meeting or 341 Hearing. This hearing is before the trustee, not the judge. The debtor must appear at this hearing or the case will get dismissed. If the case is dismissed, the debtor may still be able to file a second case, but the debtor will have to pay for the filing again and may also lose protection from creditor actions such as repossession, wage garnishments, lawsuits, foreclosure, etc. At the Trustee Hearing, the trustee will ask questions regarding the debtor s assets, income, liabilities, and 14

transfers of assets prior to the filing of the case. The debtor is required to answer these questions under oath and penalty of perjury. People do get prosecuted for lying to the trustee, so be sure to be accurate in your responses. Creditors may also appear and ask questions of the debtor which the debtor must also answer under oath. Chapter 13 cases have an additional hearing called a Plan Confirmation Hearing. This hearing is held before the judge assigned to your case, not the trustee. At this hearing, the judge reviews the plan that the debtor created and the judge decides whether to approve the plan or not. At this hearing, creditors and the trustee assigned to your case have the opportunity to tell the judge whether they think the plan should be approved or not. After the hearings are completed, in Chapter 7 cases, the debtor must only complete the second credit counseling course and file the certificate of completion with the court. As long as there are no objections brought by creditors or the trustee, the judge will issue a discharge a few months after the Trustee Hearing. In Chapter 13 cases, the debtor must complete all payments required under the approved plan, and complete 15

the second credit counseling course before a discharge is issued. Also, if the debtor has requested and received an order from the judge that a second mortgage be eliminated, the debtor must file the proper paperwork in order to formally strip the mortgage from the property. Once the discharge is issued, the case is generally closed by the trustee. In some cases, the trustee will keep the case open in order to deal with property of the debtor that needs to be sold. This can sometimes take quite a while if the property is complex such as a business with assets or a home. What Happens When I File Bankruptcy? Once a bankruptcy case is filed, there are a number of very important actions that take place immediately that affect debtors and creditors. First, the debtor no longer is required to make any payments on many debts owed before the case was filed. This means that a creditor can t force you to make a payment on most debts you owed before you filed bankruptcy (see next section for more info on payments). However, there are some debts such as spousal/child support payments ordered by the court that the debtor must 16

continue to pay after the case is filed. Check with your lawyer before you stop paying any debt once you file bankruptcy. Second, the instant the case is filed, something called the Automatic Stay arises as an operation of law. What that means is that the debtor does not have to do anything to make this happen. It happens automatically. However, if the debtor has filed one or more bankruptcy cases within 180 days prior to the current case, or has had a prior case dismissed by the court due to some failure on the debtor s part, the Automatic Stay may not arise. In some cases the debtor must ask the court specifically for the protection of the Automatic Stay. The Automatic Stay puts a stop to all creditor action from the moment the case is filed. What this means is that no creditor can take or continue any action designed to collect on a debt without the judge s permission. For example, if a creditor has filed a lawsuit to collect on a debt, the lawsuit must immediately stop and no action, such as a deposition, hearing, trial, issuance of a judgment or any other order, is allowed. Also, all creditors must stop making telephone calls, stop sending collection letters, stop 17

all wage garnishments, stop bank levies, stop repossessions and foreclosure actions and a host of other actions. If a creditor is taking some sort of action at the time the case is filed, frequently the debtor will inform the creditor of the case filing and request that the creditor stop whatever they are doing. This is especially important in foreclosures, garnishments, bank levies, threatened repossession and other action that may occur immediately and before the creditor gets notice from the court that the debtor has filed bankruptcy. If the creditor fails to stop the collection action, the debtor has the right to bring a lawsuit against the creditor for violating the Automatic Stay. This is a very powerful right that debtors have to compel creditors to stop collection efforts. Most creditors will stop all collection actions upon being put on notice, either by the court or by the debtor, that the debtor has filed bankruptcy. However, like anything else, there are some idiots out there who don t believe that the debtor will do anything, the debtor is wrong, that the law does not apply to them or that don t know the law. These idiots will continue to violate the law even after receiving actual notice of the bankruptcy 18

case. For these idiots, a lawsuit is the best way to get even. Upon the successful completion of a lawsuit against a creditor, the debtor is entitled to damages, attorneys fees and costs. Depending on how egregious the conduct of the creditor was, the debtor can be awarded damages upward of $25,000 or more which the creditor must pay to the debtor or be subject to even more penalties from the court. What Bills Do I Have to Pay After I File Bankruptcy? Because of the Automatic Stay that you learned about in the previous section, you don t have to pay most of your debts after you file the case. What does this mean to you? For starters, you no longer have to pay most of your monthly bills on debt you accrued before you filed bankruptcy such as credit cards, medical bills, hospital bills, personal loans, mortgages, car loans, etc. Some debts you probably want to keep paying so you can keep property such as your car or house. These debts you can continue to pay if you wish, but you are not required to. If you choose not to continue paying these debts, the creditors are allowed, after obtaining permission from the court, to take back the collateral for the loan such as the car or the house. 19

You must pay debts you acquire after filing bankruptcy or suffer the consequences. For example, HOA dues will continue to be charged by the homeowners association as long as you hold title to the home. Until the home becomes owned by someone else, the homeowner is responsible for all HOA dues that accrue, even if the debtor surrenders the house to the lender and moves out! Lenders can take the keys when debtors surrender, and fail to change title to the home just to prevent being responsible for new HOA dues. If the debtor is behind on secured debt payments such as a home or car, only Chapter 13 provides a process to make up those back payments to get caught up on the loan. If a debtor is behind on those payments and files Chapter 7, before making any payments on the car loan or other debt tied to collateral, the debtor should obtain an agreement from the creditor on how the payments will be made up. The options are as varied as the ideas the debtor and creditor can come up with. Many creditors will allow a few months of extra payments to get caught up while others will extend the loan and put the unpaid payments at the end of the loan. Debtors should be careful of continuing with a debt after bankruptcy because the debtor is unable to file bankruptcy 20

for 8 years and if the debt is not paid as agreed, the lender will be able to come after the debtor for any deficiency that results from the repossession and sale of the property. Do I Need a Reaffirmation Agreement? A reaffirmation agreement is an agreement between the debtor and a creditor where the debtor agrees in writing to continue making payments to a creditor. The terms of the agreement spell out the amount of the payment, what interest rate is being charged, and how long the payments are to be made. This is treated by the law as a brand new debt that was entered into by the debtor after the debtor filed bankruptcy. Therefore, the debtor has no protection from the bankruptcy court against any action the creditor takes to collect on the new debt agreement. For example, if the debtor signs a written reaffirmation agreement and agrees to continue making payments on a car loan to keep the car, but fails to make the payments as agreed, the lender may repossess the car, sell it at auction, and then charge the debtor with any amount still owing on the debt that the sale proceeds did not cover. The creditor can then obtain a judgment against the debtor. When the creditor files a lawsuit to get the judgment, 21

the creditor can include all of the remaining debt, fees and costs incurred by the creditor in repossessing the car, as well as court costs and attorney s fees to file the lawsuit. As can be imagined, these fees and penalties can add thousands of dollars thereby bringing the amount owed to be much more than was owed under the agreement. Once the creditor obtains a judgment against the debtor, the debtor can be forced to pay the judgment by the creditor. The creditor can have a garnishment imposed on the debtor s wages and take up to 25% of the debtor s gross wages each paycheck. The creditor can also have the sheriff issue a bank levy on the debtor s banks and take money out of the account to pay the judgment. If any amount remains, the creditor can do it again and again until the judgment is paid and the debtor has no way to stop the creditor from doing this. Is it a good idea to enter into a reaffirmation agreement with a creditor? It depends on the situation. No matter what, before a debtor enters into such an agreement, make sure to be very clear on what has to be paid, when it has to be paid, and where the payments are to be made. Creditors are not very forgiving on missed payments on reaffirmation 22

agreements. Many will not even call to inform the debtor that a payment was not received. They will just repossess the car or collateral and pursue the judgment. Remember, the debt generally gets substantially larger as a result of fees, costs, interest, and since the debtor has no protection from bankruptcy, the creditor usually gets paid. What Debts Are NOT Eliminated in Bankruptcy? While most debts people have can be eliminated in bankruptcy, there are some debts that are not dischargeable in bankruptcy. These debts include: Trust fund taxes (payroll withholdings and sales tax owed to state tax agencies); Income taxes less than 3 years old (sometimes even older taxes are not dischargeable due to the debtor s failure to file the tax returns on time); Spousal and child support payments and alimony ordered by the court; Debts to governmental agencies for fines and penalties; Student loans (with a few very rare exceptions); 23

Debts from personal injury caused by the debtor s operation of a vehicle while under the influence of drugs or alcohol; Debts owed to certain tax-advantaged retirement plans Attorney fees in child custody and support cases that are ordered by the court. There are situations when a debt that is generally dischargeable can t be discharged. These situations include: Credit card purchases for luxury good owed to a single creditor for more than $600 and incurred within 90 days prior to the case being filed by the debtor; Cash advances more than $875 from credit cards within 70 days of the case being filed by the debtor Debts obtained by fraud or false pretenses; Debts incurred as a result of willful and malicious injury to others or to the property of others. 24

Can Bankruptcy Eliminate My Back Taxes? This is a very common question and the answer, like many from an attorney is Maybe. Whether taxes can be discharged in bankruptcy depends on a number of facts. First, what kind of tax is it? Certain taxes are absolutely not dischargeable. These types of taxes include sales tax trust funds, payroll taxes withheld from employees payroll, and any other tax that is owed as a result of the collection of the tax on behalf of a government agency such as the IRS, FTB or the State Board of Equalization. Income taxes, on the other hand, can be discharged if they satisfy the eligibility requirements for discharge. There are primarily 3 rules that must be satisfied for an income tax to be discharged in bankruptcy: 1. 3-year rule: the tax must have been owed for more than 3 years ( a tax is owed when the tax return is due to be filed, for example, 2012 taxes are owed April 15, 2013 unless an extension was requested and granted); 25

2. 2-year rule: the tax return for that tax must have been filed by the debtor more than 2 years prior to the filing date of the bankruptcy case; 3. 240-day rule: the tax must have been assessed over 240 days prior to the filing date of the bankruptcy. Calculating how many days have passed is not always easy. There are many actions that can be taken by the debtor and the taxing authority that will extend the number of days for the calculations. For example, when a debtor files an Offer in Compromise (an OIC ), the time is considered Tolled which means that the clock stops for calculating the number of days until the OIC is completed or rejected. Actions such as payment agreements, refilling returns and other steps can also extend the time. So, if you owe taxes, make sure to discuss this with your attorney before you file bankruptcy. Can Bankruptcy Save My Home From Foreclosure? Bankruptcy is an excellent tool to help homeowners save their homes from foreclosure. Chapter 7 and Chapter 13 work differently so be aware of these differences before using bankruptcy to save the home from foreclosure. 26

How Chapter 13 Saves Homes Chapter 13 is generally the preferred solution for homeowners that want to stop the foreclosure process and keep their home. First, Chapter 13 stops the foreclosure process immediately upon filing the case. The lender must stop all foreclosure actions. The debtor then eliminates all unnecessary debts thereby freeing up monthly cash in order to make the house payments again. If the debtor is behind in mortgage payments, Chapter 13 allows the debtor to force the lender to accept monthly payments of the unpaid mortgage payments over a 60 month period. If the debtor owes a second or third mortgage on the home, Chapter 13 may allow the debtor to eliminate the second or third mortgage through what s called Stripping the mortgage. What this means is that the second mortgage is completely eliminated and the debtor does not have to pay it back, ever. How Chapter 7 Saves Homes When the debtor files Chapter 7, the foreclosure is stopped immediately and the lender is ordered by the court to stop all foreclosure activity. This can be a good solution for some people, but most people won t use Chapter 7 because it does not provide the ability to get caught up on payments or to Strip a second 27

mortgage like Chapter 13. However, in the right situation, Chapter 7 can be effective. Sometimes, people use Chapter 7 to stop the foreclosure in order to give them some time to make other living arrangements. Other people use Chapter 7 to eliminate other debts so the debtor can make the house payments. Since the debtor is in foreclosure, they are behind in payments. This means that Chapter 7 can only work in those rare situations where the debtor can get the lender to agree to allow the debtor to get caught up on mortgage payments outside of the bankruptcy case. What Do I Need To File Bankruptcy? There are three components that must be satisfied in order to file bankruptcy. First, the debtor must qualify for the chapter that the debtor wishes to file. Second, the debtor must collect the required information and documents in order to complete all of the petition paperwork. Third, the debtor must complete the first of two credit counseling courses before he can file (see discussion below). Before the debtor is allowed to file any chapter of bankruptcy, the debtor must first complete a credit counseling course from an approved vendor. Filing a bankruptcy case and failing to complete this course before 28

the case is filed will usually result in the case being dismissed. The debtor will then have to take the course and re-file the bankruptcy case. Of course the bankruptcy court will require the debtor to pay the filing fee again. Once the debtor completes the first credit counseling course, then the case can get filed. To file the case, the debtor will need to collect the following information: Tax returns for the last 2 or 4 years depending on which chapter is filed; Income records such as payroll stubs or a profit and loss statement; A complete listing of all real estate of which the debtor is on title, or has co-signed for another; A complete list of all assets such as checking accounts, retirement accounts, brokerage accounts, etc and the balances of each of them; A list of all cars, motorcycles, boats, motor homes, etc owned by the debtor along with their current market values and balance of loans against them; A list of all people who owe the debtor money or situations where the debtor has a claim for money such as personal injury claims, loans made to others, alimony, etc.; 29

A list of all credit card, store cards, personal loans, etc owed by the debtor and the names and addresses of the creditors; A list of any other company the debtor owes money to, including the name and addresses of each creditor; A list of all spousal, child or alimony payments owing; A list of all property that the debtor has transferred, sold or given to friends or family within the last year. This is an overview of what can be required to collect in order to fill out the documents for filing a bankruptcy case. Not all people will need to do all of these, and some people will need to do more depending on their circumstance. A good attorney will help you evaluate what you need to do before filing and to identify problem areas before they become problems. What Does It Cost to File Bankruptcy? In order to file bankruptcy, a debtor has to pay the court filing fee. Currently in Orange County, California, the filing fee for Chapter 7 is $306 and the filing fee for Chapter 13 is $274. The fee must be paid at the time the case is filed. The court accepts cash, but no checks or credit card payments. If the debtor hires an attorney to represent them, experienced attorneys in Orange County charge $1500 to 30

$2500 for most Chapter 7 cases. More complex cases will have higher fees. Chapter 13 cases generally start around $4000 and go up from there depending on complexity and whether creditors or the trustee object to certain aspects of the case. All Chapter 7 attorney fees must be paid in full before the case gets filed. In Chapter 13, many attorneys will accept partial payment of the fees up front and monthly payments afterwards. 31

The Right Way to Choose a Bankruptcy Attorney Hiring a bankruptcy attorney can be one of the more difficult decisions you will ever face because it is not like buying something where you can compare the finished product between companies. Hiring an attorney is a leap of faith. You don t know whether that person is any good, whether they will take care of you, give you the time and effort you need, or whether your case will fall through the cracks. The only time you will know if you made the wrong decision is when something goes wrong that shouldn t have. But, by then it is generally too late, especially in bankruptcy. How can you protect yourself from making a bad choice? I feel that the best way is to see how the attorney is going to handle your case. Will the attorney be doing everything or will the assistant? Will the attorney answer your questions, or the paralegal? How many cases does the attorney take on in a month? Does the attorney focus on the area that you are hiring for? You should know the answers to these questions before you hire the attorney. Before you hire a bankruptcy attorney, paralegal or some paperwork service, read the following and ask them if 33

they will provide you with the same level of service. Most likely they can t. We do everything we can to make sure your bankruptcy case goes smoothly and without problem. The last thing you need after everything you have gone through is another problem to deal with. To make sure that you have no problems, we do the following: You only meet with an attorney, never a paralegal, assistant or salesperson, to discuss your case; The attorney you hired handles your entire case from beginning to end, not a paralegal or secretary; When you call with a question, your attorney gives you the answer in 24 hours or less; Your attorney goes to the Trustee Hearing with you so you are not alone or represented by someone you never met and who knows nothing about your situation (many law firms hire outside attorneys to go to the hearing, we won t do that); Your attorney only takes a limited number of cases per month so that you receive the proper amount of care, consideration, evaluation and review to make sure your bankruptcy case goes smoothly and problems do not 34

crop up during your case. That is how we head off issues before they become problems; Before you hire us, all fees and costs are explained up front so you know exactly what your bankruptcy case will cost you. (You will never receive a bill for services that you have not authorized); If you want to receive the level of service and attention you deserve, give us a call for a face-to-face meeting with the attorney that will handle your case. There is no charge for the first meeting. You get to evaluate us and we get to see if we want you as a client. If, at the end of the meeting, you are happy with us and we are happy with you, then we can move forward with our relationship and get you on your way to a debt-free life! 35

The Dangers of a Cheap Attorney, Paralegal or Bankruptcy Service There are always rookie attorneys, paralegals and nonattorney bankruptcy services that advertise low fees to handle bankruptcy cases, especially Chapter 7 cases. But, the old rule that says you get what you pay for really applies in bankruptcy. You don t want the rookie to learn what not to do on your bankruptcy case while you get stuck with the problem. You really don t want to use someone that is not trained as a lawyer giving you legal advice. Don t be fooled that a service advertising a low fee is going to provide the same level of service or attention to detail and evaluation of your situation as an experienced attorney that, after evaluating your facts, tells you that your case will cost $2000. Remember, these low fees are advertised without evaluating your situation or knowing how much work needs to be done in your case. They make people fit into a one-price fits all situation. This means that some people will just not get the attention they need and problems will slip through. Can you afford to be that person? 37

Can you afford to have something fall through the cracks in your bankruptcy case? Taking care of a bankruptcy case is kind of like applying for a home loan. Any idiot can fill out the paperwork, but it takes experience and knowledge to know how the facts are treated by the underwriter and how to present unfavorable facts so you get the approval. Bankruptcy is like that. A good attorney will know just how to package your case so that the trustee gets what they need to approve the bankruptcy without fighting over anything. Fighting is not in the debtor s best interest. Fighting only makes the attorney more money. It takes time to sit down with the debtor, review the facts and find out enough about the debtor s situation and history in order to discover potential problems. Plus, once all of the relevant information is collected, a good attorney will spend the time to make sure that all legal options are evaluated and the correct ones applied. This must be done in order to fix issues before they become real problems. And every case has its issues that need to be addressed before filing. Once a problem shows up in bankruptcy, the die is cast and the debtor has to deal with the consequences of the 38

problem. Frequently, this means either the bankruptcy case gets thrown out by the court or more money for the attorney that didn t see the problem in the first place. When problems raise their head during the bankruptcy, it is generally too late. If a low-cost attorney was hired, they turn to the debtor and say Now, give me more money to fix this problem or I stop representing you. If a non-attorney service is used, they say Now go hire an attorney to fix this. So, do yourself a favor and don t hire the cheapest lawyer, a non-attorney bankruptcy service, or a paralegal to handle your bankruptcy case. You only want to do this once so get it right the first time. Hire an experienced, knowledgeable and caring attorney that will make sure you don t have any problems during your bankruptcy. Where to Get More Free Information You can get more free information about bankruptcy at:. Reading our material won t make you an expert, but you will learn more about how bankruptcy works and what it can and can t do for you than most people filing bankruptcy. 39

At this time, you can find answers and information on the following topics: When to choose Chapter 7 or Chapter 13 Answers to Bankruptcy Questions You Should Be Asking, but Probably Aren t How to Avoid the Fatal Mistakes many people make in Bankruptcy (Without Meaning To) The Differences between Chapter 7 & Chapter 13 Videos covering many aspects of bankruptcy Articles that go deeper into specific areas of Bankruptcy Law Thanks, for taking to the time to read this book. If you have any questions, corrections, comments or recommendations, please call Attorney Bill White. You can reach him at. 40