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NAVIGATING THROUGH THE BANKRUPTCY MAZE Presented by: South Orange County Bankruptcy.

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Presentation on theme: "NAVIGATING THROUGH THE BANKRUPTCY MAZE Presented by: South Orange County Bankruptcy."— Presentation transcript:

1 NAVIGATING THROUGH THE BANKRUPTCY MAZE Presented by: South Orange County Bankruptcy

2 Does This Seem Familiar?

3 What Are the Primary Types of Bankruptcies for Wage Earners and Consumers? CHAPTER 7 – Liquidation (business or personal) CHAPTER 7 – Liquidation (business or personal) In Chapter 7 bankruptcy, the bankruptcy trustee cancels many (or all) of your debts. At the same time it might also sell (liquidate) some of your property to pay your creditors. Chapter 7 bankruptcy, also called "straight" or "liquidation" bankruptcy, is so named because the law is contained in Chapter 7 of the federal Bankruptcy Code. CHAPTER 13 – Reorganization (personal only) CHAPTER 13 – Reorganization (personal only) Chapter 13 is a section of the Bankruptcy Code which helps qualified individuals, or small proprietary business owners, who desire to repay their creditors but are in financial difficulty. It is often referred to as a "mini Chapter 11" because you usually repay something to your creditors over a 3 to 5 year repayment period while retaining your property. South Orange County Bankruptcy – Helping You Navigate Change ®

4 Bankruptcy Has Two Fundamental Goals FIRST GOAL: Provide a Fresh Start to the Debtor FIRST GOAL: Provide a Fresh Start to the Debtor The Bankruptcy Code is designed to relieve the hones but unfortunate debtor of his/her indebtedness so that they can gain an economic fresh start. SECOND GOAL: Provide Equitable Distribution SECOND GOAL: Provide Equitable Distribution The Bankruptcy Code is designed to place all of the debtor’s non-exempt property under the control of the court to provide for equal distribution among creditors South Orange County Bankruptcy – Helping You Navigate Change ®

5 What Are the Benefits of Bankruptcy? Automatic Stay Automatic Stay Delays/postpones foreclosure sales Delays/postpones foreclosure sales Eliminates credit card debt Eliminates credit card debt Stops wage garnishments Stops wage garnishments Halts automobile repossessions Halts automobile repossessions Stops lawsuits Stops lawsuits South Orange County Bankruptcy – Helping You Navigate Change ®

6 What is the Automatic Stay? Filing for Chapter 7 bankruptcy puts the “Automatic Stay” into effect immediately which stops most creditors from trying to collect what you owe them. This provides a breathing spell in which you can reorganize to get a fresh start. So, at least temporarily, creditors cannot legally grab ("garnish") your wages, empty your bank account, go after your car, house, or other property, or cut off your utility service or welfare benefits. Filing for Chapter 7 bankruptcy puts the “Automatic Stay” into effect immediately which stops most creditors from trying to collect what you owe them. This provides a breathing spell in which you can reorganize to get a fresh start. So, at least temporarily, creditors cannot legally grab ("garnish") your wages, empty your bank account, go after your car, house, or other property, or cut off your utility service or welfare benefits. They automatic stay prevents: They automatic stay prevents: –Creditor telephone calls and harassment –The commencement or continuation of any action or proceeding against the debtor –The enforcement of a judgment date against the debtor or its property –Any act to obtain possession of the debtor’s property –The unilateral termination of an executory contract with the debtor. South Orange County Bankruptcy – Helping You Navigate Change ®

7 Do I Qualify For Bankruptcy? Do I Qualify For Bankruptcy? As a general rule, those who can’t pay their debts as they become due qualify to file bankruptcy. You do not need to be “insolvent” or even be behind on your payments to creditors As a general rule, those who can’t pay their debts as they become due qualify to file bankruptcy. You do not need to be “insolvent” or even be behind on your payments to creditors In order to qualify under income guidelines, a filer's income must be equal to or fall below the median income in California based upon the debtor’s family size. If the filer's income is above the state's median, the debtor is required to take a "means test" in order to establish eligibility for Chapter 7. The means test assesses the filer's debt and income from the preceding six months. If the debtor has a certain amount of income leftover every month after paying creditors, the debtor will fail the means test. In order to qualify under income guidelines, a filer's income must be equal to or fall below the median income in California based upon the debtor’s family size. If the filer's income is above the state's median, the debtor is required to take a "means test" in order to establish eligibility for Chapter 7. The means test assesses the filer's debt and income from the preceding six months. If the debtor has a certain amount of income leftover every month after paying creditors, the debtor will fail the means test. If a debtor is ineligible for Chapter 7, Chapter 13 is an option. If a debtor is ineligible for Chapter 7, Chapter 13 is an option. You can’t file a Chapter 7 bankruptcy if you already received a bankruptcy discharge in the last six to eight years (depending which type of bankruptcy you filed). You can’t file a Chapter 7 bankruptcy if you already received a bankruptcy discharge in the last six to eight years (depending which type of bankruptcy you filed). South Orange County Bankruptcy – Helping You Navigate Change ®

8 Diagram of the “Means Test” Judge Tighe of the Central District Court of California laid out the decision tree for the means test.

9 Credit Counseling and Debt Management Courses A debtor must complete an approved credit counseling course prior to filing for Chapter 7 which may be done either on-line or over the telephone. The class is generally an hour or so. A debtor must complete an approved credit counseling course prior to filing for Chapter 7 which may be done either on-line or over the telephone. The class is generally an hour or so. Debtors must also later on complete a second course on financial education from an approved provider in order to get their discharge. Debtors must also later on complete a second course on financial education from an approved provider in order to get their discharge. Failure to complete the two courses and file the certificate of completion of the classes can result in the case being closed without entry of a discharge. Failure to complete the two courses and file the certificate of completion of the classes can result in the case being closed without entry of a discharge. South Orange County Bankruptcy – Helping You Navigate Change ®

10 What Information is Needed? To file for Chapter 7 bankruptcy, you provide us with information about: To file for Chapter 7 bankruptcy, you provide us with information about: -your creditors (e.g., names, addresses, account numbers) -your property -your property -your current income and monthly living expenses -your current income and monthly living expenses -property you owned and money you spent during the previous two years, and -property you owned and money you spent during the previous two years, and -property you sold or gave away during the previous two years. -property you sold or gave away during the previous two years. The information is provided to us via our website (www.stopmybills.com) in which you type in answers to questions designed to gather the foregoing information. The information is provided to us via our website (www.stopmybills.com) in which you type in answers to questions designed to gather the foregoing information. You can upload this information from your home computer. South Orange County Bankruptcy – Helping You Navigate Change ®

11 What Happens After I File Bankruptcy? Following your bankruptcy filing, the bankruptcy court appoints a trustee who is responsible for overseeing the case. The trustee will determine whether the sale of nonexempt property will produce enough income to pay creditors. If property is unlikely to generate substantial compensation in comparison with the time and effort needed to sell the property, the trustee will likely allow the debtor to keep the non-exempt property. South Orange County Bankruptcy – Helping You Navigate Change ®

12 What Happens to My Property in a Bankruptcy? Exempt property is property that Chapter 7 bankruptcy rules allow a debtor to keep, notwithstanding a bankruptcy filing. If the trustee determines that you have some nonexempt property, you may be required to either surrender that property or provide the trustee with its equivalent value in cash. Most property owned by Chapter 7 debtors is either exempt or is essentially worthless for purposes of raising money for the creditors. As a result, few debtors end up having to surrender any property, unless it is collateral for a secured debt. South Orange County Bankruptcy – Helping You Navigate Change ®

13 California Bankruptcy Exemptions The California bankruptcy exemptions detail the property you can exempt or protect from creditors. You may exempt any property that falls into one of the exemptions categories below, up to the dollar amount listed. You will be able to kept this exempted property after you file bankruptcy. The California bankruptcy exemptions detail the property you can exempt or protect from creditors. You may exempt any property that falls into one of the exemptions categories below, up to the dollar amount listed. You will be able to kept this exempted property after you file bankruptcy. To keep non-exempt property, a debtor must generally pay the trustee the value of the non-exempt property. To keep non-exempt property, a debtor must generally pay the trustee the value of the non-exempt property. California has two sets of exemptions. You must choose System 1 or System 2 based on your circumstances. System 1 is generally indicated if you own real property. You also may use certain Federal Exemptions in addition to your California exemptions. California has two sets of exemptions. You must choose System 1 or System 2 based on your circumstances. System 1 is generally indicated if you own real property. You also may use certain Federal Exemptions in addition to your California exemptions.System 1System 2Federal ExemptionsSystem 1System 2Federal Exemptions South Orange County Bankruptcy – Helping You Navigate Change ®

14 Comparison of Exemptions TYPE OF PROPERTY ALTERNATIVE 1 ALTERNATIVE 2 Principal residence (includes mobile home or houseboat ) $75,000 - Single Debtor § (a)(1) $100,000 Head of Household § (a)(2) $175, years or Disabled or 55 years with low income § (a)(3) ** WARNING SEE FEDERAL LIMITATIONS BELOW $22,075 in any real property § (b)(1) Household goods, appliances, clothing and personal items Reasonable & Necessary* § $550 per item with no maximum § (b)(3) Motor Vehicles $2,725 total in all vehicles - § $3,525 in 1 vehicle (b)(2) Tools of the trade for profession $7,175 per employed spouse - § or $9,700 in one commercial vehicle. $2,200 § (b)(6) Jewelry, heirlooms and works of art $7,175 - § $1,425 jewelry only - § (b)(4) WILD CARD (any property selected by debtor) Not available $1,175 PLUS the unused portion of § (b)(1). Can be used for any property. § (b)(5)

15 Exemptions – cont. Life insurance benefits (including annuities) Reasonable & Necessary* § (c) All - § (b)(11)(C) Life insurance loan values Reasonable & Necessary* § (c) $11,800 - § (b)(8) Health aids Reasonable & Necessary* All - § (b)(9) Cemetery Plot All for debtor & Spouse (c) Not available Wages earned 75% of last month’s wages Not available Social security benefits All - § (e) All - § (b)(10)(A) Public benefits All - § (e) All - § (b)(10)(A) Public retirement benefits All - § (b) All - § (b)(10)(E) Private retirement benefits All - § (b) Reasonable & Necessary* § (b)(10)(E) Personal injury cause of action All - § (a) $22,075 Worker’s compensation benefits All - § Reasonable & Necessary* - § (b)(11)(E) *”Reasonable & Necessary” refers to a judicial determination that the asset is adequate and appropriate to the debtor’s specific lifestyle and the asset’s intended use. Any party objecting to the exemption has the burden of proof. FRBP 4003(c). *”Reasonable & Necessary” refers to a judicial determination that the asset is adequate and appropriate to the debtor’s specific lifestyle and the asset’s intended use. Any party objecting to the exemption has the burden of proof. FRBP 4003(c). **11 USC Sec 522 (o) any use of non-exempt funds to increasee exempt homestead equity is not exempt where done with intent to defraud creditors (10 year look-back) 11 USC Sec 522 (p) limits maximum homestead to $125,000 if aquired within 1215 days before filing. **11 USC Sec 522 (o) any use of non-exempt funds to increasee exempt homestead equity is not exempt where done with intent to defraud creditors (10 year look-back) 11 USC Sec 522 (p) limits maximum homestead to $125,000 if aquired within 1215 days before filing.

16 Attendance at the Meeting of Creditors A week or two after you file, you (and all the creditors you list in your bankruptcy papers) will receive a notice that a "creditors meeting" has been scheduled. The debtor must appear at the "first meeting of creditors" (also called the Section 341 meeting). A week or two after you file, you (and all the creditors you list in your bankruptcy papers) will receive a notice that a "creditors meeting" has been scheduled. The debtor must appear at the "first meeting of creditors" (also called the Section 341 meeting). At the meeting, the trustee will review the paperwork and gather any other necessary information and then ask the debtor questions under oath about assets and liabilities. At the meeting, the trustee will review the paperwork and gather any other necessary information and then ask the debtor questions under oath about assets and liabilities. Creditors can also question the debtor on those subjects, but seldom do. If a debtor fails to attend the meeting, the trustee may make a motion to dismiss the debtor's case. Creditors can also question the debtor on those subjects, but seldom do. If a debtor fails to attend the meeting, the trustee may make a motion to dismiss the debtor's case. South Orange County Bankruptcy – Helping You Navigate Change ®

17 How Are Secured Debts Treated? If you've pledged property as collateral for a loan, the loan is called a secured debt. The most common examples of collateral are houses and automobiles. If you're behind on your payments, the creditor can ask to have the automatic stay lifted in order to repossess or foreclose on the property. However, if you are current on your payments, you can keep the property and keep making payments -- unless you have enough equity in the property to justify its sale by the trustee. If you've pledged property as collateral for a loan, the loan is called a secured debt. The most common examples of collateral are houses and automobiles. If you're behind on your payments, the creditor can ask to have the automatic stay lifted in order to repossess or foreclose on the property. However, if you are current on your payments, you can keep the property and keep making payments -- unless you have enough equity in the property to justify its sale by the trustee. If a creditor has recorded a lien against your property because of a debt you haven't paid (for example, because the creditor obtained a court judgment against you), that debt is also secured. You may be able to wipe out the lien in Chapter 7 bankruptcy. If a creditor has recorded a lien against your property because of a debt you haven't paid (for example, because the creditor obtained a court judgment against you), that debt is also secured. You may be able to wipe out the lien in Chapter 7 bankruptcy. South Orange County Bankruptcy – Helping You Navigate Change ®

18 How Long Does a Typical Chapter 7 Bankruptcy Take to Complete? A typical case can run between 5-6 months from the date of filing to the date your debts are legally discharged. South Orange County Bankruptcy – Helping You Navigate Change ®

19 What is a “Discharge”? A few months after the creditors meeting, the bankruptcy court will hold a discharge hearing. A debtor's unsecured debts are discharged (wiped out). A few months after the creditors meeting, the bankruptcy court will hold a discharge hearing. A debtor's unsecured debts are discharged (wiped out). Secured debt, such as a car loan or a mortgage, receives different treatment. At the beginning of the bankruptcy process, the debtor selected to do one of the following: pay the creditor for the replacement value of the property, return the property to the creditor, or "reaffirm" or agree to new contract terms with the creditor. Secured debt, such as a car loan or a mortgage, receives different treatment. At the beginning of the bankruptcy process, the debtor selected to do one of the following: pay the creditor for the replacement value of the property, return the property to the creditor, or "reaffirm" or agree to new contract terms with the creditor. South Orange County Bankruptcy – Helping You Navigate Change ®

20 What is a Discharge - continued At the end of the bankruptcy process, all of your debts are wiped out (discharged) by the court, except the following few categories: At the end of the bankruptcy process, all of your debts are wiped out (discharged) by the court, except the following few categories: - Child support - Tax debt, unless a debtor meets the criteria to discharge federal tax debt - Student loans, unless a bankruptcy court determines that undue hardship exists - Debt created by fraudulent means or malicious acts South Orange County Bankruptcy – Helping You Navigate Change ®


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