Frequently Asked Questions About Bankruptcy

What is Bankruptcy?

Bankruptcy is a legal proceeding initiated in the Bankruptcy Court, which is a federal court as opposed to a court operated by the state. For individuals and families, bankruptcy is an effective tool for eliminating, organizing, and/or restructuring debts to allow for relief from debts and a clean slate.

For businesses, bankruptcy can be used either to end a business or to restructure a business such that it can operate at its fullest ability. For businesses, bankruptcy can help implement a structured process under which a business can utilize an organized forum for dealing with obligations, finances, and interested parties.

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Who Files for Bankruptcy?

· Individuals

· Married couples

· Sole-proprietorships

· LLCs/ LLPs/ Partnerships

· Corporations

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How does hiring a bankruptcy attorney help me or my business with creditors?

Our bankruptcy attorneys are very knowledgeable and experienced in the ins and outs of bankruptcy law and dealing with debt. Our attorneys can help you understand your situation more fully and any actions that may be looming as a result. But, more importantly, our attorneys can help implement a plan of action in dealing with those various debts and serve as an intermediary between you and your creditors. Even if you are on a payment plan for your attorney's fees, our office will establish with each of your creditors that you are represented by counsel while everything is getting sorted out.

If you are looking for relief through a business bankruptcy, then your bankruptcy attorney can help you navigate through the complicated laws for businesses and help provide you with that safe space between you and your creditors to either dissolve or reorganize your business operations.

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Are there different types of bankruptcy?

Yes. There are different types of bankruptcy that are named after the different Chapters of the Bankruptcy Code -- Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13, and Chapter 15. However, the application of each of these bankruptcy types varies based on the type of Debtor. A Debtor is the person or entity that is filing for bankruptcy. The most common types of Debtors are individuals, married couples, and business entities which usually fall under Chapter 7, Chapter 13, or Chapter 11. Other entities, such as municipalities, commercial farming or fishing operations, and international parties can also be debtors, and typically fall under the less common Chapters 9, 12, and 15.

For the sake of ease, we will refer to individuals and married couple filing debtors as personal bankruptcy, and business entity filing debtors as business bankruptcy.

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What are the Benefits of Filing Personal bankruptcy?

The main benefits of personal bankruptcy are 1) receiving protection by way of an automatic stay order from the bankruptcy court; 2) obtaining a discharge order from the Court which will relieve you of all or most of your debts; 3) having the option of letting go of a secured asset through controlled circumstances; and 4) essentially getting you to the "fresh start" you need to move forward with your life.

Personal bankruptcy can be a powerful tool in a wide array of life circumstances -- eliminating debt before a divorce; relieving obligations before entering into retirement; catching up on your mortgage or car payments; getting back to even after a period of unemployment or disability; relieving medical debt after illness; recovering from certain youthful indiscretions; and much, much more. Your attorney will be able to explain how a bankruptcy will personally benefit your circumstances. But keep in mind, we will advise you not to file if bankruptcy is not the best option for you or your situation.

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What are the risks of filing personal bankruptcy?

If you have valuable assets that exceed your legal exemptions (allowances), then you may have to either give up the excessive assets or pay the value of them to your creditors. Every personal bankruptcy filing should undergo an asset and exemption analysis, preferably by an attorney who understands the available legal protections and how they can or should be applied.

Also, certain debts may not be forgiven by an bankruptcy discharge. For example, certain tax debts,

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What does filing bankruptcy do to my credit?

A bankruptcy filing will remain on your credit for several years. The filing itself can be on your credit report for 10 years. A bankruptcy filing will also negatively impact your current credit score. However, more often than not, someone considering bankruptcy is has a credit score that is already being negatively impacted on a monthly basis from delinquent payments, high debt to income ratios, negative collections, foreclosures, repossessions, lawsuits, or garnishments.

Also, you may be precluded from filing another bankruptcy for a certain number of years, depending on the original Chapter filed, the outcome of that filing, and the subsequent filing.

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What are the benefits of filing business bankruptcy?

If you are looking to close a business or business venture, then Chapter 7 bankruptcy can serve as a streamlined process for dealing with lingering creditors, taxes, and assets. While a business bankruptcy does not receive a discharge, a business bankruptcy does provide the protection of the Court's automatic stay. The automatic stay, assignment of a trustee, and established bankruptcy procedures allow a business a structured way to tie up loose ends, structure creditor claims, and provide a forum for dealing with any lingering disputes.

If you are looking to restructure or reorganize your business or business venture, then Chapter 11 bankruptcy can provide you relief through an automatic stay and the various relief options provided under the Bankruptcy Code. Chapter 11 bankruptcy is complicated, can be expensive, and is not for every individual or business. However, the benefits of Chapter 11 are extensive and unparalleled in the right cases. There is a reason that every major airline and vehicle manufacturer has filed for Chapter 11 bankruptcy at some point in their history.

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Do you have to qualify for bankruptcy? If so, how?

Yes. Your qualification for the different chapters or bankruptcy depend on a multitude of factors -- type of debtor, income and expenses, previous bankruptcy filings, type of debts, amount of debts, extent of assets, and your objectives.

In 2005, the Bankruptcy Code implemented several changes to prevent abuse of the system. One of the changes is the implementation of a measure of qualified income and expenses called the means test. The means test measures your gross income (calculated by a distinctive formula) in comparison to household size, where you live, and allowable IRS standard deductions. However, even if your gross income exceeds the allowable median income for your household size for where you live, your attorney can apply allowable IRS standard deductions and other qualifying deductions to help you either qualify for Chapter 7 bankruptcy or reduce your monthly disposable income applied to a Chapter 13 or Chapter 11 monthly plan payment.

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I need my car. Can I keep my car?

Typically, yes.

If your car is paid off and exempted under available protections, then you can typically keep your car without any issues.

If you are making car payments, then you will need to do a reaffirmation agreement with your auto creditor to essentially keep the car and the obligation to pay the debts on the car after your bankruptcy closes.

If your car has been repossessed, then you may be able to recover the car through a bankruptcy filing, but you should discuss this directly with your attorney.

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Will everybody know?

Bankruptcy filings are public record, but someone unrelated to your case would need to actually go looking for your name or records to know. You do have to list all of your creditors in your bankruptcy, which includes friends and family to whom you owe money.

However, most people you encounter in your daily life will have no clue you are going through a bankruptcy unless you inform them yourself. You may even be surprised to learn that others you know have previously filed for bankruptcy.

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How do I pay for a bankruptcy lawyer and court fees, when I can't pay my other debts?

Our office offers payment plans for most cases. Emergency filings are considered on a case by case basis.

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Can I protect the property that I do own?

Typically, yes. The available legal protections that can be applied to the property that you do own are called exemptions. The type and extent of exemptions vary by residence qualifications. California exemptions are bifurcated into two different schemes of exemptions, both of which are ample and generous.

If your assets are fully protected by the available exemptions, then you will likely be able to protect your property. However, if you have assets that exceed the available exemptions, then you should discuss the potential outcomes with your attorney.

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Can I catch up on my mortgage payments?

Yes! Chapter 13 and Chapter 11 bankruptcy provide great options for catching up on missed mortgage payments as well as structuring of other debts.

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Can I stop a wage garnishment or bank levy?

Yes! The automatic stay order imposed by the bankruptcy court is instantaneous upon your case's filing and immediately stops all collection actions. Also, in certain situations, your bankruptcy filing may be able to "reach backwards" to undo certain garnishments and levies as preferential payments to specific creditors.

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I'm facing foreclosure! Can bankruptcy help?

Typically, yes! An automatic stay will be able to stop your foreclosure until the bank goes through the Court to get relief if available. But more importantly, Chapter 13 and Chapter 11 bankruptcy can help create a plan for you to clarify and repay debts for a mortgage.

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Someone who defrauded me is filing bankruptcy, can you help?

Yes, probably. The bankruptcy system is for those who are seeking relief on a good faith basis. The existence of fraud can help to undo that "good faith" eligibility for either a specific debt or for all debts. There are limitations and qualifications to establishing fraud or non-dischargeability. But essentially, if someone has defrauded you, then you may have the ability to prevent the bankruptcy filer from being forgiven of the debts incurred through fraud, willful & malicious injury, or other wrongdoings.

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What is bankruptcy litigation?

When a bankruptcy case is filed, the bankruptcy court overtakes jurisdiction of most if not all matters associated with the debtor's bankruptcy estate, including legal disputes with the debtor or debtor's assets. The outside disputes must often be adjudicated in the bankruptcy court to maintain the integrity of the automatic stay order and underlying bankruptcy case. Bankruptcy litigation refers to these other disputes that are heard by the bankruptcy court. Bankruptcy litigation can be initiated by a Debtor, a creditor, or a third party asserting an interest or claim.

Bankruptcy litigation actions are often referred to as adversary proceedings.

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Someone filed an adversary proceeding in my bankruptcy case, what do I do?

Take a deep breath and discuss with your bankruptcy attorney right away. Most rules and procedures in bankruptcy court are set forth by the Federal Rules of Bankruptcy Procedure and Federal Rules of Civil Procedure. Both sets of rules and procedures provide distinct requirements and deadlines within which to act, so it is imperative for you to understand your situation to prevent inadvertent waiver of any legal rights or defenses you may have.

Learn More About Your Bankruptcy Options With An Experienced Attorney

Joshi Law Group is located in San Diego and serves clients throughout the area. Schedule your free initial consultation today by calling us at 619-822-7566. You may also send us an email.