CREDITOR COLLECTION MUST STOP
When
a person files for bankruptcy (Chapter 7, 13 or 11), all of his or her
creditors are immediately prevented from attempting to collect the
debt. This is called the "Automatic Stay." This means that filing for
a Bankruptcy immediately stops:
*Creditor harassment: This may take
many forms such as annoying telephone calls made by the creditor to
your home, your neighbors' home, your relatives' home or your place of
employment. Often the calls may serve to embarrass you.
*Lawsuits: Lawsuits are brought typically by a private party such as a credit card company that you owe money. You are served with a complaint and summons, initiating the proceeding against you. Unless you answer the
complaint and can deny the debt and/or have a defense, the creditor
will obtain a judgment against you.
*Judgment
Lien on your home: This is initiated by a creditor who has obtained a
judgment against you. After judgment is obtained, the creditor files
an Abstract of Judgment. This serves as a judgment lien against your
home and cannot be removed until the judgment is satisfied.
*Wage
Garnishment: A creditor who has obtained a judgment against you will
obtain an earnings withholding order and "garnish"your wages. Your
employer will therefore be notified. 25% of your take home or net pay
will be withheld and turned over to the county sheriff's office.
*Bank Levy: Once
a creditor obtains a judgment against you, it may seize money you have
in your bank accounts by completing a "writ of execution." Note that a
creditor may find out where you bank by utilizing the "Debtor's
Examination" procedures and simply obtain your bank account information
from you.
*Repossession:
A creditor, such as a car lender, may seize the collateral pledged as
security for your loan (your car) directly without any court procedure.
This is self-help repossession. The car is then sold at auction. If
the creditor does not obtain full payment from the proceeds of the
auction, the creditor may sue you for the difference between the
outstanding debt and the auction proceeds received by the lender. This
is called a "Deficiency."
*Foreclosures:
Obviously, a mortgage company may initiate a private foreclosure
against you in order to sell your home when you do not pay. The
mortgage lender will initiate the foreclosure process by serving you
with a formal Notice of Default (usually after you have missed several
mortgage payments). You will then have ninety days to legally "cure"
the default. If the default is not cured, the creditor can then proceed
with foreclosure by issuing and serving a Notice of Sale.Typically, it
is better to file a bankruptcy (if you wish to save your home) prior to
the issuance of the Notice of Default to prevent the ninety period from
even starting.
*Any other method for collection of a debt.
CHAPTER 7
Chapter 7 is sometimes called a "liquidation" or "straight" bankruptcy. In Chapter 7, a business or consumer debtor obtains a discharge of all debts after a Bankruptcy Trustee [appointed by the court] either liquidates the debtor's assets to pay creditors or determines that the debtor has no assets to pay creditors. An individual debtor or a business debtor operating as a "sole proprietor"
usually does not have assets that the trustee liquidates because they are
"exempt" under state law. In California, exemptions of assets are provided by
two sets of statutes: California Code of Civil Procedure 703.140(a) and Code of
Civil Procedure 704.010 (et seq).
Debtors in bankruptcy want one thing: to obtain a discharge of their debts. A discharge is an order of the bankruptcy court stating that the debtor is released from debt, such as a credit card bill. In other words, the debt is wiped out and the debtor no longer owes the creditor any money.
In general, you may keep your car in Chapter 7 bankruptcy if you wish to do so and you are current on your monthly finance payments. The new bankruptcy law imposes the requirement that you must now obtain a briefing from an approved nonprofit credit counseling agency within 180 days of your bankruptcy filing.
Under the new bankruptcy law, you will not be eligible to file a Chapter 7 bankruptcy if your income is above the median income of the state in which you live, and you can afford to pay a certain amount of your credit card bills. In addition, a Chapter 7 debtor’s discharge will be denied if the debtor received a Chapter 7 or 11 discharge in a previous case filed within 8 years of the current case.
Only a qualified attorney should be consulted with regard to the above provisions prior to filing for bankruptcy. The Law Offices of Keith F. Carr can determine your eligibility for a Chapter 7.
CHAPTER 13
In Chapter 13, a consumer debtor completes a plan to repay his or her creditors. The plan in Chapter 13 is sometimes referred to as a "Wage Earner Plan." The debtor proposes a plan of repayment to his creditors over a period of between three to five years. The plan will provide for regular monthly payments to be administered by a Chapter 13 Trustee.
The Chapter 13 Trustee will take debtor's monthly payment and disburse that money to the debtor's creditors. The court must approve of the Chapter 13 plan and there are strict requirements for approval. When a debtor has completed all payments under his or her Chapter 13 plan, then the debtor obtains a discharge.
Some of the new changes in the bankruptcy law affect debtors filing for Chapter 13 as follows:
Save your Car. You can save your car by filing for Chapter 13 Bankruptcy. This is true even if the car has been repossessed (but not sold). Under the old bankruptcy law, debtors were allowed to pay car financing companies the value of the vehicle (which often would be lower than the full debt owed to the creditor). Under the new law, this is not allowed for a car purchased within about 2.5 years of the filing of the bankruptcy. Furthermore, the new law provides that a car finance company's lien in this situation cannot be released until it is paid or the plan is completed.
Save Your Home. If you are delinquent in your mortgage payments, you can still save your home by filing for Chapter 13 Bankruptcy. Assuming that your mortgage company has initiated foreclosure, the filing of the Chapter 13 automatically stops the foreclosure process from proceeding. Once your Chapter 13 case is filed, you are allowed to cure or "make-up" the payments that you are behind over a period of three to five years under the provisions of your Chapter 13 plan. You may also refinance or sell your home during the course of your Chapter 13. You may decide that you would rather surrender your home. If so, you may accomplish this in either Chapter 13 or Chapter 7 (liquidation) Bankruptcy. When a debtor has completed all payments called for by his or her Chapter 13 plan, then the debtor obtains a Chapter 13 discharge, which is similar to the Chapter 7 discharge.
Learn more at: Stop Foreclosure page.
CHAPTER 11
A business run as a sole proprietorship may file a Chapter 13. Corporations and partnerships must utilize the procedures of Chapter 11. Chapter 11 allows a business to propose a plan of repayment to its creditors. Unlike Chapter 13, debtor's plan is not limited to a three to five year period of repayment. Also, the Chapter 11 debtor may propose a liquidation plan whereby the the business sells all of its assets to repay creditors. This is not allowed in Chapter 13. In Chapter 11, creditors must vote and approve the plan, and the court must approve the plan. In Chapter 13, the plan need only be approved by the court.
The primary benefit of a Chapter 11 is that the business may continue to operate during the course of the Chapter 11. Business leases may be "assumed" or ratified if the business had difficulty meeting its responsibility toward the lessor of the business lease prior to the Chapter 11 filing. Business tax liability (State and Federal) may be scheduled for repayment in the Chapter 11 plan.