When you are in financial trouble—do you know your options?

People in financial trouble are often not aware of their options.  The bankruptcy law is created to allow people to make a fresh start.  Some people evade their financial problems.  They feel upset that they cannot pay their bills.  They may also feel guilty that they are not able to support their family or keep their home.  These are natural reactions.  However, if people are informed of their legal rights and make proper choices, they can take control of their lives and get back on track.  This is what a bankruptcy is designed to do.                                                                                                                                                        

How do I know if a bankruptcy is my best option?
 

One way to determine if you need a bankruptcy is to itemize your living expenses such as rent/mortgage, car payments, utilities, food, and clothing.  Take these expenses and compare these to your earnings.  Do not include your debt.  Do you have money left over that could be used to repay debt?  Could you repay your entire debt within 3 years?  If you say ‘yes’ to this, then you may be able to avoid a bankruptcy.  Unfortunately, today many people have lost their jobs and are unable to pay their rent or other expenses.  With balances on credit cards, people who have lost their jobs or had a catastrophic illness would not be able to manage their lives without the ability to do a bankruptcy.  So, the first thing that people should do once they determine that they cannot repay their total debt within 3 years is to meet with a bankruptcy attorney.  The attorney can explain your legal rights and advise you as to the best option so that you can make an informed decision.

What happens to my credit if I file for bankruptcy?

The decision to file for a bankruptcy is a serious one that has consequences.  A bankruptcy stays on your credit report for 10 years.  Your credit score will be affected which in turn will affect your ability to purchase a car or a home.  It will also affect the interest rate charged for purchases. The ability to get credit and loans will be limited.  A Chapter 7 bankruptcy can only be filed every 8 years.  However, most people can get a credit card.  The best way to rebuild credit is to pay the balance of the credit card in full each month and to start a savings plan.  Over time your credit can be restored.

What if I am married—do I have to file with my spouse?

The fee to do a bankruptcy for one person is the same as a bankruptcy for a married couple.  So, couples can actually save money when completing a bankruptcy together.  In addition, because California is a ‘community property’ state, it is advisable that married couples do a bankruptcy together.  Debtors could go after the other spouse if only one spouse files for bankruptcy.  Divorce and separation also affect bankruptcy.  Debt is considered communal debt when couples are living together.   Many attorneys will advise couples to file for bankruptcy before they divorce or separate so that the debt is discharged and each partner can start their lives with a fresh start.  It will also ensure that debtors will not demand repayment of the debt from the other spouse who did not file for bankruptcy.  When couples file together, both incomes are taken into account. 

What do you need in order to file for bankruptcy?

Due to the new law that was passed in 2005, attorneys are responsible for the information that clients tell them.  Hence, supporting documents are needed when filing for a bankruptcy.  A good idea is to bring a recent tax return as well as pay stubs when discussing bankruptcy.  In addition, all debt such as credit card statements, mortgage statements, personal loans, medical bills and other debt should also be brought to the interview with the attorney.  You should also make a list of all assets such as savings accounts, equity in a home or other items that may have value such as vintage cars etc.  However, 401 Ks and other retirement funds need not be included and will not affect the bankruptcy.

What if I can’t pay my mortgage?

If you have purchased a home that you cannot afford or if your mortgage rate is rising due to an adjustable loan, you may wish to consider a bankruptcy.  A Chapter 13 Bankruptcy is a payment plan that can help you stay in your home if you can afford the mortgage as well as a repayment of the arrears.  The arrears are repaid over a long period of time—it may be 3 or 5 years.  A careful assessment of your income and expenses will determine if a Chapter 13 is the best option.  In addition, if your income is higher than the ‘means test’ (gross monthly income as compared with the number of people in your household) and you cannot qualify for a Chapter 7 Bankruptcy, then you may benefit from a Chapter 13 Bankruptcy which will usually attempt to lower interest rates on credit card debt as well as create a repayment plan for the debt plus the mortgage arrears if needed.

How long does a bankruptcy take?
 

Legal Action Workshop prepares the bankruptcy very quickly—often while you are in the office and giving information to the attorney.  Once the bankruptcy is fully paid, it is filed.  Once filed, it takes about one month to get a hearing date.  The attorney will meet you at the hearing and once complete, you will receive your discharge papers in approximately 2 months.  The purpose of the hearing is to   prove your identity (by driver’s license or passport) and that all information given is true and correct. Once complete, you should check your credit report to make sure that the debt is properly discharged.  Make sure to keep all paperwork in a safe place.