Our firm concentrates
in representing debtors in Consumer Bankruptcy cases and related matters.
We are dedicated to meeting each client's needs and providing high quality legal
work. When you contact us, you can be assured that you will always speak
directly to an attorney. (No secretaries taking messages!)
Our success is based
largely on the quality relationships we build and maintain with clients.
Clients are treated with integrity, compassion and respect during this very
difficult time in their lives. We will communicate with you throughout the
bankruptcy process AND after, so that any questions or concerns you have will be
answered.
We use the latest
technology and cost-effective methods to provide quality legal representation at
reasonable costs so that we are affordable to most everyone.
The
Consumer Law Center, Inc., federally designated as a Debt Relief Agency by an Act
of Congress and the President of the United States, proudly assists consumers
seeking relief under the United States Bankruptcy Code.
Call for a Free Consultation
Consumer Law Center, Inc.
Fred W. Schwinn, Esq.
12 South First Street, Suite 416
San Jose, CA 95113-2404
408-294-6100
www.sjconsumerlaw.com
WHAT IS BANKRUPTCY?
You should NOT be
afraid of bankruptcy laws and eliminating debt. What you SHOULD be afraid
of is having NO SAVINGS, NO MONEY left after each paycheck, getting harassed or
garnished at work, and getting fired. Many employers do not want to deal
with an employee being garnished and may look for any excuse to fire you once
you are being garnished. Our Congress has written these laws to enable
people just like you to get a fresh start. We no longer have debtors'
prisons but many people feel they are imprisoned by their debts AND by the
creditors who endlessly harass them. Believe it or not, if you cannot pay
your debts, creditors usually prefer you file bankruptcy! This is because
they cannot write off a debt and get the tax savings unless you file bankruptcy
OR unless they hound you for YEARS!
Bankruptcy is FEDERAL
LAW that allows everyone to get a fresh start if they have more debt than they
can handle. It allows you to eliminate or reorganize debt without losing
possessions. Most people are very confused about what Bankruptcy involves,
and many have heard horrible misstatements about Bankruptcy Law. The cold,
hard truth is that most people keep all of their possessions-EVEN HOUSES AND
CARS. The Bankruptcy laws are designed to alleviate the pressure of your
debts and make your life better. We will NOT take your case if Bankruptcy
is not going to improve your situation! We have turned down many cases
where the people had better options available.
CHAPTER 7 BANKRUPTCY
Typically, Chapter 7 is
referred to as "liquidation" because you turn over non-exempt property to the
trustee assigned to your case. The confusion lies in the fact that MOST
PROPERTY IS EXEMPT. Exempt property means it is not subject to attachment
by creditors or in a bankruptcy, which means you get to keep it. The
exemptions vary by state, and you should consult an attorney to determine what
property may be claimed exempt in your state. In most situations, if you
wish to keep houses or cars, you simply agree to maintain your payments as scheduled to
the creditor. Chapter 7 is generally the simplest and quickest form of
bankruptcy. Most people receive their discharge within 3-4 months of
filing the case.
CHAPTER 13 BANKRUPTCY
Chapter 13 is a
consumer debt reorganization. This allows debtors to restructure payments
by combining many debts into their "plan" and paying ONE monthly payment to the
Chapter 13 Trustee for all the debts included in the plan. Regular
mortgage payments continue to be made directly to the creditor "outside" the
plan. Thus, if you have mortgage arrears, the arrears CAN be included in
the plan, but the future payments due under the loan must ALSO be made
separately. The debtor keeps his property and makes payments to the
trustee out of future income to pay all or a portion of his debt over the life
of the plan.
Chapter 13 is usually
appropriate for people who have fallen behind on secured loans (such as cars or
houses) and need to catch up before repossession or foreclosure. It may
also be appropriate when someone has non-exempt property that cannot be
protected in a Chapter 7, or if someone has sufficient disposable income to pay
a significant portion of their debt over time. Many factors go into
determining if a debtor qualifies for or should pursue a Chapter 13 filing. You
should consult an attorney before deciding if this avenue is right for you.
EXEMPTIONS: WHAT PROPERTY CAN
I KEEP?
The bankruptcy code
allows individuals who file for bankruptcy to claim certain property as "exempt"
property. States can either use the exemptions in the bankruptcy code, or
they can "opt out" and use state law exemptions. California uses its own
exemptions, and thus, the assistance of an experienced bankruptcy attorney is a
must for a successful case. When property is exempt, it is protected from
liquidation by the trustee in bankruptcy. Debtors are able to keep basic
assets deemed necessary for a "fresh start" after bankruptcy.
A common concern for
people contemplating bankruptcy is the loss of personal possessions and
household goods. The exemptions provided by California law, however, are
normally more than sufficient to protect such assets. This is true for a
few reasons:
Depreciation on used
personal goods is significant - ever been to a yard sale? The resale value
of such property is minimal and, hence, does not represent a significant source
of funds with which to repay debt.
The Bankruptcy Code
envisions debtors receiving a "fresh start" by getting relief from debts, but
still maintaining a decent standard of living. This is the purpose of
exemptions - keeping certain property so as to continue living like a normal
person. Being out of debt would be pointless if you were left with no
possessions to continue daily living!
WHAT IS EXEMPT?
The amounts set forth
in exemptions refer to "sale" value, not purchase price or replacement value.
Also, if the property is encumbered by a non-avoidable lien, the debtor's equity
is only that portion of value after the lien is subtracted. Hence, a
$10,000 car with a loan against it for $9,000 has $1,000 worth of equity which
the debtor may claim as exempt.
The exemptions
available to debtors in California are located in the California Civil Procedure
Code. However, do not be confused by the language of the code because the
actual application of the exemptions in practice varies. For example, a
$500,000 house with a $450,000 lien may appear to have $50,000 worth of equity.
In reality, however, this house has little if any equity because if the debtor
attempted to sell, the costs of sale (broker fees, etc) would consume most
apparent equity. Hence, it is usually wise to consult an attorney about
what property can be claimed exempt.
NON-EXEMPT ASSETS - WHAT
HAPPENS?
The theory in Chapter 7
is that all non-exempt assets are turned over to the trustee to be liquidated
for funds to distribute to creditors. In reality, however, this only
occurs if the debtor does not wish to "buy back" the property. Hence,
suppose a debtor has a non-exempt widget worth $1,000 which he would like to
keep. Rather than sell to someone else, the trustee is normally perfectly
willing to sell back to the debtor for whatever price he could obtain from a
third party. The debtor may actually get a better deal because the trustee
incurs no costs of sale, and in many circumstances, payments can be spread out
over a short period of time.
In Chapter 13, even
though a debtor keeps his property, exemptions are still used to determine if a
"plan" complies with the Bankruptcy Code. Creditors are entitled to
receive at least as much through the Chapter 13 plan as they would have under a
Chapter 7 liquidation. Hence, a debtor's payments into a Chapter 13 plan
must provide at least as much to creditors as they would have received through
liquidation in Chapter 7 of non-exempt property.
HOUSES, CARS & OTHER "SECURED"
DEBT IN CHAPTER 7
If a debt is secured by
a lien (i.e. on a car title or a mortgage on real property), the lien usually
survives the bankruptcy. Hence, the personal obligation of the debtor may
be discharged, but the creditor's lien survives, and if suitable arrangements
are not made, the creditor may be entitled to repossess his collateral
post-bankruptcy. A debtor has several options under the Bankruptcy Code on
dealing with secured creditors:
Reaffirmation: this is
an agreement between debtor and creditor that allows the reaffirmed debt to
survive as if bankruptcy never took place. If you later default, the
creditor's rights after bankruptcy are the same as before bankruptcy, i.e., you
can be sued, garnished, etc. to collect the debt. Hence, you should think
carefully about reaffirming a debt and discuss your options with your attorney
to fully understand the consequences.
Redemption: this means
you pay the secured creditor only the value of the asset, rather than the
balance owed, but this must be done in a lump sum payment. Redemption is
not available for all types of property but is often used with respect to cars
or other personal property. You should consult an attorney about whether
redemption is a good idea in your situation. The problem with redemption
is obvious: where does a debtor get a lump sum of cash to redeem the asset?
While some people can borrow from family or from exempt assets, not everyone has
that option. There is now at least one company that will loan money to
redeem cars providing you qualify, and most people do.
Surrender: if you
surrender the collateral, the creditor sells the asset and applies it to the
debt you owe. The balance remaining after the asset is sold, called the
deficiency, is now an unsecured debt and is discharged with your other debts.
Other types of
property, such as household goods, are rarely if ever pursued by the creditor
simply because it is not cost effective. For example, suppose you do
nothing with respect to a loan secured by a computer. The computer
may only have a resale value of $200 at best. It is not likely worth the
creditors time or money to repossess even though they are entitled to do so.
Creditors must be very careful not to run afoul of the bankruptcy laws even in
collecting their collateral so it may not be worth the risk to them.
TAXES - CAN BANKRUPTCY
ELIMINATE THEM?
Discharging taxes is
very complex and you should consult an attorney to determine if your taxes are
dischargeable. In order for us to render an opinion on tax
dischargeability, we will need the following:
-
Nature of the tax (i.e., for what reason it was
assessed-income taxes, unemployment taxes, etc)
-
Breakdown of balance owed for EACH tax year (do not group
tax years together because DATES are extremely important in determining
dischargeability of taxes)
-
Date each return was filed for each tax year
-
Date assessed by the IRS or other taxing authority for
EACH tax year
-
Information on whether you were later audited and results
of said audit
We may request other
information in analyzing dischargeability. Remember, our advice is based
on the accuracy of the information you provide. If you are mistaken as to
information you give us, the debt may not be discharged even if we thought it
might be based on what you had previously told us. The information you
provide will aid us in determining if you would be better suited for Chapter 7
or Chapter 13.
STUDENT LOANS -- CAN
BANKRUPTCY ELIMINATE THEM?
The law on dischargeability of student
loans was changed in October of 1998. Student loans are now only
dischargeable based on a showing of "undue hardship." Generally, proving
hardship often requires proving to the Court that you cannot maintain a minimal
standard of living if you have to repay the loan, that your financial situation
is likely to persist, and some courts require a showing of a good faith attempt
at repayment. This requires a case-by-case analysis, and thus, an attorney
can explain your options and the procedure for handling student loans during
your consultation.
The case law varies depending on the
jurisdiction so you should consult an attorney in your area to determine if you
may qualify for an undue hardship discharge. However, there are no "bright
line" rules on discharging student loans, and ultimately, the decision is up to
the Court.
To aid us in determining the likelihood of
proving undue hardship, you should come to your appointment with a very detailed
monthly budget (be sure to include all expenses even if they occur only
sporadically-we will average them to determine the monthly amount), several
paystubs so we may average your income, and last year's W-2 form.
The
Consumer Law Center, Inc., federally designated as a Debt Relief Agency by an Act
of Congress and the President of the United States, proudly assists consumers
seeking relief under the United States Bankruptcy Code.
Call for a Free Consultation
Consumer Law Center, Inc.
Fred W. Schwinn, Esq.
12 South First Street, Suite 416
San Jose, CA 95113-2404
408-294-6100
www.sjconsumerlaw.com
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