Litigation and transactional legal careers are comprised of demanding activities that often cause high stress. This stress can interfere with our cognitive function and the brain, which are necessary tools for success.
Can I file for a chapter 7 bankruptcy if I’m working? Yes.
You may have been out of work for a period of time or have large medical bills that are making it impossible to get caught up financially.
How much you earn and what types of debt you have will determine what bankruptcy chapter you file but most of the time people who need the help of the bankruptcy court will qualify to file. Simply put, if you earn less than the median income for your state you will pass the means test and may file a chapter 7 bankruptcy.
The means test is based on the median state income which you can find on the United States Department of Justice website. It means that if you earn more than the median income amount in your state the presumption of abuse is raised if you file a chapter 7 bankruptcy. If a presumption of abuse is found you may not be able to get a discharge of your debts.
If you earn more than the applicable median income, you may still qualify for a chapter 7 depending on the type of monthly obligations you have to pay. In that case you will need to calculate a long form of the means test. If after entering secured debts, taxes paid, medical expenses and other qualifying expenses your income is within guidelines then you can file for a chapter 7 bankruptcy.
Some expenses that factor into the long form of the means test are:
Even if you qualify to file a chapter 7 there may be reasons why it would be in your best interests to file a chapter 13. If you have an underwater house, owe homeowners’ association dues, owe incomes taxes or obligations arising from a marital dissolution, filing a chapter 13 bankruptcy might be to your benefit. If you have assets that can’t be exempted and would be subject to sale by a chapter 7 trustee, you might want to file a chapter 13 instead. It is a complex, fact specific determination, so consult with a knowledgeable local bankruptcy attorney to determine the best strategy to meet your goals.
What can I expect at the First Meeting of Creditors?
Here is some general information on a Chapter 7 hearing (341 hearing) also called the first meeting of creditors in the Northern District of California.
Plan to arrive 20 to 30 minutes early and do not bring children with you. To enter the building, you’ll have to pass through a security screening. Anyone who wishes to enter the building must have a government issued picture ID. If you’re in the habit of carrying a penknife or similar tool leave it at home or in your car.
For the 341 hearing you MUST have your driver’s license or other picture ID and your social security card with you.
If the trustee wants to see other documentation you will have received this request prior to your hearing. Several different cases are set for the same time so take a seat and wait for your case number and name to be called. Watch these videos to see what some of the meetings look like.
After being sworn in under oath and a few general instructions, you’ll be asked to show your identification documents to the Bankruptcy Trustee. The trustee will look to see that the information on your documents matches that on your bankruptcy petition. You, your attorney and any co-debtor will be sitting in the front of a room with other people in it. Most of these people are debtors like you with their attorneys. Sometimes there are debtors alone without attorneys. Occasionally there are creditors attending to examine debtors under oath.
The proceedings are generally recorded so you must speak clearly and with enough volume to be heard well if the recording needs to be played back some day.
You’ll be asked questions about the forms that you filled out — are they complete and accurate? Are there any changes or errors you now know of? Do you expect to get an inheritance in the next 180 days? Along with these sorts of general questions, you may also be asked about your specific circumstances such as: How you valued an asset, or how your business assets are being used?
Here are some sample questions used in the Northern District of California:
- Name and social security number on the Petition are compared with your identification.
- Do you swear to tell the whole truth and nothing but the truth?
- You filed a Petition, Schedules and a Statement of Financial Affairs, is that correct?
- Is the information on the Petition true and correct?
- Is the information on the Schedules true and correct?
- Did you list all of your assets?
- Did you list all of your debts?
- Did you answer the questions on the Statement of Financial Affairs true and correctly?
- Did you review and sign with your counsel all of the paperwork before filing?
- Are there any changes that you would like to make?
- Was the tax return that you provided a true and correct copy?
- Are you expecting a tax refund this year?
- Does anyone owe you any money?
- Are you suing anyone?
- Do you own any real estate?
- Have you owned any real estate within the past ten (10) years?
- Do you have any domestic support obligations?
- Have you transferred any assets in the past four (4) years?
- Why didn’t your husband/wife file with you?
- Are there any creditors here?
Creditors rarely show up and usually in a Chapter 7 bankruptcy this will be the only hearing you’ll have. If there is a fraud issue, or other motions you’ll have additional hearings.
Note as of June 2020 all of these hearings are taking place via telephone or video calls. Everything above applies except you won’t have to travel anywhere and will be able to have your hearing remotely so you can call in 10 minutes early. It is unclear how long these new procedures will last because it is unclear how long the Covid-19 pandemic will continue to impact the court procedures. For now Seventh Amended General Order 38 extends the court closures indefinitely.
What happens to my home owner’s association (HOA) dues if I file for bankruptcy?
It depends. If you owe HOA dues from before your case is filed, they are discharged in the bankruptcy as long as no lien has been recorded. There is no exception to discharge for pre-petition HOA dues in the Bankruptcy Code. As long as you file your bankruptcy case before the HOA records a lien, then the past due amounts are wiped out. If you don’t pay the HOA dues after you file your chapter 7 bankruptcy case, those dues will not be discharged. They will continue to accumulate until the property title is no longer in your name.
Where it gets confusing is when the property is foreclosed. A foreclosure may take many months to complete. Until that foreclosure is completed and title is transferred the HOA dues continue to accrue and all the dues that accumulated after the date of filing the bankruptcy petition remain due and payable by the debtor under the U.S. Bankruptcy Code.
If you are living in the condo until the foreclosure process is completed, you could pay the HOA dues each month and avoid the problem entirely. If you can, wait to file your case.
If you have surrendered the property in the bankruptcy proceeding, you likely aren’t paying the HOA dues because you have to pay rent somewhere to live.
If you haven’t paid the dues during the bankruptcy will it be a problem for you?
It may not be. This situation often resolves itself in the debtor’s favor because the lender has to clear the title before selling the property. Once the lender pays the dues to clear the title the debt no longer exists. Since the debt claim is based on pre-bankruptcy agreements, which have been discharged, the lender may conclude it has no recourse against the debtor. This means they may not come after you for the HOA dues even though technically you may still owe a portion of them.
Lastly, you could file a chapter 13 bankruptcy case. The 9th Circuit Court of Appeals has held that condo fees that come due after a Chapter 13 case is filed are discharged at the conclusion of the case. This is good news for people who no longer want their condo but the title continues to be in their name after they have walked away from it. Even if title stays in your name for the entire five years that you are in the chapter 13 bankruptcy, if you have surrendered the condo there will be no personal liability for any unpaid HOA dues. When the plan is concluded, you’ll truly have a fresh start.
For more Bankruptcy H’s see:
- Colorado Springs Lawyer Bob Doig – H is for Homestead
- Jacksonville Attorney J. Dinkins G. Grange, Esquire – Home: Can the Trustee Take It?
- Wisconsin Lawyer, Bret Nason – Honest but Unfortunate Debtor
- Philadelphia Suburban Lawyer, Chris Carr – H is for Honesty (and Fraud Avoidance)
- New York Bankruptcy Attorney Jay S. Fleischman – H is for Household
- Los Angeles Attorney, Mark J. Markus – H is for House
- Clair Shores Michigan Attorney Kurt OKeefe – H is for How Much is Your Home Worth
Image credit: Leo Reynolds
A chapter 13 bankruptcy is often called a “reorganization.”
In a reorganization you are allowed to catch up on mortgages or automobile loans over a period of time.
When a bank or other creditor is uncooperative you can force them to work with you by filing a chapter 13 bankruptcy case. As long as you can catch up under the plan you can force the creditor to let you keep the property while you make up the back payments. Depending on your situation you may be able to strip off an unsecured second or third mortgage. There must be no property value securing the loan and you must successfully complete your plan payments.
Chapter 13 cases also allow you to keep non-exempt property. In a chapter 7 you are allowed to keep only exempt property and non-exempt property would be sold for the benefit of the creditors. In the chapter 13, you can keep the non-exempt property if you pay for it over the life of the plan, usually a three to five-year period.
Chapter 13 Eligibility
In order to qualify to file a chapter 13 you must be an individual with regular income and be within certain debt limits. As of the time of this writing, you may not have over $1,184,200 in secured debt (mainly consist of mortgages and car loans) and no more than $394,725 in unsecured debts (generally credit cards, medical bills, student loans, and income taxes). A corporation or partnership may not file a chapter 13.
You may not file a chapter 13 or any other chapter unless you have taken an approved credit counseling course within the preceding 180 days.There are very few emergency exceptions allowed.
You may not file under any chapter if within the preceding 180 days you had a prior bankruptcy petition dismissed due to your willful failure to appear before the court or comply with court orders, or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property on which they hold liens. 11 U.S.C. section 109(g), 362(d) and (e).
Chapter 13 Plan
The plan is your description of when creditors will be paid, how much they will be paid and how they will be paid. After you pay your living expenses, the balance of your income goes into plan payments. Creditors can object if not all your disposable income goes into the plan or if they think they are being treated unfairly under the plan terms. The trustee will review your plan and make sure that it meets the legal requirements and that you have enough regular income to fund the plan. The trustee must approve your plan.
Many people make the mistake of waiting for trustee approval to begin making their plan payments. You must begin making these payments within 30 days of filing your bankruptcy case. The trustee will hold your payments until the plan is approved and then begin to pay them out to creditors. If you do not make your plan payments, your case will likely be dismissed.
Your plan can be modified if you lose your job or there are other changes. There is also a provision for a hardship discharge and you may convert your chapter 13 to a chapter 7 at any time.
- Reaffirm, Redeem, or Retain & Pay? by Wisconsin Bankruptcy Lawyer, Bret Nason
- Redemption by New York Bankruptcy Lawyer, Jay S. Fleischman
- Rental vs. Continued Home Ownership by Philadelphia Suburban Lawyer, Chris Carr
- Renting After Bankruptcy by Los Angeles Bankruptcy Attorney, Mark J. Markus
- Repossession by Colorado Springs Bankruptcy Lawyer Bob Doig
Image courtesy of Leo Reynolds.