Cheryl L. Stengel

No. If only one spouse is liable for most or all of the debt, it may not make sense for the other spouse to file.

Due to changes to the Bankruptcy Code in 2005, it is more difficult for high-income people to qualify for Chapter 7 bankruptcy. But, there are many other factors that must be considered in the eligibility analysis. Most people, even those who are higher-earning, still qualify for Chapter 7.

The debt discharge is broad. That includes credit card debt, medical debt, loans and lines of credit, car loan deficiency, home loan deficiency, old income taxes, etc. But, some debts cannot be discharged. That includes recent income tax, family support debts or debts created by divorce decree or marital settlement agreement, student loans unless you can prove undue hardship, debts arising from intoxication and criminal restitution. Finally, there are exceptions for certain types of debts based on “bad conduct”, if the creditor timely protests in the Bankruptcy Court and wins. That includes debts based on fraud or misrepresentation, embezzlement, and willful and malicious injury.

Secured debt is a claim that is secured by some type of property, either by an agreement or involuntarily due to a court judgment or tax lien. Most commonly, secured debts are home and car loans. While a debtor’s personal liability will be discharged in bankruptcy, the lender’s lien on the collateral will remain. If the debtor wants to keep the asset, the regular monthly payments must be maintained or the lender may foreclose or repossess.

An unsecured debt is not tied to any type of property as collateral. Credit card debt is usually unsecured debt.

The majority of individuals do not lose any assets in Chapter 7 bankruptcy; however, that depends on asset equity and other factors. Each state has laws that allow a debtor to keep certain types of assets at certain equity values. In California, there are two exemption options from which to select:

California Code of Civil Procedure §704: The “homestead exemption” is the major feature. Effective January 2021, California law substantially increased the homestead exemption amounts, allowing you to protect as “exempt” equity in your residence a minimum of $300,000 to a maximum of $600,000, based on the median sale price of homes within the applicable county. In addition, you are entitled to exempt certain types of personal property up to certain equity values. That includes household goods and furnishings, clothing, vehicles, jewelry, tools used for work, and other items. Retirement accounts are protected, but the type of account may affect the exemption amount.

California Code of Civil Procedure §703: Currently, approximately $31,000 of "wildcard" exemption may be applied to any type of property (this dollar amount adjusts every three years). In addition, you may exempt certain types of personal property up to certain equity values. That includes household goods and furnishings, clothing, vehicles, jewelry, tools used for work, and other items. Retirement accounts are protected, but the type of account may affect the exemption amount.

In each Chapter 7 case, a bankruptcy trustee is appointed to review the debtor’s financial affairs and assets and, if appropriate, to administer assets in the “bankruptcy estate”, including liquidation of property with value in excess of the exemption amount and sale costs and recovery of improper transfers of property or payments made prior to the bankruptcy filing. The trustee also has the power to pursue claims held by the estate, such as for personal injury, business or employment disputes, or money owing to the debtor. The proceeds in the case are distributed to creditors pro rata.

Yes. But, if you are behind on your mortgage payments, a Chapter 7 will provide only temporary relief, possibly 3 months or so. The lender may apply to the court to begin or resume foreclosure while the case is pending. If your income is sufficient and you wish to keep your home, a Chapter 13 may be a better option to allow a structured cure of the home loan default under a court-supervised repayment plan.

It depends on many factors and the type of bankruptcy. In Chapter 7, if you are current on your mortgage payments and your home equity is within the applicable homestead exemption amount, then probably not. But, if your house value is high enough to enable the bankruptcy trustee to sell the house and, after paying costs of sale and your homestead exemption, have some funds left for creditors, then you could lose your house in the bankruptcy. Also, if you are behind on your mortgage payments, the Chapter 7 bankruptcy may be only a temporary bar to the lender’s foreclosure. If payments remain in default, the lender is free to exercise its rights through the lien on the house and complete foreclosure.

In Chapter 13, the debtor’s assets are not liquidated, although the debtor may choose to sell assets to pay creditors in the case. Chapter 13 allows retention of assets and repayment of debts under a court-supervised plan. If your household income is sufficient, Chapter 13 will allow you to bring current the arrears that you owe on your home loan by making installment payments over 36 to 60 months to “cure” and reinstate the loan. Chapter 13 is also a good option for a person who has substantial home equity or other valuable assets in excess of the exemption, which may otherwise be liquidated in Chapter 7.

The answer is similar to the answer above. In most cases involving vehicles owned “free and clear” or with some equity, the available property exemptions are usually sufficient to protect the vehicle from liquidation in Chapter 7. If you have a loan on the car, the issue is whether you are current on your loan and can afford to continue the payments. If so, you can choose to retain the car. If not, the car lender will likely seek to repossess the vehicle after the bankruptcy concludes, or possibly during the case upon court approval.

As a secured debt, Chapter 13 provides a structure for payment of car loans in monthly installments under the repayment plan. The loan may be paid in full or possibly reduced to the value of the car, depending on when the vehicle was purchased.

No. It’s critical to disclose all assets and financial transactions. “Asset” has broad meaning and includes tangible property as well as intangible or contingent rights (such as the right to sue someone or collect on an insurance claim or inheritance), even if you believe the asset is of no real value. Intentional failure to disclose assets or other relevant information may result in denial or revocation of the bankruptcy discharge and may be prosecuted as a federal crime in serious cases.

No. You would not be eligible to file a second Chapter 7 and receive a discharge until at least 8 years have passed after the first Chapter 7. However, you would be eligible to file a Chapter 13.

Immediately. Once your bankruptcy case is filed, an “automatic stay” goes into effect that bars the collection efforts of creditors, including pending lawsuits, foreclosures, repossessions, and the enforcement of judgments and liens. Creditors may not call you or send collection notices or take any actions to collect on the debt.

No. The Bankruptcy Code generally prohibits termination or discrimination with respect to employment due to a bankruptcy filing.

Yes, provided you meet the other criteria for Chapter 13. Chapter 13 is for individuals with “regular” income and debts that do not exceed the statutory debt limits. You must have sufficient disposable income left each month after paying your living expenses in order to fund your Chapter 13 plan, in compliance with the creditor treatment criteria mandated by the Bankruptcy Code. Regular income may be from any source: your wages or self-employment income, retirement, disability, rental income, roommates, family financial assistance, etc. For a person with fluctuating income, the plan payment may be based on your average earnings.

Bankruptcy filings are public records and anyone may search whether a person has filed bankruptcy and review court files. But, generally, only the creditors named in your bankruptcy case will know of the filing.

Probably not. Your bankruptcy filing will not discharge his independent liability on the loan. As long as the person you co-signed for keeps up with the payments, he or she should not have a problem.

You must list all creditors in your bankruptcy case. That includes a relative or friend who loaned you money. But, you may voluntarily repay anyone you wish, notwithstanding your bankruptcy discharge.

Yes. Upon learning of the bankruptcy filing, the credit card issuers will review your account activity in the few months prior to the bankruptcy filing. Recent purchases or cash advances may give the creditor a basis to object to the debt discharge in the bankruptcy, arguing that you did not intend to pay when you incurred the charges.

Your credit score will be poor for a while after your bankruptcy case. But, your score will improve substantially over the next 2-3 years if you maintain good post-bankruptcy credit. Many banks and car lenders view a person with a bankruptcy as a good credit risk due to inability to file another bankruptcy soon and the increase in disposable income due to discharge of debts. Many lenders will extend credit shortly after discharge, however, the terms may not be ideal. It is fairly easy to obtain a secured credit card which is a good method to rehabilitate your credit score.

Probably yes. Even if you have a zero balance on a credit card, most banks discover the bankruptcy filing and will probably cancel the card. You can choose to “reaffirm” a credit card to keep the card and pay the debt, but that is generally a bad idea and the Court will rarely allow it. If it’s necessary to have a credit card, you may be able to obtain a secured credit card post-bankruptcy.