Bankruptcy Frequently Asked Questions

Q: What is bankruptcy?

A: Bankruptcy allows individuals or businesses (debtors) who owe others (creditors) more money than they’re able to pay to either work out a plan to repay a portion of the money over time or completely eliminate (discharge) most of the bills.

Q: Who can file bankruptcy?

A: With few exceptions, any person or business owing money to a creditor can file a bankruptcy petition. The important question is what type of bankruptcy relief you qualify for and which chapter of the bankruptcy code can help you to accomplish your goals.

Q: Will Filing for bankruptcy stop the harassing phone calls and mail from bill collectors?

A: Yes. Once your bankruptcy petition is filed, you are immediately entitled to an Automatic Stay. This will stop the creditor harassment, because creditors will no longer be allowed to call your home or mail you bills and notices. All collection actions stop. Even if the foreclosure process has begun, we can prevent foreclosure and allow you to keep your home. We can stop repo and garnishment actions. Creditors and collection agencies can no longer call you, and if they do, you can tell them to call your attorney at the Ruiz Law Firm.

Q: What’s the difference between secured and unsecured debt?

A: Secured debt is a claim that’s secured by some type of property or collateral, either by an agreement or involuntarily with a court judgment or taxes. If a debt is secured, that means that the creditor has a right to go after the collateral to collect the debt. Unsecured debt is not tied to any type of property, and the creditor doesn’t have a claim to their property. A mortgage is a secured debt on your property. Most medical bills and credit card debt is unsecured.

Q: What do I need to begin the bankruptcy process?

A: The first step is to meet with us for a consultation. For more information on the bankruptcy process, click here.

Q: How much does it cost to file for bankruptcy?

A: It depends. There are various factors that go into the cost of filing for bankruptcy, including, the court’s mandatory filing fee, the cost of mandatory credit counseling and debt education classes, and the attorney’s fees charged for your case.

First is the Court’s mandatory filing fee which is:
Chapter 7 Petition = $306.00
Chapter 13 Petition = $281.00

Also, under the new bankruptcy law that came into effect on October 17, 2005, debtors must undergo credit counseling at an “approved non-profit budget and credit counseling agency” within 180 days before filing for Chapter 7 or Chapter 13, and complete a debtor education course before receiving a bankruptcy discharge. Credit Counseling courses range in cost from $35-55 each. Here at the Ruiz Law Firm we coordinate both of your credit counseling courses for you. We also obtain your credit report for you to provide the most accurate and thorough reflection of your debts.

Finally, attorneys’ fees for a Chapter 7 bankruptcy generally run between $2,000 and $3,000, and for a Chapter 13 generally run between $3,000 and $5,000. These fees do not include the court’s filing fees mentioned above, or fees for representation in related litigation (such as defending against actions for nondischargeability of certain debts) or in opposing a creditor’s motion for relief from the automatic stay, which are usually charged on an hourly basis, but may also be charged by flat fee.

Since every case is unique, it is impossible to quote a flat fee without having interviewed a potential client.

Q: I saw an advertisement that said “Bankruptcy $99” – why should I pay a lawyer’s fee when I can get my case filed much cheaper? Or better yet, why not just do it myself with a petition preparer or a DIY bankruptcy kit?

A: Remember the old adage: you get what you pay for. This is especially true with bankruptcy. Your case involves more than just filing a petition. A lot can go wrong if you do not consult counsel as to the facts of your particular case. There is no one-size-fits-all bankruptcy. You need someone to assist you throughout your entire case. A petition-preparer cannot give you legal advice, or negotiate with creditors on your behalf, or attend court hearings and represent you there. Moreover, a petition preparer is basically a salesperson whose job it is to sell you a bankruptcy whether you need one or not! A lawyer can tell you whether bankruptcy is really right for you. Furthermore, a petition preparer may put you in the wrong chapter of bankruptcy, which could have devastating effects. As for doing it yourself, that is not advisable for the same reasons that it is not a good idea to hire a petition preparer. When you hire a bankruptcy attorney to take your case, you are paying for peace of mind, expertise, and protection. An experienced bankruptcy attorney also knows the players at court including the judges, the trustees, and creditors’ counsel, which can help your case move along smoothly.

To learn more about the dangers of Bankruptcy Petitioner Preparer scams and the risks of filing Bankruptcy without an attorney check out these recent articles:

Q: How can I pay for a bankruptcy attorney when I am already under water?

A: If you are wondering how you are going to come up with the money to file a bankruptcy case when you are in financial trouble, consider this: you are likely going to be discharging much of your unsecured debt in bankruptcy, thus freeing up funds that you did not previously have. Say for example you owe $30,000 in credit card debt, but you qualify for a Chapter 7 discharge. Wouldn’t it be worth it to pay an experienced attorney a couple thousand dollars to make sure you got rid of the $30,000? As well, in a Chapter 13, you may be able to discharge a large portion of your unsecured debt, which would therefore free up funds to pay experienced counsel to guide you through the bankruptcy process.

Q: Do you have to have a certain amount of debt to file?

A: No, there is no minimum amount of debt required to file bankruptcy. However, with that said, some situations may not warrant filing for bankruptcy. If your financial situation is temporary, you may consider making arrangements with individual creditors for a change in payment amounts or a reduction in the total amount due. If you are considering bankruptcy you should meet with a qualified bankruptcy attorney to discuss your options. Contact us now to schedule your consultation.

Q: What is a joint petition?

A: A joint petition is when an individual and a spouse file a single petition. Unmarried partners must each file a separate case.

Q: What happens if one spouse files for bankruptcy and not the other?

A: If one spouse files and the other doesn’t, the one who doesn’t file could be responsible for the debts. Discuss this carefully with your attorney before filing.

Q: Does my divorce decree protect me from creditors if my ex files for bankruptcy?

A: No. If you are a co-signor with your ex-spouse on a debt acquired while married, the creditor can require the entire payment of that debt from you even though the divorce decree assigns the full debt to your ex-spouse. Your divorce decree may address any recourse you may have against your ex-spouse should he or she default on the loan obligations.

Q: Can a co-signor of a loan be responsible for a debt if the other person has declared bankruptcy?

A: Yes. The lender can require the co-signor to make payments on a loan once the principal has declared bankruptcy on the credit. This makes it extremely important when considering co-signing a loan: Be ready, and able, to pay the loan in the event that the principal signor defaults.

Q: Can all types of debt be discharged?

A: No, not all. The debts that cannot be discharged vary slightly between the different chapters of bankruptcy, but here is a list of debts that generally cannot be discharged:

  • Debts you forget to list in your bankruptcy papers, unless the creditor learns of your bankruptcy case
  • Debts for personal injury or death caused by your intoxicated driving
  • Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution
  • Most debts for taxes owed to local, state or federal agencies
  • Debts incurred through a fraudulent act, under false pretenses or false representations
  • Debts owed to a spouse, former spouse, or child, for alimony, maintenance, or support of a spouse or child, with a separation agreement, divorce decree or other order of a court of record
  • Debts owed for injury to another person or property owned by another (as in a court judgment)
  • Debts for government-sponsored educational loans, unless it can be shown that repayment will cause an undue hardship
  • Debts for death or personal injury caused by the debtor’s drunk driving or from driving while under the influence of drugs or other substances (as in a court judgment)
  • Debts incurred after a bankruptcy was filed

Q: What can I keep, if anything, if I file bankruptcy?

A: Exemptions allow an individual to “exempt”, or keep, certain kinds of property. State law defines what assets are considered “exempt,” but typically includes:

  • Jewelry
  • Most household items
  • Vehicles up to a certain amount
  • Equity in a home up to a certain amount
  • “Tools of the trade” or tools and equipment necessary to allow the individual to continue working

Normally our clients don’t give up any assets when filing a bankruptcy

Q: Do I have to file bankruptcy on all the accounts I owe, or can I keep some?

A: You must include all the debts you owe in your petition and schedules. You may have the option to choose to repay a particular debt at a later time.

Q: Will I lose my retirement accounts or payments from social security?

A: Generally, no. Retirement accounts that are ERISA-qualified aren’t considered property of an estate and aren’t taken into consideration as assets. Social Security benefits are protected from assignment, or garnishment for debts in bankruptcy. Once paid, the benefits continue to be protected only as long as they can be identified as Social Security benefits. For example, money in a bank account where the “only” deposits into the account are direct deposits of Social Security benefits are identifiable and generally protected.

Q: How long does a bankruptcy stay on my record?

A: Bankruptcies remain on credit reports anywhere from seven up to 10 years.

Q: When can I apply for credit again?

A: Bankruptcy does not have the social stigma that it once had, and people often find that once they have discharged many of their debts and wiped the slate clean that creditors are willing to lend to them again. The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor. There is no law that prevents anyone from extending credit to you immediately after the filing of a bankruptcy, but creditors aren’t required to extend you credit either. You should be cautious, however, to budget and stay on top of your finances so that you maintain the benefits of having filed for bankruptcy relief. The fact is that if you take care to rehabilitate your credit, your credit score can easily go back to prime territory, over 680 and into the 700s within two years.

Q: Who lets my creditors know I’ve filed for bankruptcy?

A: The bankruptcy court notifies, by mail, all creditors advising them of:

  • The filing of the bankruptcy
  • The case number
  • The automatic stay
  • The name of the trustee assigned to the case (if filed under chapters 7 or 13)
  • The date set for the meeting of creditors
  • The deadline, if any, set for filing objections to the dismissal of debts
  • Whether and where to file claims

The exact information in the notice may be slightly different depending on the chapter under which the case is filed.

Q: What does a trustee do?

A: United States Trustees are appointed by the bankruptcy court, but aren’t necessarily lawyers. Their fees are covered by the bankruptcy filing fee or are a set percentage of the money distributed in the bankruptcy. The trustee’s job is to:

  • Administer the bankruptcy
  • Make sure creditors get as much money as possible
  • Run the first meeting of creditors (also called the “section 341 meeting”)
  • Collect and sell non-exempt property (in a chapter 7 case) or collect and pay out money on a repayment plan (in a chapter 13 case)
  • Obtain information from you and documents related to your bankruptcy

Q: How is an inheritance treated in a bankruptcy case?

A: How an inheritance is treated in bankruptcy depends on when you become entitled to receive it and what type of bankruptcy relief you’re seeking. If you’ve filed for Chapter 7 bankruptcy, and you become entitled to an inheritance within 180 days of your filing date, the inheritance will be a part of your bankruptcy estate, and can be used to pay your debts. The important date is when your right to the inheritance is fixed, typically on the date of a person’s death. You might not receive property or money from someone’s estate for many months.

If you’ve filed a Chapter 13 case, your inheritance can be used in determining how much you have available to pay creditors under your repayment plan, and the 180-day limit doesn’t apply. In either type of bankruptcy, you must inform the bankruptcy trustee about the inheritance.