That homestead exemption is lost back to the day the bankruptcy was filed. Now the trustee not only
got the money above that exempt amount, but the trustee gets to say thank you I’ll take that as well to
pay your creditors. So it is very important to know the value and know the equity in the home. You want
to get your home out of the bankruptcy estate if possible. No matter what, you need to be aware there
is this land mine. Thank you state legislature on that one.
I hope this helps. Hopefully you understand and use this information to be aware of where that land
mine is.
Thank you for reading my blog article. Please watch for the next one. You can also subscribe to my blog
for future articles.

I need your help. Please, Please, Please, contact Governor Newsom leg.unit@gov.ca.gov  to sign off on the AB 1882 homestead law before the time expires for him to do so.

As a bankruptcy attorney and certified specialist with 42 years in practice. I am seeing large numbers of senior citizens, disabled people, low income people and people who had the courage to open businesses in our state that had their businesses fail (even before COVID-19) and ordinary people who are losing their homes in bankruptcy. That is because the bankruptcy trustee can sell the home and use the money to pay creditors. 

Under the present law, even the pitifully small exempt amount is only protected for 180 days after the trustee sells the home for the bankrupt to buy another home, which is almost impossible to do. Then the trustee gets to take even that pittance away from them, leaving them homeless.Most of those are cases that would not happen if the homestead exemption is increased. The Homestead law AB 1882 was passed almost unanimously by the Senate 32-2 (94+%.) The final Assembly vote was 60-14 (81%+).

These people deserve to not be kicked out of their homes. We have enough homeless. Please don’t make even more people homeless. You are the only person that can help them. Please do not let them down.

TOMORROW Monday, August 31, the California State Assembly and Senate will vote on Senate Bill 832 and companion Assembly Bill 1885. This legislation will help keep Senior Citizens, Disabled, Struggling Families, and hardworking individuals from having their homes sold by the big banks and creditors to pay medical bills and other debts such as credit cards, high interest so-called “personal loans” including those bought by the bottom-feeder debt buyers that paid cents on the dollar than sue for every cent owed.

Senate Bill 832 and companion Assembly Bill 1885. increases the homestead exemption to protect a minimum of $300,000 in equity for a single person, for spouses or single parents and for Senior Citizens and disabled persons. Depending on the median sale price of a home in the county they live in, it can be more.

Right now, those amounts are a measly $75,000 for a single person, $100,000 for spouses or single parents and $175,000 for Senior Citizens and disabled persons.

Under present law, a creditor can force the sale of a person’s home to reach the value above the exemption amount. Often they get the home AND all the equity for next to nothing at a “Sheriff’s sale.”

This is horrible for most people, and is particularly devastating for senior citizens who spent their whole life paying off their home so they would have a place to live that was theirs in old age.

Senate Bill 832 and companion Assembly Bill 1885 will change that.

THIS LEGISLATION MAY WELL FAIL WITHOUT YOUR IMMEDIATE HELP!

I am NOT asking you for money. I am asking for something much more precious, a few minutes of your time to contact your California Assembly person and State Senator and let them know that you want them to vote for Senate Bill 832 and companion Assembly Bill 1885.

The last time legislation to help people keep their homes, the lobbyists representing the Big Banks and financial institutions LIED to California Politicians. They claimed that Bill was legislation that was designed to protect the wealthy. Nothing could be further from the truth.

Politicians happily stuffed their pockets with, er… “political contributions.” Many of them either decided to change their vote to support the big banks and vote against that Bill or conveniently were lined up at the restrooms when it came to vote.

Senate Bill 832 and companion Assembly Bill 1885 have a good chance of passing because the fat cat banks and debt buyers don’t have the time to buy the votes like before. This is “Emergency Legislation” that does not have to pass through the time-consuming steps the prior legislation did.

THE VOTE IS EXPECTED TO HAPPEN TOMORROW, MONDAY AUGUST 31.

If Senate Bill 832 and companion Assembly Bill 1885 fails to pass, tens of thousands of people including disabled and senior citizens will lose their homes and be put out on the streets by the big banks, debt buyers and other bottom feeders.

Senate Bill 832 and companion Assembly Bill 1885 is supported by unions, consumer rights groups, women’s rights groups, minority rights groups and many more.

This is YOUR CHANCE TO MAKE A REAL DIFFERENCE for ordinary people, and potentially yourself at some point, by contacting your Senator and Assemblyperson NOW. Let them know that you want them to vote for Senate Bill 832 and companion Assembly Bill 1885.

Contact your Senator and Assemblyperson directly. If you do not know who your Senator or Assemblyperson is, you can look it up at:

http://findyourrep.legislature.ca.gov/

Please also CALL YOUR SENATOR & ASSEMBLYPERSON. Let them know them know your vote for them in the next election may be dependent on their vote on this legislation. You can find the phone number on their legislative website that you will get to on the link above.

Please share this post with everyone you can.

Thank you,
Gary Ray Fraley Esq.
California State Bar Certified Bankruptcy Law Specialist
Defender of people’s rights from abuse by big banks, debt buyers & other creditors.

Hello I’m Gary Ray Fraley. I’m a California State Bar Certified Bankruptcy Law Specialist in Sacramento California. I have been representing consumer and business clients in bankruptcy matters since 1978 when I founded the Fraley & Fraley law firm.

Today I am going to discuss with you the 13 Things you need to know to survive a job loss due to COVID-19 coronavirus, or any reason for that matter.

If you are watching this video, you have either lost your job or are trying to make sure you are prepared if it happens.

One of every 5 workers in America has now lost their job since the covid-19 coronavirus pandemic started.

Over 36 & 1/2 MILLION unemployment insurance claims were filed as of May 9, 2020. And it is still going up. That does not count all of the people who couldn’t get through to State unemployment offices.

Estimates are that jobs losses could go as high as 32% or more. Right now, more people have lost their jobs than in the whole of the great recession of 2008. Job losses could exceed the great depression of the 1930s.

People who think their industry is safe are going to be surprised when they find themselves out of work. Every job in our economy is dependent on other jobs in that same economy.

This is like dominos standing in a line. When the first one falls, it takes down the second one which in turn takes down the next one and on down the line.

All kinds of jobs in the hospitality and travel industry have been lost. That includes restaurant and hotel jobs, theaters, airline jobs, theme parks, and just about every industry that relies on those industries to survive.

In the Retail Industry, you can expect many “Brick & Mortar” businesses will close for good. Sales of high ticket items such as vehicles, appliances, televisions and jewelry are going to be down dramatically. Many businesses were “on the edge” even before COVID-19.

Other industries like meat packing plants are slowing down or even coming to a standstill. Factories that produce goods for America and for export are going to end up reducing employees or even closing due to lower demand.

No one who has had their income cut dramatically is “dying” to go out to a restaurant and spend money they don’t have. People who are counting every dollar to survive are not going to go out to restaurants, theatres, buying cars, TVs, appliances, airline tickets or cruises. They are going to hang onto whatever they have for necessities such as food, rent or mortgage payments, utilities, health insurance and vehicle payments.

Many people who have had reduced income or lost their jobs are “living on credit cards.” That debt will have to be paid with money that may not be there even if the job does come back. The high interest credit card debt will in many cases, be too much for most people to live with.

Despite wishful thinking, our economy will not return to “normal” anytime soon. You can’t switch off the economy and turn it back on like a light switch.

Everything is going to have to be restarted, one step at a time. Coming back to anything close to where we were before the pandemic hit will take years.

Sadly, many jobs are gone forever.

So, what do you do if you’ve lost your job? Here are the top 13 things you need to know and do to keep your head above water.

1. Apply for unemployment immediately. With millions of claims being filed, the State unemployment websites have been overwhelmed to the point that they are crashing. You need to be persistent. The best day to apply for unemployment is on Tuesdays. The best time to try to apply online is very late at night or early in the morning. If you’re applying at 4 AM, 95% of the people applying are not going to be doing it at that time in the morning. There is the old proverb that says “the early bird gets the worm.” Be the early bird.

2. Because of the Covid-19 coronavirus legislation passed by Congress and signed by the President March 27, 2020, there is now $600 per week supplemental unemployment from the Federal Government. That is on top of the state unemployment payments. The normal one week wait for it to start has been waived so you get your benefits calculated from the day you were laid off.

Additionally, if you are self-employed, or live on income from doing Gigs, you can file for unemployment and get the $600 per week in Federal payments even though you would normally not qualify for unemployment.

3. Do not stick your head in the sand and pretend everything’s going to be wonderful in a few weeks or months. It isn’t. Recognize that, at some point, you may have to get rid of your debts by way of bankruptcy. If you don’t need to, that’s great, but millions of people are going to have to do so when they cannot find sufficient work to pay their living expenses.

4. Take stock of your assets and funds that you may have in reserve. Hang on to every dollar you have like it’s going to be the last dollar you will get because it just may be. If you have things that can be sold, keep that in mind as a last resort if it comes to that point.

5. Determine what bills are important for survival and what are not. Understand that the creditor that is going to holler the loudest is going to be the least important one. Don’t pay them. Paying credit cards at this time is not important.  Paying personal loans that you may have is not important.

Paying friends or relatives is not important. In fact, that could be even worse for them if you find that you have to file bankruptcy. They can be ordered by a bankruptcy Judge to give that money back to the bankruptcy trustee to pay other creditors. If you get through this, you can always pay them later. There may possibly be ways to protect those funds, but that can be dealt with when you go to see a bankruptcy attorney.

Forget trying to hide the payments to friends and relatives. You don’t want to double bunk with Bubba in Leavenworth Federal prison.

Paying that type of debt may potentially put you in a position of not having the money later to pay for necessities for you or your family. Hang on to that money. Those debts can be dealt with later. You can pay them when you can. You can file a Chapter 7 bankruptcy to wipe out debts if it becomes necessary. You can even file a Chapter 13 reorganization to pay you debts over 5 years if you find that you have the ability to do so.

6. The only expenses and debts you should pay are those that:

A) Keep food on the table for yourself and your family,

B) Keep a roof over your head,

C) Your electricity, gas and water bills.

D) Pay the vehicle payments so that you have transportation to find a job or go to work.

7. If you have more vehicles with debts on them, choose which 1, or 2 if you have a family, that you truly need to survive. Quit paying on the rest. Consider the cheapest monthly payment and interest rate and the amount of equity you have in the vehicles when you decide which to keep and which to give up.

The world is not going to end if you have to give up the boat, the RV, the motorcycle, the BMW or Mercedes or the car you bought for your son or daughter. The money you don’t spend on these may be the money you can use to save the other vehicles you truly need or keep a roof over your head.

8. If you’re unemployed, apply for food stamps if you qualify. Consider charity food closets if you need to. All religions I know of make a point that we should be humble. As hard as that is, it is something we all have to learn to survive this financial disaster. No one is immune from this process other than the extremely rich and, given the stock market, they may soon be in line with you.

9. Do not borrow money from anyone. Of course, do not lend money to anyone either. It never turns out well for either party.

10. Only if your money to live on has completely run out should you even remotely consider taking money from your IRA, 401(k), 403B, 457 thrift savings plan or from your retirement. Keep in mind that the value of your retirement has probably gone down greatly if it was invested in the stock market. However, it will eventually regain much of its value if you can wait.

11. If you have a job and you need to take money out of your retirement, BORROW that money from the IRA or 401(k) or whatever retirement program you have. Do not cash it out. That way, as you get back on your feet, you can repay that loan at extremely low interest rates and keep the benefits that you will need when you retire. Despite the most recent changes in the law temporarily allowing you to take money out without penalties, cashing these out will normally cost you a large amount of taxes and penalties.

12. If you have room where you live, you may want to consider sharing a place with other family members that you can stand to be around. The same would be true with non-family if you are comfortable and know the individuals well. Do not do that with someone who has lost their job or is likely to lose their job. They can turn into a financial drain on your limited resources. Any bedrooms that do not have paying occupants are an unnecessary drain on your income.  Rent them out.

13. If you can’t afford to pay your rent, consider talking to relatives that might allow you to stay with them. Over the last few years, we have seen the comeback of multigenerational households. It may feel embarrassing but, if you haven’t alienated Mom or Dad, or your kids if you are Mom or Dad, they may allow you to stay with them. Just make yourself useful.

I hope this information helps you get through these trying times.

If this information was useful please give it a thumbs up, and share it with as many people as possible. Don’t forget to click the notification bell to subscribe to my YouTube channel. That way you will get notifications when I post my next educational video.

I’m attorney Gary Ray Fraley. I am a California State Bar Certified Bankruptcy Law Specialist serving clients in Northern California, the Central Valley, the Gold Country and the Bay area.

You can find more information about me and the Fraley & Fraley law firm I founded on my website.

You can reach my office to schedule an appointment at 916-485-5444.

In a Chapter 7 straight Bankruptcy, If you have a corporation, a limited liability company or a partnership filing, the company ceases to exist upon filing of the case.

Bankruptcy code 11 U. S. Section 721 lays out when a Chapter 7 Bankruptcy Trustee can run a business.  Even then the Chapter 7 Trustee cannot do so without first getting permission from the Bankruptcy Court. The ability to run the business is only going to be allowed for a short period of time. It is only allowed if the business could be sold for more money than if the business was closed.

Nowhere in the bankruptcy code does it authorize you, the debtor to run a business in a Chapter 7 bankruptcy.

If you want to keep a corporation or business, other than a sole proprietorship, open you would have to file a Chapter 11 reorganization. For the individual or small business, a Chapter 11 reorganization is cost prohibitive and the success rate is extremely low.

A large percentage of small businesses are sole proprietorship’s. That means legally, there is no difference between you and the business.

A sole proprietorship business uses your own name or using a DBA. An example would be ”John Smith” doing business as ”Smith plumbing” or “Midtown Plumbing.”

For a sole proprietorship, there is no difference between business and personal debt.  You are liable for all the debts no matter the source.

You cannot file Chapter 7 Bankruptcy just for the sole proprietorship business. It isn’t a separate entity from you. That is the same reason why you cannot file a personal Chapter 7 Bankruptcy that doesn’t involve the business.

One way to keep a sole proprietorship business open is by filing a Chapter 13 Bankruptcy debt reorganization. There are very strict limitations as to the amount of secured and unsecured debt. If the debt exceeds those limits, you cannot use Chapter 13 to reorganize your debts.

One of the reasons a Chapter 7 Bankruptcy Trustee does not want you as the debtor to run a business is their liability for your actions. Chapter 7 Bankruptcy Trustees have been sued and held liable for injuries caused by businesses they did not shut down as required under bankruptcy laws.

Because of that liability, Trustees are becoming more hardnosed about shutting down sole proprietorship businesses.

This can pose a huge problem if that is income you need for your living expenses.

If it is essentially a service business you may be able to file a motion in the Bankruptcy court asking the Bankruptcy judge to order the business abandoned back to you and out of the Bankruptcy estate.

If the business assets have little value and can be exempt, the Trustee will often not oppose the motion. Once you get that order, the business is no longer an asset of the Bankruptcy estate. That means businesses all yours. The Trustee cannot be sued for anything that happens after you have regained complete ownership of the business.

If this is a real estate sales business, mortgage broker business, insurance business, or multilevel marketing business there are often assets for the Bankruptcy Trustee to administer and sell to pay creditors.

This includes funds commissions on sales where the contract has been signed before the Bankruptcy was filed but the escrow closes after the Bankruptcy filing.

Other examples would be residuals from insurance sales, payments to you from your downline in multi-level marketing like ”Mary Kay” or ”Amway.”

If you have any type of book of business that could be sold to someone who has the right credentials, a Chapter 7 Bankruptcy Trustee can sell that.

If you have something of value that the Bankruptcy Trustee could sell, you may be able to work out a deal to buy the asset back.

If you are a business owner, it is absolutely vital to you to not attempt to represent yourself, unless you are willing to have your business shut down or possibly even sold.

Look for an attorney that is a Bankruptcy Law Specialist in your area. The California State Bar has a list of attorneys they have certified as Bankruptcy law specialists. It is broken down by County, so you can find a Certified Bankruptcy Law Specialist close to you.

I’m CA State Bar Certified Bankruptcy Law Specialist Gary Fraley. For over 42 years I have served Northern California & Central Valley clients. You can find more useful information at my office website: SacramentoBankruptcyAttorneys.com                                                                   

This is a question I routinely am asked by clients. In every Chapter 7 bankruptcy case, the debtor and, if married and filing together, the debtor and the debtor’s spouse must attend. The only exception to this would be situations beyond the debtor’s control such as military deployment or being admitted to a hospital. Your inconvenience is irrelevant.

Bankruptcy law requires you to be examined orally as to your finances by the Chapter 7 trustee. It also allows creditors to ask questions as to your income and assets just as the Trustee can. In 98% of cases your creditors won’t show up. That does not affect their rights in bankruptcy.

This section 341 meeting, also referred to as a creditor’s meeting, is in most places, held at the bankruptcy court house. No matter where it is held, the same rules apply.

The 341 creditor’s meeting is under oath. That means that, if you lie to the bankruptcy trustee they are going to have an audiotape of you doing so. If you are dishonest in answering the questions, there are a number of things that could happen to you, none of them good. The possibilities include: denial of discharge of your debts, fines and potential criminal action against you. To put that another way, you can go to prison if you’re not 100% honest in your answers.

However, this is not a court hearing and the individual presiding over that meeting is a Chapter 7 trustee. These people are under contract with the United States trustee’s office to review your paperwork and interview you.

Normally, the typical creditors meeting has approximately 10 cases on for a one hour period of time. The Chapter 7 trustee will explain the process at that time. However, you must have read the bankruptcy information pamphlet which explains the different forms of bankruptcy. The trustee will ask you if you have read it before the trustee will proceed with your examination.

The 1^st thing you will be required to do is provide a valid photo identification document such as a valid driver’s license or passport. You also have to have a valid Social Security card issued by the Social Security Administration. If you do not have that, you should immediately go to the Social Security and request a replacement Social Security card. It normally takes several weeks to obtain a replacement Social Security card. Therefore, you need to do it well before filing of the bankruptcy or you may be required to return to the trustee to provide an original of that document.

The typical questions asked by the Chapter 7 bankruptcy trustee are:

1 your name;

2 your home address. Usually they will either request the 1^st few digits of your address or they will confirm that your address has not changed since the filing of your case.

3 whether you had your attorney prepare your bankruptcy;

4 whether you read it.

5 whether it was filled out completely at the time you signed it;

6 were the papers true and correct at the time the case was filed;

7 whether you listed everything you own or have any rights in. That would include rights to an inheritance where the individual has already passed on. That also would include rights to sue anyone and houses or other assets located anywhere in the world.

8 whether you listed every debt you owe, including debts to friends and relatives and anyone that thinks you might owe them money or assets even if you disagree;

9 whether you paid any friends of relatives ANYTHING in the last 2 years;

10 whether you listed all your income, no matter where it comes from. That includes any funds that you get “under the table” to avoid taxes.

11 whether you listed all of your living expenses in the bankruptcy.

12 whether there is or is going to be a significant change in your income.

13 whether you are expecting to be entitled to an inheritance within 180 days from the day you filed your bankruptcy.

They ALL need to be answered completely and honestly. You need to understand that there is no “BUT” in the word “ALL”

The good news, assuming you have been honest in the information provided to the trustee, the only time you will have to go to the courthouse.

The trustee can ask you about how you valued the things you own or have rights in. In most cases, that is not going to happen. However, if the trustee thinks you have something that you have undervalued, such as a home, and they think the asset is not protected or a portion of it not protected they can take and sell the nonexempt items to get the cash to pay creditors some or all of your debt.

I regularly have clients that I have told that there creditors meeting will be simple and straightforward that upon completion, walked out and said “Gee, that wasn’t bad at all”

I’m, Gary Ray Fraley a California State Bar Certified Bankruptcy Law Specialist with my office in Sacramento CA. I’ve been practicing bankruptcy law for over 41 years.

Today I am going to discuss with you the first in a series of videos (of which this is a transcript of) on Debt Relief Companies

We have all heard the pitch on TV or radio. It goes something like this:

“If your credit card debt is out of control. If you’re in over your head in monthly payments, there is a SECRET the credit card companies don’t want you to know. If you have more than $5,000 in credit card debt you have the right to let us settle that debt for a fraction of what you owe. That is bad news for the credit card companies, but it is great news for you.”

That SOUNDS like they have some way to FORCE credit card companies to settle the debt. The real truth is:

Debt Settlement reality

1 They don’t. It is up to the credit card companies whether they are willing to settle for less, or on payments or wait while you settle and pay someone else first. Why should they?

2. Your credit gets much worse because the debt relief company tells you to stop paying on all the other credit cards even the ones you are current on.

3. Your creditors who did not agree to the debt relief plan like Chase can still sue you. Notice that they talk exclusively about Credit Card debt.

4. When you are sued the Debt Relief Company will charge you ANOTHER FEE for their “attorney” to negotiate with the creditor who is suing you.

5. Then the creditor gets a judgment against you. Now they can garnish your paycheck, levy your bank accounts and do other ugly things. Many people do not know they have a judgment against them until their paycheck is garnished or their bank account is seized.

6. On the debts the Debt Relief Company does settle for you, you pay them a hefty fee. It is not uncommon for you to pay 20% or higher in fees to the debt relief company.

7. On top of that, the amount the credit card company forgives is taxable income to you on top of your highest tax bracket.

8. Solving some credit card debt is worse than solving none at all. You can end up spending thousands of dollars and having years of bad credit only to owe even more money than when you started.

9. If you filed a Chapter 7 Straight bankruptcy, you can be rebuilding your credit almost immediately. Most people who file bankruptcy have a good credit rating within 2 years.

10. If you want to force the creditors to accept a payment plan, a Chapter 13 debt reorganization can do that. Chapter 13 the creditor gets no say in the plan. They can’t do anything but shut up and leave you alone. That’s the law.

11. The only secret the so-called debt relief companies don’t want you to know is that what they have no ability to control any creditor that does not want to work with them. What they do often is worse for you, your family, worse for your credit, and certainly more expensive than Bankruptcy.

Now you know the real secret that the Debt Relief Companies don’t want you to know.

It is a prime example of what happens when one does not know what they are doing. While this is about a home, the same applies to other assets as well. This shows why you do not want to be your own bankruptcy attorney.

Representing Yourself in Bankruptcy

I take it that if you are talking about filing a motion to compel abandonment as the case is filed that you HAVE NOT FILED yet.

My advice to you is DO NOT FILE WITHOUT an appraisal from someone who the Trustees and judges know is completely honest and highly skilled. Then hire an extremely well qualified experienced Bankruptcy Attorney. You can LOSE YOUR HOME when you do not know what you are doing.

Would you do brain surgery on yourself? No you would not, no matter the cost. Can you afford to do the legal equivalent by doing “Bankruptcy” on yourself? Not if you understand the real risks in doing so.

You state that: “my equity and the mortgage is higher than the value of my home.” That does not tell anyone whether you would be using just a little of your exemption or ALMOST ALL of your EXEMPTION with little or no room for error.

Outcomes of Representing Yourself in Bankruptcy

Over the last 41+ years I have seen many homes lost because the Trustee decided that the home could be sold for more than the unrepresented Debtor thought it could. You cannot afford to be wrong on this.

Another thing to realize. If the Trustee does sell the home the exempt amount is held by the TRUSTEE, not by you. If you buy a home the Trustee will put the funds into the escrow and they will NOT be released to you personally, ever. Further, if you do not close escrow on a replacement home within 180 days, the exemption DISAPPEARS as if it were not protected on the day that you filed the case. Put simply, YOU LOSE THE HOME AND THE MONEY!!!

Do you know anyone who will sell you a home or finance your purchase of a home right after a bankruptcy? If so, please let me know. I would love to know who.

Have you considered the issue of whether you are going to be able to protect the equity in your vehicles? How about next year’s tax refund? Other assets?

Trustees love to wait for you to file your tax return NEXT YEAR as it gives them an excuse to keep the Bankruptcy Estate open and not abandon anything. Then they wait to have the equity in your house go up to where they can sell it to generate the estate some money and the opportunity to glom onto the “exempt” money.

This is the tip of the iceberg. What sank the Titanic was what was below the water line that the crew could not see.

This is NOT about filling out papers like many people (and a sad number of attorneys) seem to think. This should be left to the experts.

If you are going to do this, hire a real attorney. I would suggest that you find a California State Bar Board of Legal Specialization Certified Specialist in Bankruptcy Law. There are less than 200 in the whole state. Many represent Creditors, Corporations and Trustees. A much smaller percentage represent consumers like yourself.

Another place to find quality attorneys that represent only consumer and small business debtors is the website for the National Association of Consumer Bankruptcy Attorneys (NACBA.)

If you can find an attorney that is on both of these lists, so much the better. BTW, I am on both lists and have a 10.0 rating by the AVVO attorney rating service.

Can you afford the risk? If not, buy a lotto ticket. Just don’t bet your home on representing yourself in bankruptcy. It is a fool’s bet.

“When does one know it is time to file bankruptcy instead of trying to maintain their lifestyle? And… what if they own a home and cannot lose it because there is nowhere free (i.e. family to stay with to regroup and get back on their feet) or cheaper to go?”

Well it depends. If you cannot pay the bills without borrowing more money or where you are just treading water and will never get out of the hole then you are a good candidate for Bankruptcy.

What Is Protected When You Decide It’s Time to File Bankruptcy?

However, you need to know what is protected from creditors in bankruptcy. For instance, can you protect the equity in the home or how much value can you protect in cars. If you are going to lose assets to pay creditors in a straight “Chapter 7 bankruptcy,” then you may want to do a “Chapter 13 bankruptcy reorganization.” You can keep things that you would lose in a regular Chapter 7 bankruptcy. 

In a Chapter 13, you can keep things you would otherwise lose. Instead, you pay the creditors an amount equal to those “non-exempt” assets or what you can afford, whichever is greater. The big thing in a Chapter 13 is that you can take the debts like credit cards or signature loans and pay them over up to 5 years without paying one cent in interest from the day you file the case. That even includes the IRS income taxes that may not be dis-chargeable.

Tools to Help Decide if It’s Time to File Bankruptcy

If you want to do the calculations go to the tools button on my website, sacramentobankruptcyattorneys.com. Go down to “Credit & Budgeting calculators.” Open that up and go to the “missing loan term calculator” at the bottom of the page. Plug in your unsecured debts, 60 months and the average interest rate.  Then hit calculate. That will tell you what the monthly payment would be to pay the debt off over 5 years outside bankruptcy. 

Keep in mind that if the debt is over limit or in default those costs need to be considered. That can often add $35-$70 for each debt. Then the interest grows astronomically. Ignoring that, you take the monthly payment times 60 months. Then subtract the amount of debt you have now. The difference is how much you would pay in interest over 5 years if you paid enough to pay off the debt outside bankruptcy in that time. Then reach for the Rolaids because it will likely shock you. At least that is what I see when I show it to prospective clients. 

In a Chapter 13, you will pay everything off (including tax debts) except student loans which can be put outside the plan (for lower payments as they are likely 20 year payoffs) or put in the plan to be paid down through the plan. Sometimes you do not need to pay unsecured creditors anything 0% and pay off other debts like cars or taxes. You can often accomplish it a Chapter 13 without a Chapter 7 bankruptcy.

It was a great marriage. Well it was, until it all fell apart. In the divorce your spouse got the gold mine and you got the shaft. Of course, you now have to pay support as well. Even worse, you were ordered to pay a ton of debts you cannot afford to without giving up those luxuries like uhmmmmm food.

What you really want to know is if you can use bankruptcy to get rid of those debts you were ordered to pay in your divorce.

This is a common question I hear from clients. Most attorneys will tell you “no, you cannot get rid of these debts” you were ordered to pay in your divorce by filing bankruptcy.

My response is a definite “maybe.”

Okay, that was helpful you say (not!) Let me explain how the bankruptcy system works and how to make it work for you.

History of debt and divorce

First, a little history in bankruptcy laws. When the “Bankruptcy Code” replaced the old Bankruptcy Act” in the early 1980’s, the law had a Code Section that did not allow support orders and debts from those orders to be discharged. Other debts from a divorce were dischargeable if shown that the other spouse was more capable of paying them than the person filing the bankruptcy.

In 2005 the Bankruptcy Code was changed with the addition of Code Section 523(a)(15.) That Code Section states as follows:

523 (a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt . . .

(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit;

What that means is that the non-support debts ordered to be paid in a divorce are not dischargeable in bankruptcy. However, that only applies to a Chapter 7 straight bankruptcy. It does not apply in a Chapter 13 Bankruptcy reorganization plan.

Debt in Divorce in chapter 7

Okay, that is not quite accurate. In a Chapter 7 straight bankruptcy the debt to the creditor is discharged in the bankruptcy. The creditor cannot come after you. That is because the bankruptcy discharge order at the end of the case eliminates their right to go after you. What is not discharged is your obligation to “indemnify,” that is pay your ex-spouse back if the creditor goes after them and your ex-spouse pays the creditor money. That is enforceable in the family law court (i.e. the divorce court) by way of a “Contempt of Court” action.

I quite often deal with this very issue with my clients. The one door left open under the Bankruptcy Code is if, instead of filing a Chapter 7 straight bankruptcy, you file a Chapter 13 Bankruptcy reorganization plan. Depending on income the reorganization plan will be not less than 3 years and not more than 5 years. It sounds more like a prison sentence than something in a Chapter 13 bankruptcy reorganization. In some ways it may feel like it, if you are struggling to survive and now have to pay monthly payments to a Chapter 13 Bankruptcy Trustee.

The really good news is that your payments for 3-5 years in a Chapter 13 bankruptcy reorganization often can be as little as $100 and sometimes even less. In some cases, your bankruptcy attorney may agree to be paid some or all of their attorney’s fees through the Chapter 13 bankruptcy plan payments. You can even end up not paying a penny to the “unsecured creditors.” That includes the ones that the family law court ordered you to pay. That also includes the ex-spouse even if they end up having to pay the debts.

At the end of the Chapter 13 bankruptcy plan, you get a “discharge order.” That order overrides the divorce orders and ends your obligations, other than the support orders, under the divorce decree. It is kind of like getting the “get out of jail free” card in Monopoly.

I have had many clients who could do a Chapter 7 Bankruptcy that we instead did a Chapter 13 bankruptcy reorganization to eliminate their obligation to pay debts under the family court orders.

If you are dealing with divorce, the best time to see a bankruptcy attorney is right now.

If you file a bankruptcy before there is a divorce order to pay any debts, you can avoid the family law court even having the right to order you to pay any of the debts. You may, at that time, qualify to file a Chapter 7 straight bankruptcy and wipe out the debts as to yourself.

Support orders will not go away no matter what type of bankruptcy you file. What can go away is the family law court’s ability to order you to pay any of the debts. If you have been ordered to do so before a bankruptcy is filed, your only way out is to do a Chapter 13 Bankruptcy reorganization. Either way, it is better than giving up that last can of pork and beans to pay the debts from your divorce.