Bankruptcy California FAQs

As a bankruptcy attorney in Sacramento California, we see the same initial questions asked time and time again. It's quite normal for individuals who are struggling with debt and considering a California bankruptcy to be concerned about obtaining a mortgage or credit cards in the future, losing all their possessions, or hurting their credit. By consulting an experienced bankruptcy lawyer, you'll have access to expert legal counsel that will be able to absolve these fears and other myths, as well as, answer questions that emerge that are unique to your financial and personal situation.

Will I Be Forced to Sell All My Possessions?

No, you will not be forced to sell all your possessions, however, you may have to sell some depending on how much property you actually own. There are two sets of "exemptions" which allow you to safeguard certain property from the "bankruptcy estate". Your bankruptcy estate is comprised of your property. If it is not covered under exemptions it could be sold by the bankruptcy trustee to raise money to pay down your debt.  Bankruptcy exemptions can cover all or part of the value of your home, your vehicle, certain wages, and retirement, tools of the trade, and miscellaneous assets from entering into the bankruptcy estate, depending on the value of the item that you are seeking to exempt.

Can I Use Federal Bankruptcy Exemptions in California?

California is known in bankruptcy law terms as an "opt-out" state which means you cannot use federal bankruptcy exemptions. Instead, you must choose from one of two sets of bankruptcy exemptions, commonly referred to as section 703 or section 704.

Will Bankruptcy Stop Collection Attempts?

Yes, from the time you file your Chapter 7 or Chapter 13 bankruptcy, the automatic stay goes into effect, which prevents any creditors from conducting any collection attempts. All creditors that you include in your bankruptcy will be notified of your petition for bankruptcy protection. The automatic stay generally lasts until your bankruptcy is completed, but creditors may file a motion to lift the stay. If a California bankruptcy judge grants the motion then your creditor will be able to resume collection attempts including foreclosure proceedings on your home or repossession of property.

Can Filing bankruptcy in California Stop a Lawsuit?

If you've been served with a summons to court as part of a lawsuit, you can halt the proceedings, eliminate the debt, and have the lawsuit dropped in some occasions. Once you file for a bankruptcy, the judge will most likely postpone the trial until after your bankruptcy case has been resolved. Because there are consequences that can arise from waiting too long after a lawsuit or judgment, you should consult a bankruptcy attorney as soon as possible to help decrease the chances of having a lien placed on your property. Criminal trials, on the other hand, will not be affected by your bankruptcy case.

How will filing a Fairfield bankruptcy differ from a Citrus Heights bankruptcy?

Both Solano County and Sacramento County fall under the jurisdiction of the US Bankruptcy Courts in the Eastern District of California, so bankruptcy proceedings there will proceed the same. While some bankruptcy court districts handle certain issues differently, all California bankruptcy exemptions apply across the state. You must file bankruptcy in the district in which you reside. A strong case for hiring a bankruptcy attorney in Sacramento California is that your bankruptcy lawyer will have an intimate knowledge of local rules and procedures in your district.

Should I Hire a California Bankruptcy Lawyer?

The personal and financial effects of bankruptcy can be long-lasting. If you're considering bankruptcy, contact a bankruptcy attorney. Sacramento is home to many great bankruptcy firms that will allow you to ensure your bankruptcy is handled in your best interest.

Chapter 11

Verity Health Systems Files California Bankruptcy

Verity Health Systems, a nonprofit healthcare system which operates four San Francisco Bay Area hospitals, filed for bankruptcy protection last week, as it explores strategic options to eliminate burdensome debt. The organization has been weighing the possibility of selling its Santa Clara County hospitals to relieve the financial pressure of $500 million in long-term debt, combined with aging facilities that need some $66 million in improvements. The organization filed for Chapter 11 bankruptcy with the US Bankruptcy Court in the Central District of California to keep all six of its hospitals operating while it organizes an orderly and efficient sale of its assets.

Verity Health Systems Bankruptcy

The bankruptcy filing included no less than seventeen separate medical facilities. The CEO of Verity Heath, Rich Adcock, states that the company decided to declare Chapter 11 bankruptcy, "after a diligent process of assessing all possible options alongside our financial and legal advisors, Verity Health has made the best strategic decision for all of our patients, employees and other stakeholders." The company has secured a $185 million loan in order to continue operating throughout the bankruptcy process.

Employee Union Challenges Bankruptcy

Not everyone involved with Verity Health Systems believes that the California bankruptcy is for the best, however. The union of healthcare workers that make up roughly 2,000 of Verity Health Hospital workers, the SEIU-UHW, is challenging the bankruptcy. The SEIU-UHW is challenging the bankruptcy in an effort to ensure that the communities served by the hospitals continue to receive access to care. Additionally, the California union wants to ensure that its hospitals stay open and continue to meet employee pension obligations. The challenge signifies that Verity will have a tough time attempting to nullify any collective bargaining agreements.

Hunt for Buyers Continues

It's no secret that Verity Health has been searching for buyers for some time, and will continue to find a suitable offer that it can accept. Struggling businesses often use California Chapter 11 bankruptcy in order to sell all or a great number of their assets. Chapter 11 can offer many unique advantages for both the buyer of a business, as well as, the seller.

Chapter 7

Will I qualify for a Chapter 7 Bankruptcy in California?

One of the highest “worry factors” surrounding filing for Chapter 7 bankruptcy in California is wondering if you will pass the "means test" required of all consumers filing for bankruptcy protection. As a Sacramento Bankruptcy Attorney firm, it's one of the most common concerns we hear. Many individuals are surprised to hear that you are not required to be flat broke and penniless in order to pass the means test and qualify for Chapter 7 bankruptcy protection, however, knowing more about the qualifications will help you resolve some of the fears associated with the bankruptcy process.

Median Income in California

The Chapter 7 means test was instituted by Congress in order to make it more difficult for individuals to discharge their debts without paying back the majority of their creditors. The test is designed to ensure that those that do successfully file Chapter 7 bankruptcy can't pay back their debts. To begin, the means test average income over the previous 6 months before filing a Chapter 7 bankruptcy petition in California is compared with the median income of the state, considering your household size.

These numbers are constantly evolving, therefore, you should ask your Sacramento Bankruptcy Lawyer about what figures the US Bankruptcy Court in your district is using. If your income is less than the median income of California, then you automatically pass the means test and you aren't required to fill out the remaining information.

Chapter 7 Means Test

If your income is higher than the median income in your state, you may still qualify. The income calculation takes into account all payments from not only your wage or personal business income, but also income from investments. The means test works by considering monthly expenses such as mortgage or rent, car payments and insurance, food, electricity, internet, and cell phone bills, and deducting these from your average income over the 6 months prior to bankruptcy. Once your current monthly income is established and subtracted from your eligible expenses you are left with your disposable income, and the bankruptcy court will decide if you have enough money left over to pay back your creditors. If you do, then you may be required to convert your Chapter 7 to a Chapter 13 bankruptcy case.

If You Do Not Pass the Means Test

If you do not pass the means test in California, it's not the end of the world, but you will have a few decisions to make. Consult your bankruptcy attorney as to whether it is sensible to convert your bankruptcy case to a Chapter 13 bankruptcy. This alternative form of bankruptcy lasts longer and will require you to live on a fairly strict budget for up to 5 years in order to pay back your creditors, but should leave debt free at the conclusion. Additionally, if you do pass the means test, it may not be in your best interest to actually move forward with your Chapter 7 bankruptcy. Only a California bankruptcy attorney is qualified to give you advice on how to fill out your bankruptcy forms and whether you should move forward with filing or not.


New California Debt Collection Legislation Passed

Debt collectors licensed in the state of California have new requirements that will go into effect starting January 1st, 2019. California Governor Jerry Brown signed Assembly Bill No. 1526 into law on September 5th, 2018, which will amend the Rosenthal Fair Debt Collection Practices Act. This Act regulates debt collection practices among the debt collectors in the state. The new California Debt Collection law will affect how collections agencies attempt to collect time-barred debts.

What Are Time-Barred Debts?

Time-barred debt is money that has been owed so long that it has passed the statute of limitations. Time-barred debt is usually no longer legally collectible due to the amount of time that has passed.  States have different laws with respect to how much time must pass before a debt becomes time-barred. Some states limit the amount of time that has lapsed as short as three years and as long as ten.

California Statue of Limitations on Debt

In California, a creditor has four years to file an action based on a written debt. The new bill prohibits any debt collector from attempting to collect a debt via written communication if the debt is considered a time-barred debt without informing the consumer that they can no longer be sued for the debt in question. Depending on the age of the debt, however, California debt collectors may still be able to report the debt to the credit reporting agencies.

California Bankruptcy Can Discharge Old Debt

If you are experiencing an undue burden as a result of unsecured debt, filing for bankruptcy protection using Chapter 7 or Chapter 13 debt can discharge, or wipe out, your obligation to pay the debt. Contact a bankruptcy lawyer in Sacramento if you live in the Eastern District of California, to find out if you have enough debt or a low enough income to file for bankruptcy. Bankruptcy can also be used to stop collection activities and avoid lawsuits from creditors.


Lowe's Shuts down Bankrupt California Hardware Chain

The hardware supplier, Orchard Supply Hardware, started 87 years ago in 1931, will be serving its last customers in California, Florida, and other states in 2018. Orchard Supply began as Orchard Supply Farmer Co-op, a modest co-op formed by 30 farmers based in the San Jose, California area. Orchard was started and thrived in the midst of the Great Depression, but after struggling through rocky financial health over the last eight years it could no longer compete with larger stores.

White Knight: Lowe's

Orchard Supply was in deep financial trouble at the start of 2013 and mid-year filed for Chapter 11 bankruptcy protection with the US Bankruptcy Courts in California. At the time of the announcement, the company also announced that it would sell its highest valued assets, including around 95 of the highest profit generating stores to Lowe's Home Improvement Stores. The company remained a separate brand within the home improvement store's portfolio.

Shutting down California Chain

On August, 21st 2018, Orchard Supply Hardware employees were notified that the company will begin closing all its stores nationwide beginning this week with the store closure plan expected to be completed by the end of the fiscal year. Lowe's CEO, Marvin Ellison mentioned that the impact of the store closures makes the decision a difficult one, but a decision necessary for the company to focus on its home improvement business. At the end of the day, the Orchard's $600 million sales contributions last year, amounted to less than 1% of Lowe's overall sales.

For customers looking for good deals on hardware supplies, Orchard Supply will begin store closing sales starting immediately with everything in Bay Area Stores being heavily discounted in order to liquidate store inventory. In typical liquidation sales, the 99 Orchard Supply Hardware stores will likely increase the percentage of discounts as time goes on.

Sacramento Business Bankruptcy

There comes a time in the life of a business where it must overcome financial adversity and Chapter 11 was enacted in order to deal with these issues and save the business. It's often true that the economy, business owners, and customers are all better off when companies are able to reorganize debt and stay in business. However, this isn't always the case and, in some cases, it is more sensible to close down the business to focus on new ventures. Contact a bankruptcy lawyer in Sacramento if restructuring your debt would benefit your company, as well as, your customers.



How Common Are Bankruptcies?

Bankruptcies often land in the headlines when a big-name celebrity files for Chapter 11. We often hear of companies such as restaurants or big box retail stores in our own neighborhoods declaring bankruptcy. Even the President of the United States has owned or operated businesses that have utilized bankruptcy law to reorganize debt. So just how common are bankruptcies? The answer is that bankruptcies are far more common than you think.

Bankruptcies more Common Than You Think

The statistics show that about one in every seventy American households will file for bankruptcy, thus it's inevitable that you'll meet or know of an individual filing for bankruptcy protection. This isn't surprising when you consider that almost half of all US families spend more than they earn every year. Since the recession 9 years ago, the number of individuals and legal entities filing for bankruptcy has decreased, however, the US Bankruptcy Courts across the country handle thousands of bankruptcy filings for Chapter 7, Chapter 11, and Chapter 13 bankruptcy each and every day.

Primary Causes of Bankruptcy

Losing your job, contracting a serious illness, or being injured in an accident are occurrences that the majority of individuals don't ever expect to happen to them, and thus are some of the major reasons for bankruptcy. Also, among the primary causes of bankruptcy are unexpected expenses such as a lawsuit judgments or the overextending of credit. Divorce also ranks high amid the main causes of bankruptcy in California.

Bankruptcy is a Means to a New Beginning, Not the End

Bankruptcies have been shown to increase when the economy is in a recession or when unemployment rates are high. For the current moment, unemployment rates in the country have decreased tremendously and the economy seems to be quite healthy, but this could quickly change. If you are having trouble keeping up with monthly payment obligations or are in danger of losing your home or automobile, bankruptcy can be the lifeline to help you become financially solvent again. Contact a Sacramento bankruptcy attorney to discuss your debt relief options and find out if bankruptcy is the best option for you.

Debt Relief

The 341-Meeting

Many individuals who visit a bankruptcy law firm in California fear attending court as a step towards filing Chapter 7. The 341 meeting of the creditors is usually the one and only court appearance individuals filing for Chapter 7 bankruptcy must attend. Additionally, the 341-meeting experience is typically a less stressful court appearance than a debtor anticipates.

How the 341 Meeting is Different from Regular Court

In civil court, a plaintiff files a complaint with the court system about a defendant, and thus, is an adversarial meeting in court by design. A 341 meeting of creditors isn't always the same, however. While you are filing for protection from your creditors, they rarely, if ever, show up to this meeting. Many individuals worry unnecessarily about this meeting, but as long as you show up on time, answer the question politely, and are honest, the meeting will be a breeze and you'll walk out in good shape.

The Actual 341 Meeting Experience

At the meeting of creditors, you'll be sworn in under oath and then meet with the bankruptcy trustee. The bankruptcy trustee will ask you a series of questions, all pertaining to your bankruptcy filing. They are typically 15-30 minutes long and as aforementioned, you won't meet directly with your creditors in most circumstances. Credit card companies and hospitals don't have the time to attend a court hearing in most cases, and there is no reason for them too. Creditors are given 60 days to respond to the notice they will receive after the meeting.

Purpose of 341 Meeting of Creditors

The purpose of the 341 meeting of creditors is to answer questions about your Chapter 7 bankruptcy filing under oath, to ensure that all creditors, assets, debts, and income are properly stated in your bankruptcy papers and that you aren't trying to hide money or assets. If you had your Sacramento bankruptcy attorney assist you with the bankruptcy paperwork, you should know all the questions you can expect from the bankruptcy trustee. Additionally, your Sacramento bankruptcy attorney will typically accompany you to the meeting, which should give you some relief in knowing you have counsel to represent you and your legal rights to debt relief.


Should I Declare Bankruptcy after Retirement

You've planned and budgeted for your retirement and now you seem to still be falling behind in payments. Perhaps you've lowered your standard of living because of unforeseen medical expenses. Maybe you're spending more on expenses like co-payments for prescription medications than you originally planned for. It's possible that your pension has diminished from when you originally retired. One thing is for sure: retirement is meant to be a relaxing and stress-free time to enjoy your well-earned dotage and shouldn't be spent worrying if you're going to have to decide between medication and food for the month.

Chapter 7 and Chapter 13 bankruptcy have been increasing with seniors at what some feel is an alarming rate. In fact, bankruptcy among Americans 65 years and older has tripled over the past 27 years, according to a recent study performed by the Consumer Bankruptcy Project.

Social Security in Bankruptcy

Good news for those individuals who are retired and drawing social security: you are not required to include these benefits in your means test. This alone can help you qualify for a Chapter 7 bankruptcy. You must, however, include social security benefits on your "Schedule I: Your Income". Even though this form of income must be listed in bankruptcy, federal law prevents social security benefits from becoming the property of your bankruptcy estate, meaning that the funds will be safe during the bankruptcy process.

Pension Plans in Bankruptcy

If you have funds in a tax-exempt retirement fund such as a pension or retirement fund qualified under ERISA or the US Tax Code, they too, will not become property in your bankruptcy estate. Some other types of pension may only be partially exempt during the bankruptcy process, and some still may not be exempt at all. Discuss what type of pension plan you own with your bankruptcy attorney in Sacramento California who will be able to tell you if you are protected in bankruptcy or not.

Bankruptcy and Your Home

As a retiree, you are more likely to own your home outright or have significant equity in it, and thus, are naturally concerned about keeping your property in bankruptcy. If you do own a home, protecting it from bankruptcy is possible using homestead exemptions. How much equity in your home you can protect using homestead exemptions depends on which state you file bankruptcy in and which set of exemptions you decide with your bankruptcy attorney to use. In California, if you are 65 or older you can protect $175,000 in home equity using the California bankruptcy exemption system.

Retirees and Bankruptcy

When deciding between Chapter 7 and Chapter 13 bankruptcy it's important to consider what you earn through the funding of your retirement, how much equity you have in your home, and what your monthly expenses are. It's a strong likelihood that you'll be able to keep all your property and retirement income with Chapter 13 bankruptcy. Additionally, Chapter 13 can help you get back on budget while still allowing for daily living necessity and modest creature comforts such as vacation and leisure.

Seniors are the quickest growing segment of bankruptcy filers, but unforeseen circumstances shouldn't spoil your American dream. If you're suffering from a decline in retirement income, bankruptcy may be able to help you regain your financial footing and enjoy your retirement years worry-free. Contact a California Bankruptcy Attorney today to discuss your financial situation and discover your bankruptcy and other debt relief options.

Chapter 13

How to Finish Chapter 13 Bankruptcy in 36 Months

One of the main reservations bankruptcy law firms see from individuals regarding filing for Chapter 13 bankruptcy is the initial uncertainty surrounding how long the bankruptcy will last. Chapter 13 bankruptcy requires debtors to enter into a repayment plan with the US Bankruptcy Courts, paying monthly installments to the bankruptcy trustee who then divides the money among eligible unsecured creditors. How long your Chapter 13 will last depends primarily on how much debt you owe and how much you have earned over the past 6 months previous to bankruptcy.

Steady Income Required

Chapter 13 bankruptcy is an excellent debt relief tool, as it allows you to payback only some (and sometimes none) of what you owe back to creditors. In order to qualify for Chapter 13 bankruptcy, you need to have a regular form of income that the Bankruptcy Courts can utilize to ensure that creditors are repaid at least a small portion of the total debt. This income doesn't necessarily have to be from W-2 wages, but can come from business earnings, social security, unemployment insurance payouts, or other forms of steady, reliable income or assistance from family.

Qualifying for a 36 Month Plan

When the bankruptcy courts look at your income they take the average of the 6 months immediately prior to you filing your petition for bankruptcy protection. This figure is then compared to the median income in your state with your family size considered. If your income is below the median income for your state, then you will qualify for a 36-month bankruptcy repayment period. This time frame is called a plan duration or a commitment period. You can actually finish your Chapter 13 plan earlier than 36 months if you are able to pay the total of the claims amounts filed in your case in a shorter period of time.

Why You May Want to Extend the Length of Chapter 13

Alternatively, if your income is above the median income for the state in which you file for bankruptcy the repayment period will be 60 months, the most time awarded to any Chapter 13 repayment plan. While you may be thinking "the shorter amount of time, the better", when approaching filing for Chapter 13, there are situations that may warrant opting for a longer commitment period. These situations include if you need to catch up on mortgage or auto loan payments, you need time to pay back large sums of IRS or state tax debt during bankruptcy, or if the bankruptcy court determines that a 36-month period is too short based on the amount of recent income you have earned.

Timing Could Make the Difference

The old adage, "timing is everything" certainly plays a part in filing for Chapter 13 bankruptcy. With the way bankruptcy courts in the United States review income (average of the previous 6 months), then it's obvious that when you file for Chapter 13 bankruptcy is critical. It's smart to seek the advice of a bankruptcy attorney who can walk through your income expectations for the near future, in addition to, your previous income and advise you on the best time to file your bankruptcy case. If you have recently experienced a drop in pay, for example, it may make sense to move forward at once with filing. However, if you have recently received a large sum of money from a bonus or commission, it may make more sense to wait until your income goes down or stabilizes to ensure you receive a shorter commitment period.

To learn more about the Chapter 13 process, contact our Sacramento bankruptcy office today.

Chapter 13

Can I Keep My Tax Return in Chapter 13 Bankruptcy?

Chapter 13 bankruptcy requires fiscal discipline and the willpower to stick to a budget in order to eliminate your debt. It's tough, but countless individuals have been through the process, eliminated their debts, and received a fresh start with their finances. People find Chapter 13 bankruptcy difficult mainly because they aren't accustomed to staying on a rigorous budget, with any excess income being paid to all their creditors. While normal living expenses will be included in your Chapter 13 bankruptcy, extraordinary or lavish expenses may be too much for the trustee to stomach.

Disposable Income

When you file Chapter 13 bankruptcy, monthly income not devoted to normal living expenditures like rent, auto payments, groceries, utilities, clothing, and entertainment, is considered disposable income. Disposable income should be paid to the bankruptcy trustee in order to pay back creditors. Typically, a tax refund will fall under the category of disposable income and be ordered by the bankruptcy trustee to be intercepted to be included in your bankruptcy estate.

Keeping your Tax Return in Chapter 13

In certain situations, you may be able to keep your tax refund while you are still in your Chapter 13 commitment period. The best way to do so is to be able to provide proof that you need to keep your tax return to ensure that you make your Chapter 13 payments while also maintaining all your other obligations.

Alternatively, a debtor can balance their tax withholdings from their monthly pay so that they don’t receive large tax refunds at the end of the year.  Doing so allows debtors to utilize these valuable funds during the year when they need them most.

If you are expecting a large income tax refund, you should notify your bankruptcy attorney. A bankruptcy lawyer may be able to help you modify your Chapter 13 plan to excuse a tax refund.

Bankruptcy Attorney Assistance

In conclusion, it's unlikely that you will be allowed to keep your tax refund check while in Chapter 13 bankruptcy unless you have two things: a really strong need for the money that can be documented and a well-written modification that excuses tax refunds from being handed over to the bankruptcy trustee. For the later of the two, a California Bankruptcy Attorney is a strong necessity, as they will likely have experience with modifying Chapter 13 plans.