What is a chapter 20 bankruptcy?

twentyIt is really just one bankruptcy followed by another.  It is a chapter 7 followed by a chapter 13 which added together equals 20 so it is called a “chapter 20”.  Most people have heard of bankruptcy chapters 7, 11, and 13 but a chapter 20 is really just a combination of a 7 and a 13 and there is no official chapter 20 that you can file.

In a chapter 20 bankruptcy someone will first file a chapter 7 and get a discharge.  They then decide some time later to file a chapter 13 bankruptcy.  A chapter 20 is sometimes referred to as a “no discharge chapter 20” because the debtor is not entitled to a discharge in the chapter 13 if he filed it within 4 years of his chapter 7 according to section 1328(f) of the bankruptcy code.

One reason why people file a chapter 20 is because of the debt limits of a chapter 13.  Some want to file a chapter 7 to discharge the unsecured debt they owe to bring that debt within the limits of chapter 13.  Chapter 13s have specific debt limits and if you exceed them you could be forced into a chapter 11 which is far more complicated.  One strategy to avoid a chapter 11 is to file a chapter 7 to lessen the debt through the chapter 7 discharge and then do a chapter 13.  This would be an example of a “good faith” reason to file a chapter 20.

Another common reason why they would want to file a chapter 20 is because of the chapter 13 lien strip capability not offered in a chapter 7.  In a chapter 13 homeowners can strip (eliminate) second mortgages if they are completely unsecured.  Second mortgages are completely unsecured if you owe more on your first mortgage than the entire home is worth.  This leaves nothing (no equity in the home) to secure the second mortgage so it is in effect an unsecured debt.

But of course it is a lien that exists and will continue to exist on your house if you do nothing or even if you file a chapter 7 bankruptcy.  The lien will remain on you home virtually forever and the only way to get rid of an unsecured second mortgage it is to strip it off in a chapter 13 bankruptcy.

So some people try to get rid of their credit cards in a chapter 7 bankruptcy and then file a chapter 13 to strip the second mortgage.  If they just filed a chapter 13 without the prior chapter 7 they would have to pay some of the credit cards back in the chapter 13.  So it seems that filing a chapter 7 followed by filing an immediate 13 makes sense right?  After all you save all of those credit card payments you would have to make for 5 years in a chapter 13 right?

Wrong!  You cannot be seen to be manipulating the system just to get rid of your credit cards and then strip a mortgage.  This would be an example of a “bad faith” bankruptcy filing and this would be challenged by the bankruptcy trustees in an adversary proceeding.  If you file one chapter and then another to create a benefit for yourself that would not exist in either chapter then that could be considered bad faith.  So you must not attempt to merely get a credit card discharge and then apply for a lien strip.

This tactic would be considered bad faith because if you filed a chapter 7 you would not be allowed the lien strip.  If you filed just a chapter 13 you would have to make payments to the credit cards for the length of the chapter 13 plan.  The courts will want you to pick one or the other but no both chapter in succession merely to seek maximum benefits.

One way to avoid a possible bad faith challenge to your chapter 20 is to show that there has been a subsequent change in your situation since the filing of the chapter 7.  If for instance you intended to surrender your house at the time of filing the chapter 7 but your situation substantially changes after your chapter 7 discharge then you may have a valid new reason to keep your home.  You could get a divorce or suffer a lessening of income for instance.  Then you could possibly do a chapter 13 to strip the second mortgage and this could prevent a bad faith challenge.  Courts examine chapter 20s carefully though so you should be aware of this increased scrutiny over your case when you attempt one.

It is also possible that housing values change and your second mortgage might become unsecured sometime after your chapter 7 discharges.  If you are in a period where housing values are declining then the value of your house may drop below the value of your first mortgage sometime after your chapter 7 is complete.  Now you can strip the lien in a chapter 13 whereas before you filed the chapter 7 you could not.  This would be a valid circumstance that could defeat a bad faith claim.   There are many other possible good faith circumstances in addition to these mentioned above.

Chapter 20s used to be more common.  Doing a chapter 20 became a problem after the 2005 bankruptcy law was passed.  This law can be interpreted to not allow a chapter 13 discharge unless 4 years have passed since the filing of a chapter 7.  (A second chapter 7 cannot be filed until 8 years have passed since a first chapter 7).  This prohibition is contained in section 1328(f) of the bankruptcy code which relates to discharge.

With this code section in mind the question then becomes how can you receive a discharge from your second mortgage after the chapter 13 plan is completed if section 1328 disallows such a discharge?  This can create problems for you as you proceed with the chapter 20 bankruptcy.

Most courts have maneuvered around this by turning to other sections of the code and they have allowed you to do a chapter 20 anyway.  Remember though that the possibility is still there that you will get a challenge if you attempt to do a chapter 20.  It appears that at this time the law is not completely settled and the courts are not in complete agreement on this issue of allowing a chapter 13 within four years of filing a chapter 7.

It also appears to help if new debt exists.  If some sort of new debt has been acquired post chapter 7 judges apparently like that.  It seems as if there needs to be something to make payments on in the chapter 13 and not just a lien to strip.

Bt I still believe that the safest thing to do though is to not run afoul of section 1328(f) at all.  Just wait the required 4 years after your chapter 7 to file a chapter 13 and strip your lien.  You then won’t be in violation of 1328 and there should be no argument to stop you from filing.  Nobody wants to buy a court challenge or court case when filing bankruptcy.

The additional advantage of waiting the full four years to comply with section 1328 is that it is a longer period in which to argue changed circumstances.  It is harder for anyone to argue bad faith if you waited a full four years after your chapter 7 to file a chapter 13.  This is because people don’t generally plan that long in advance and circumstances do naturally do change considerably in four years.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

 

Twenty photo courtesy of takomabibelot.

When do I need a chapter 13 bankruptcy instead of a chapter 7?

Chapter 13 bankruptcies and chapter 7s are very different bankruptcies bur both have advantages and disadvantages.  A chapter 7 is good because it is clean and fast.  It discharges debts quickly.  It is all over in 90 days and you can then go on with your life if you qualify for the chapter 7.  Not everyone does qualify though.

Some people are “means tested” out of a chapter 7 because they make too much money to file one.  They have disposable income and thus bankruptcy law says that they must therefore file a chapter 13 bankruptcy if they want to file one at all.  (They would also qualify for a chapter 11 but that is another story).

Others don’t qualify if there is too much equity in their home.  In a chapter 13 they could then keep the home and continue to make payments on it in the 13.  One must always be careful that you do not violate the “best interests of creditors test”.  This is where the creditors have the right to demand that they get as much in a chapter 13 as they would in a chapter 7 liquidation.

The 13 differs from the 7 in that it is a payback plan where the debtor makes payments to the trustee for from 3 to 5 years.  In this period the debtor pays back some or all of his debts.  Most plans pay only a percentage of the debts but some do pay back 100%.  After the payback period is over then the unpaid debts (if there are any) will be discharged.

But why pay back the debts if you can discharge and escape them?  There are many reasons and one is the income limits of a 7 discussed above.  If you exceed these income limits then you cannot file a 7.  Debtors also file chapter 13s to take advantage of the lien strip and the cramdown.  See here for a blog on what is a cramdown?

The cramdown allows you to write down loans to the value of the property and is useful if you have property that is underwater.  The lien strip allows you to strip off or eliminate a second mortgage on a home if it is completely unsecured.  So if you have a home that is worth less than the first mortgage then the entire second mortgage can be eliminated after the 5 year payment plan is over.

Both of these cannot be done in a chapter 7 and if you want a cramdown or a lien strip then the chapter 13 is your chapter.  If your income is too high then a chapter 13 also makes sense.  There is one more advantage though to a chapter 13.  It can be dismissed by the debtor at any time.  Once you file one you are not locked in like you are with a chapter 7.

The disadvantage though is that you are locked into paying a trustee for a period of five years if you want to complete the plan and get a discharge.  Most chapter 13 fail because people can’t make these regular payments for five years to a trustee.  According to one article I read as many as 92% of them fail and are dismissed or converted to a chapter 7.  This is a very high fail rate and this is the reason why most people file chapter 7s.

You can pay a chapter 13 bankrupty off early though if you have the money.  So if you payments are $300 per month and you are three years in you could pay off the remaining two years early and get out of the 13.  Most people though don’t have the money to do this.

You should consult a bankruptcy attorney to see which chapter is right for you.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for free credit report and analysis! 

For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

What is a “cramdown” in bankruptcy?

Bankruptcy is filled with interesting terms like the “cram-down”.  A cram-down is just where property that is encumbered with a loan is restructured in a chapter 13 bankruptcy so that the debtor only has to pay the loan to the extent of the property’s worth.  A cramdown can also be done in a chapter 11 bankruptcy.

A cramdown can be a very helpful and powerful tool in a bankruptcy if a debtor has property that he wants to keep but is upside down (meaning he owes more on it than it is worth).  With a cram-down a debtor can strip away the part of the loan that is unsecured and pay the secured part in the 5 year chapter 13 bankruptcy period.  The unsecured part is the upside down portion.  So if you have a car worth $10,000 but it has a $15,000 loan on it then the cramdown would strip off the $5000 unsecured portion of the loan and let you pay the $10,000 secured portion.

The loan is actually bifurcated or divided into two parts in a chapter 13 cramdown.  The secured part is paid in the plan.  The unsecured part drops in with the general unsecured debts.  These debts are paid only to the extent that any unsecureds are paid.  Sometimes it can be very low like 10% or 20%.  The rest (80% to 90%) is discharged at the end of 5 years.  The creditor is thus forced to “eat” the rest of his loan and the debtor does not pay it.

Keep in mind that this is usually done in a chapter 13 bankruptcy.  A chapter 13 is a pay back plan where debts are paid out over 3 to 5 years.  In the chapter 13 the unsecured portion of the loan will be paid out of disposable income by the debtor.

Disposable income is the amount the debtor has left after he pays his bills.  This can be as little as a few hundred dollars a month that goes to pay unsecureds.  This same cramdown tactic can be used for furniture, jewelry or any other personal property.

There are special rules for car cramdowns though.  You must have owned the car for 910 days (2 and one half years) before you are eligible for the cramdown.  For other personal property it is only one year.

Real estate can be crammed down too in a chapter 13.  If you have a piece of real property that is an investment property and not your residence then it too can be crammed down in a chapter 13.  If a property is worth $200,000 but has $350,000 mortgage on it then the $200,000 can be paid in the plan and the $150,00 can be paid at the low rate along with the other unsecureds.

The $150,000 then would be essentially stripped off and would go away if a workable plan is proposed and is paid on over the five-year period.  This is obviously a tremendous advantage to the debtor and a great disadvantage to the creditor.  But remember too with real estate the secured portion ($200,000 in the above example) must be paid over the 5 year period just like with a car or other personal property.  This is of of course difficult for most debtors as the monthly payments would be very high.

Cramdowns are also available in a chapter 11 just like in a chapter 13 upon approval of the reorganization plan by the court and the creditors.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

What is a chapter 11 bankruptcy and how do they work?

A chapter 11 bankruptcy is designed to first protect and then help a business survive and succeed.  If a business is struggling under the weight of a tremendous debt then a chapter 11 can be filed to preserve the business.  Public policy says that a business is a going concern that employs people and thus should be saved from breakup and destruction.

A chapter 11 can also be filed by an individual instead of a business if that individual has debt that exceeds the debt limits of a chapter 13.  This is less common than business chapter 11s but it gives individuals with a great amount of debt an opportunity to file a payback type of bankruptcy if they can’t file a chapter 7.

A chapter 11 business filing will theoretically give a business time to reorganize and develop a plan to pay back the creditors at least partially.  The problem is that though many are filed most chapter 11 bankruptcies for small businesses do not work.

If a business is failing then it is unlikely that a suspension of the collection efforts of creditors will save it.  There is usually insufficient income generated by the business to pay much of its debts.  If the business reaches this point where it needs a chapter 11 then the business model is probably unworkable.  Most attorneys will advise their clients to at least consider the possibility of closing the business.  In the end most chapter 11s are converted to chapter 7s or they are dismissed.

In addition chapter 11s are very expensive to file.  The filing fees are over $1000 and in addition there are administration fees charged by the court.  There is a tremendous amount of work for the attorneys to do too and thus large attorney fees are also required.  There are also numerous legal documents and motions that must be filed on the first day and then more of these within the next 7 days.

There are also numerous trips to court.  Court appearances are necessary to ask the judge for permission to do many things like pay your attorneys.  The business becomes the “debtor in possession” after the filing but the business must take out all new bank accounts after the filing is done and it must close all of the old bank accounts.  On each account it must be stated that this business is in chapter 11.  The debtor in possession can run the business though during the chapter 11.

Then there are the reports.  Profit/loss statements must be filed along with balance sheets and monthly operating reports.  Keeping business accounts in a chapter 11 is very difficult and must be done correctly.   The court must be specially petitioned for permission to pay an accountant and other experts to do this kind of work.

All of this is why chapter 11s work better for a large business than a small one.  Most law firms will charge $20,000 at least to do one and the court fees, accountants, and business specialists must be paid are in addition to these fees.  Large law firms handling large businesses are the norm in workable chapter 11s.

There is also the problem of the creditors committee that must be set up with a chapter 11.  The creditors of the business must be gotten together to approve of the reorganization plan for the business and the reorganization plan must be carefully produced.  The reorganization plan is a plan that the business comes up with to both run the business and pay back part of the debts.  This plan must then be approved by the creditors committee.

With a small business the formality of a creditors committee may be waived but if there is one or two large creditors they are definitely have something to say.  They may be foreclosing on property or want their other assets back or they may want to break up the business.  Creditors can even demand that the management of the business be turned over to someone else (instead of the business owner) resulting in you losing control of the day-to-day operations of the business.

There are advantages to a chapter 11 like it does not have a five-year limitation to paying back creditors like a chapter 13.  Also you may be forced into one if you have more debt than is allowed in a chapter 13.  (And remember that individuals can file a chapter 11 bankruptcy in cases where their debt exceeds 13 limits and where a chapter 7 will not work).

But remember the purpose of the 11 is to turn around a business and make it work.  If the judge thinks you are using it for another purpose like stalling the paying of creditors or for stalling a foreclosure then he could move for sanctions, move to dismiss the case, and even lift the automatic stay.

In a SARE cases (single asset real estate) it is common that the debtor/business filed when a foreclosure was pending.  The creditor/mortgage holder will then move to lift the stay and sell the property unless the debtor makes payments or files a “workable” plan.  Both of these things the debtor may not be able to do.  Therefore in these cases the lifting of the stay is often allowed and the property is then sold at foreclosure.

You can see from this short blog on chapter 11s that they are expensive, time-consuming, extremely complicated, and prone to dismissal or failure.  The good news it that there are alternatives to these 11s.  Contact a competent bankruptcy attorney to discuss your options if you are considering filing a chapter 11 bankruptcy.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation about a chapter 11 bankruptcy or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

Short Sale and foreclosure- watch out for the small lenders! Can bankruptcy help?

I believe that short sales are preferrable to foreclosures because of the credit score hit that you take in a foreclosure.  Most large banks should readily do a short sale for you but watch out for small lenders who may lure you in with the promise of a short sale only to cancel the short sale at the last-minute and sell the house at auction.  Watch out for the game they play where they lure you in thinking you have a short sale approved only to find out that you don’t and the house is sold at auction to a third-party buyer.

Don’t worry the big banks are involved in 95% of loans these days so chances are you don’t have a small lender at all.  The big banks like Chase, Wells Fargo, and B of A are usually all very amenable to short sales.  They have too much foreclosed housing inventory currently and they prefer to execute short sales of homes whenever possible.  My realtor told me of a case where they told the owner to go get a realtor and do a short sale.  They apparently had no interest in a foreclosure if it could be avoided with a short sale.

This is good for you because short sales are better for your credit score.  A foreclosure can last longer on you credit report than even a bankruptcy which prevents you from getting a FHA loan for 2 years.  A foreclosure prevents FHA loans for 3 years traditionally and there are stories of them precluding FHA loans for 5 years.  A short sale appears on your credit report as a “settled” debt which is also two years so even with a bankruptcy you would only have to wait two years for a loan.

The problem I just faced in a case was with a small bank that falls in the 5% of loans category.  My client had his loan sold from a big bank to one of these small ones years ago.  We attempted to do a short sale on the property but the bank stalled our efforts from the beginning.  In the end we had a great buyer and all the docs in and the bank came up with an excuse at the last-minute and went ahead with the sale on the courthouse steps.  It was clear after that they never really wanted a short sale at all and that they were determined to do a foreclosure from the beginning.  I just wish they told us that before we jumped through all the hoops and wasted everyone’s time.

We looked up this company and discovered that they approve less than 10% of short sales brought to them.  We speculated that they are getting some government bonus for the foreclosure because the government appears to want to see more foreclosures.  It seems silly as this is hurting people’s credit but the government disincentive programs are often hurtful and wrong.

A chapter 7 bankruptcy would have stalled the foreclosure sale it is true (This client had insufficient income to fund a chapter 13).  But then the bank could have filed an immediate motion for relief from stay and it would have been granted by the bankruptcy court quickly.  Once the relief was granted, the stay lifts and the bank can proceed with the sale.  So a bankruptcy filing can only stall a foreclosure and it will not force a determined bank t accept a short sale.

I just looked up a case for a client who had a stay lifted in 3 weeks and a new sale date scheduled three days after that.  So it’s possible that a chapter 7 bankruptcy will only stall a foreclosure sale for 20 to 30 days.  But it is all dependent on how quickly they file the motion.  I have seen them take 6 weeks to file but two weeks is more common and they could file the motion for relief within just days of the bankruptcy filing.

If you have one of these small banks then the most you can do is stall them with a chapter 7 bankruptcy unless you can afford to fund a chapter 13 for years to come.  Most people cannot afford this so they opt to do a chapter seven or hope that they can get a sale through as we did.  But then you run the risk of the bank pretending to want a short sale and then cancelling it at the last moment when it is too late to file a bankruptcy.

A bankruptcy can still get rid of most of your other debts though if you have them so don’t be afraid to use bankruptcy where necessary.  A chapter 7 can’t stop a foreclosure sale but only delay it though and it can’t get your house back once it’s sold to a third-party buyer.

Beware of the tricks these small banks play on you!

I am a San Diego bankruptcy attorney.  For more information please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call for a free consulation on any debt or bankruptcy matter at (619) 702-5015.  Call now for a free credit report and analysis!

If you or someone you know needs to file a bankruptcy then get my FREE E-BOOK “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” by emailing me at farquharesq@yahoo.com.

Chapter 7 or Chapter 13- Which Bankruptcy Chapter Do I Need?

Clients are often confused about chapter 7 and chapter 13  bankruptcies.  (There is also a chapter 12 for farmers and chapter 11 for businesses).   A chapter 7 is the one where you get a discharge of your debts 90 days after you file.  The 7 has a very short timeline and clients like it because of the simplicity and speed at which it is processed.  The debtor (the person who files bankruptcy) attends the 341 hearing (meeting of creditors) 30 days after he or she files bankruptcy.  The creditors rarely show up at the 341 hearing so it’s just you, the attorney, and the Trustee who are in attendance.  The bankruptcy discharge is then usually granted another 60 days later.

The debtor must list all of their assets and debts in their bankruptcy schedules when they file.  The debtor must list their secured creditors separately from the unsecured creditors and the debtor must list whether they intend to keep their secured assets or surrender them.  The debtor must also list their income, expenses, all of their personal property, a statement of financial affairs, and do the means test.  There are also a few other schedules that must be completed but these are the main ones.  (Check my previous blog for an explanation of the means test).  When the schedules are completed then this information is filed with the Bankruptcy Court.

The 7 is most popular but there is also a chapter 13 where you pay back all or part of your debts over a period of 3 to 5 years.  This chapter is useful when you make too much money for a Chapter 7, or if you need to protect assets from trustee, or if you need to make up back mortgage payments and pay them out over the next 3 to 5 years.

Also you can strip off a second mortgage in a chapter 13 if it is totally unsecured.  A totally unsecured second mortgage is one where the value of the house is less than the value of the first mortgage leaving the second with no equity to attach to.  Stripping it off means that you get rid of it, you don’t pay it, and it goes away.

“Cramdown” is also useful in a 13 where you reduce the value of the loan on an asset in the bankruptcy to the value of the asset.  So if you have a car worth $10,000 but the loan value (the amount you owe) is $20,000, you would only have to pay back the $10,000 (over 3 to 5 years) to keep the car in the bankruptcy as the loan would be “crammed down” to $10,000.  The remaining $10,000 on the loan would go away and the finance company would never be able to collect it from you.  You must continue your payments for the full 3 to 5 years to get your discharge at the end of the chapter 13.  This is hard for many people and they sometimes drop out of these plans and then their debt returns.

So a 7 with the possibility of getting rid of all your credit card, medical, personal loan debt in 90 days is still the most popular form of bankruptcy by far and most people choose this one.  13s are rarer but available and advisable under the right circumstances.

What is the means test?

The means test is a provision added to the 2005 Bankruptcy Reform Bill.  Many clients believe that it is designed to throw them out of bankruptcy.  It is not.  It is merely designed to throw you out of a Chapter 7 and into a Chapter 13 bankruptcy because you supposedly have the “means” to pay all or part of your debts back in a chapter 13.  You would therefore not be eligible for a chapter 7.   You are not thrown out of Bankruptcy though as another chapter is available to you.  If you don’t pass the test because you make too much money and you filed anyway they will allow you to convert the case to a chapter 13.  Check back for my next blog on the differences between a chapter 7 and 13

The means test is a test where you enter your gross monthly average household income for the last six months and you see if you make more money than the average person in your county.  At the time of writing this, the yearly averages for San Diego county are: $47,969 for 1 person in the household, $64,647 for 2 people, $70,638 for 3, and $79,194 for 4.  You get full credit for each child in the house and you are allowed to make extra money for each one.

If you make more than these allowed amounts you go into the means test.  You then deduct all of the allowable expenses.  First there are your taxes, then medical insurance, and union dues that are allowed to be deducted from the total.  You then get “standard” deductions for medical, housing, living and car expenses.  Many people will lose out here because their actual expenses for these items exceeds what the means test allows and then you will often not be allowed to take them even if you actually do spend that much money on those items.

You will be able to take all of your secured creditor payments for mortgages, and cars, and even thing like jewelry,  electronics, and furniture.  Since you are obligated to make those payments (or lose the item you financed) you can get full deductions for these in the means test.  Then there are additional categories for allowed deductions for things like childcare, charity, care of elderly, certain education expenses, among others.

After all of that is deducted and calculated you see if you pass the means test.  I do it all on software that calculates it for me and tells me if you pass or not.  This test should be done first thing in the Bankruptcy case if there is a situation where a person or a family earns a fairly high income.  The means test looks back six months to see what your average income was in that period so if you just lost your job you may have to wait to file so that you 6 month average income will decline.

The means test is a somewhat complicated test and it is best to have an attorney do this for you and advise you of options if you fail it.  If you are going to get a raise though you might want to file before your income increases so you can get you chapter 7 discharge.

Don’t despair though as most Bankruptcy lawyers are used to dealing with the means test and they (and good software) can guide you through it.

For more info. check out my websites at:   www.farquharlaw.com or www.freshstartsandiego.com.

I am a bankruptcy lawyer in San Diego.

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

Will I get kicked out of my house after I file bankruptcy?

No! Not necessarily.  You will not automatically get kicked out of your house after a bankruptcy so don’t worry.  Even is chapter 7 there is a stay that covers all of your property including your house and it is created when the bankruptcy case is filed.  A bankruptcy stay prevents any action being taken against you including evictions or foreclosures.  You will therefore not be kicked out of your house after filing bankruptcy.

The problem is that a stay in a chapter 7 only lasts for the three months of the bankruptcy.  After the three months is up the bank or landlord can proceed with a foreclosure or an eviction against you.

Once the house is sold in a foreclosure you will be contacted by the new owner who will want you to move out.  You can then ask for cash for keys.  Ask for $2000 to $3000 to move out because you will have moving expenses and new rent and deposits to pay.  Negotiate with the new owner and get what you can.  They can evict you if you do not move but they would usually rather negotiate.

A Chapter 13 bankruptcy will allow you to stay in your home if you have disposable income (income above and beyond your bills) and if you can afford the payments on the home.  A chapter 13 is a debt repayment plan where you pay back some of your creditors over a three to five-year period.  A chapter 13 will allow you to make up all of your unpaid back payments (arrearages) on your house but most people realistically can’t afford to make these payments.  Also most people prefer the speed and finality of a chapter 7.

A chapter 7 bankruptcy allows you to discharge all of your unsecured medical, credit card, and personal loan debt in 90 days and then you are done with the bankruptcy and you can move on with your life debt free.  With a 13 you have to make payments for up to 5 years.  The chapter 7 will delay the sale of your home in a foreclosure for 2 months or possibly far longer as there is no way to currently predict how quickly a lender will proceed with a foreclosure.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation about a chapter 11 bankruptcy or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

FarquharLaw – San Diego Bankruptcy Attorney

The Law Offices of Douglas G. Farquhar helps people file for bankruptcy under the US Bankruptcy Code. The attorneys and staff at our practice have a unique understanding of bankruptcy law and care about each client.