Chapter 7 Bankruptcy Attorney Serving Burbank & Los Angeles
These are hard times. With inflation on the rise and incomes dropping in Los Angeles and elsewhere, it is important to consider your options with an experienced bankruptcy attorney to deal with your increasing debts.
When most people want to get a “fresh start” on their finances in bankruptcy, it is usually Chapter 7 that they are thinking about. But there are many misconceptions about Chapter 7.
Many think that Chapter 7 requires them to give up their house, car and other assets, and that their credit will be “ruined” for a long time. Neither of these are true. When prepared by a qualified bankruptcy lawyer you will know before your case is filed whether any of your assets are at risk.
Lawyer Assisting Those in Los Angeles and Throughout California with Chapter 7 Bankruptcy
Chapter 7 is commonly referred to as a “personal bankruptcy”, “consumer bankruptcy”, “straight bankruptcy” and “liquidation”. Corporations and LLCs can also file Chapter 7, but since they cannot get a discharge of debts, it is rarely beneficial to file Chapter 7 for a corporation.
Chapter 7 is the fastest and “easiest” bankruptcy Chapter because the discharge of debts is typically achieved in about 4-5 months from filing the case and costs less to file than other Chapters.
The basic concept of Chapter 7 is that you can eliminate the obligation to pay on most debts without having to make any further payments. In return for this, you give up any assets whose value exceeds the allowed exemptions (protections) provided under applicable law.
Determining which assets are exempt from liquidation and can be retained in Chapter 7 is a matter of state, and in some instances, federal law. It depends on where you resided for the 2 years prior to filing your case. Determination of exemptions is complicated. Discussing your situation with an experienced attorney can assist you with understanding which exemptions will apply in your situation. I am a Los Angeles bankruptcy attorney who will provide, before filing any case, a detailed explanation of whether any assets or property would be at risk. If you need assistance, then contact me.
Only certain types of debts can be discharged through a Chapter 7. Credit card or other consumer debt, medical bills, older tax debts and personal guarantees of certain business debts can usually be eliminated. Obligations to pay alimony, child support, student loans, debts incurred through fraud, and more recent taxes are generally not dischargeable. As a bankruptcy lawyer, I can assist you in determining which exemptions apply to your situation and advise you on how best to protect your assets through the process. I will also help you understand which debts may be discharged through the Chapter 7 process.
Individuals with primarily consumer debt seeking protection under Chapter 7 must meet the “bankruptcy means” test. Eligibility is determined by an attorney using a couple of different criteria:
- The “Means Test”: Necessary if your gross income received in the six (6) calendar months prior to filing your bankruptcy case exceeds the median income for your geographic area as determined by the US Census; and
- Current Budget Test: This is your current income minus necessary (but actual) living expenses.
These tests will determine if the applicant’s earnings and disposable income are low enough to justify being relieved of their debts without having to make further payments.
If you are eligible to file, the Chapter 7 process begins with your attorney filing a Petition with the court. Once filed, your creditors will be notified that you are seeking bankruptcy protection. The filing triggers an “automatic stay,” which prohibits creditors from pursuing debt collection efforts pending the conclusion of the bankruptcy proceeding. Between 3-5 weeks after that, you will appear for a meeting with the appointed bankruptcy trustee in your case. The Chapter 7 Trustee is in charge of liquidating your non-exempt assets and distributes the funds to the creditors in lieu of full payment and in exchange for discharging the debt. But in the vast majority of cases, if they are handled properly, there are no assets to liquidate.
See the FAQs below for more details on which debts can be discharged and what exemptions are available.
How a Bankruptcy Attorney Can Help Los Angeles Residents File Chapter 7
Bankruptcy cases are filled with landmines and traps for the unwary.
I am Mark J. Markus and I am an attorney that has advised and represented clients in Chapter 7 bankruptcy cases since 1991 in the Greater Los Angeles Area of California. I am a Certified Specialist in Bankruptcy Law by the State Bar of California Board of Legal Specialization.
I understand how difficult the decision is to file bankruptcy. My practice is structured to minimize surprises and problems in bankruptcy cases that often arise with other bankruptcy attorneys. To ensure this, my initial consultations are comprehensive and thorough, which is different from most other attorneys who give very short initial consults and guesstimates as to what you can do, without having all the necessary facts. In my consultations, I analyze all relevant information. This includes your income, expenses, assets, debts, and other factors. That way I can anticipate problems, answer any questions you have, and determine the best way to achieve your goals including whether you should file for bankruptcy, which chapter(s) you may be eligible for, what property/assets you can protect, and identify any problems that might arise in your case. After my consultation you will know the costs and benefits of filing a case for your personal situation.
Open communication is a hallmark of my representation and I promptly respond to client questions as we navigate your case from beginning to end. All work is done by me, a bankruptcy lawyer, in my Burbank, Los Angeles office. No paralegals or assistants.
Chapter 7 cases are only filed by our office after weighing all alternatives and analysis of the pros and cons of filing including which debts can be discharged and which assets can be protected.
Our firm serves all cities and counties in California, including counties of Los Angeles, Orange, Santa Barbara, San Diego, Riverside, Fresno, Sacramento, San Bernardino, Ventura, San Luis Obispo, Tulare, Contra Costa, Shasta, Marin, Alameda, Kern, and San Francisco and cities including Burbank, Glendale, Sylmar, Panorama City, Simi Valley, San Fernando Valley, Irvine, Santa Clarita, Oxnard, Huntington Beach, Ontario, Rancho Cucamonga, Corona, Torrance, Agoura, Long Beach, San Fernando, Van Nuys, Sherman Oaks, North Hollywood, Anaheim, Hollywood, Riverside, San Bernardino, Lancaster, Palmdale, Pasadena, and many more.
Frequently Asked Questions (FAQ’S) About Chapter 7 Bankruptcy
Which Debts Are Discharged (Eliminated) in Chapter 7
A discharge is the removal of your personal legal obligation to pay on a debt. Most debts are dischargeable in bankruptcy, but there are exceptions. A few of the most common exceptions to discharge are:
- alimony and child (domestic support) obligations,
- taxes less than three (3) years old from date return was last due or trust fund taxes,
- student loans (unless “undue hardship” is proven after a separate trial),
- any debts procured by fraud,
- debts incurred without a reasonably certain ability to repay the debt
Certain debts related to a divorce proceeding, such as attorney’s fees, may be dischargeable in a Chapter 13, but not in a Chapter 7.
Discharge analysis can be very tricky and requires an experienced bankruptcy attorney to determine. I discuss debt discharge in all my initial consultations.
Will Chapter 7 Ruin My Credit?
No. In fact, most of my clients’ credit scores go up immediately after a Chapter 7 case is filed (within a few weeks) before discharge is entered. And for others, they are able to increase their credit scores dramatically within one year after filing their Chapter 7 case. If your credit score is high when you file your bankruptcy, it will obviously go down a bit initially. But in most cases this would have occurred whether you file bankruptcy or not. The bankruptcy filing gives you a “fresh start” beginning and enables you to start rebuilding your credit immediately after the case is completed. This occurs much more quickly than if bankruptcy was not filed. Most clients are able to get their credit scores back into the high 700s within a year after their Chapter 7 case is completed.
What Alternatives Are There to Chapter 7 in Los Angeles?
If a Los Angeles California resident does not qualify for Chapter 7, then Chapter 13 or Chapter 11 are alternate options. Calculating eligibility can be very tricky and there are a lot of factors involved, but I do this every day and know exactly what the courts are looking for and can determine which bankruptcy Chapter works best for you.
What assets are protected in Los Angeles, California Chapter 7?
This depends on what exemptions are available in your case. Which state or federal exemptions apply depend on where you resided for the 2 years prior to your case. California has two sets of exemptions to choose from. One set has a homestead exemption of up to $600,000 if the property was acquired more than 1,215 days prior to the bankruptcy case filing. The other set has a “wildcard” exemption of approximately $31,000 which can be used on any assets. Explanation of how exemptions work is very complex and will obviously vary on a case-by-case basis. My office provides detailed analysis of exemptions and asset protection as part of the initial consultation so you will know how filing will affect you.
Can I Discharge (Eliminate) Debt Owed to My Landlord in a California Chapter 7?
Yes! Any bankruptcy chapter enables a Los Angeles resident to discharge rent obligations owed to a landlord. Of course, if you don’t pay your rent, the landlord has the right to evict you. Filing bankruptcy can stop an eviction if filed before the 3-day Notice to Pay Rent has expired.
Can I Discharge (Eliminate) Tax Debts To the IRS, FTB, and Sales Tax in Chapter 7?
Income taxes and sales taxes may be discharged in bankruptcy if certain requirements are met. Certain time periods must run after the returns are due to be filed, after they are actually filed, and after the taxes are “assessed” by the taxing agency.
In order for income and California sales taxes to be discharged, on the date your bankruptcy case is filed, it must be:
- More than 3 years since the last due date for filing a return
- More than 2 years since the actual returns were filed
- More than 240 days from the date of assessment of the tax by the taxing agency.
There are exceptions and extensions of time for each of the above rules and it is too complex to put into a short FAQ window. Contact me for a consultation to go over the specifics in your case to learn if your Los Angeles, California, and Federal tax debts can be discharged.
The Chapter 7 Bankruptcy Process in California
Time from filing to discharge: usually 4-5 months
Step 1: Prior to filing any bankruptcy case for an individual, you must take a credit counseling course from an approved agency. Your attorney will provide you with information on how to obtain this counseling.
Step 2: File Petition, Schedules, and Statement of Financial Affairs with the Court
These are extensive documents which detail your assets, debts, income, expenses and historical financial affairs. These documents are signed under penalty of perjury. Once filed with the Court, you will be assigned a case number and this commences your case. In most cases, immediately upon filing your case, an injunction known as the “automatic stay” goes into effect. This immediately stops creditors from taking any further action to collect or recover on any debt you owe. The reason I say “most” cases is that if you have a prior dismissed bankruptcy case(s) in the past 12 months, or if certain other conditions are met, you may need to file a motion to get the court to impose the Stay.
Step 3: Mandatory meeting with the Trustee
Approximately 3 to 5 weeks after filing your case, you must attend a meeting with the Trustee in your case. It is often referred to as the section “341(a) Meeting.” It is a very simple meeting usually and only lasts a couple of minutes per debtor. Currently the meetings are being held by telephone/video, but historically these are done in person.
The Trustee is an independent person appointed automatically in all Chapter 7 cases by the United States Trustee’s Office (an administrative branch of the U.S. Department of Justice). The Trustee’s role is to liquidate (meaning, turn into cash) any non-exempt assets you have. The Trustee then distributes those funds to your creditors according to their statutory priority in the bankruptcy code. The Trustee also monitors your case and will refer any incidences of fraud to the F.B.I. The Trustee can also object to the granting of discharge in your case if he/she believes your case was not filed in good faith (such as you have too much excess income to file a Chapter 7) or if you have committed fraud in connection with your petition and schedules.
Most assets are exempt up to a certain amount. You should check with your attorney as to which, if any, of your assets are subject to being taken by the Trustee.
The Trustee does not represent you and the Trustee does not represent any creditor in your case.
Step 4: Time for Objections by Creditors and Trustee
Your creditors have until 60 days after the date first set for your meeting with the Trustee to file a complaint objecting to the discharge of their debt, or to your entire discharge. Grounds for objecting to discharge of individual debts include fraud (such as incurring charges on a credit card that you did not intend or have the reasonable ability to repay at the time they were made), false statements on a credit application, fraud while acting in a fiduciary capacity, willful or malicious injury to a person or property of a person, and certain others. Creditors can seek an extension of time to file their complaint, but as long as they received notice of your bankruptcy case, they must either file their complaint, or a motion requesting an extension prior to the expiration of the 60-day period.
In most cases no objections are filed. However, if a creditor does file a complaint, there will be a trial. You will need to consult with an attorney at that point to decide whether you wish to defend the action, settle it, or just let it go to default judgment. Usually, the matter can be settled or even pre-empted.
The Trustee has until 30 days after the date first set for your meeting with him/her to file an objection to any exemptions you have claimed. Again, this is rare, but it can happen depending on the specific exemptions you need to use in your case. Your attorney will advise about the likelihood of this happening in your case.
Step 5: Financial Management Course
A separate course in financial management must be taken and certificate filed with the court before your discharge can be entered.
Step 6: Discharge (For Individuals, Not Corporations)
The moment you’ve been waiting for! If nobody objects to your discharge within the 60-day period referenced above, and you have completed all the other requirements, then you will automatically get your Notice of Discharge in the mail shortly thereafter (usually within 2-6 weeks after expiration of the 60-day period).
**Please note that the above are summaries and do not cover everything that can and does occur in a given bankruptcy case filing. The summaries are specific to rules and procedures followed in the Central District of California. Moreover, it assumes that you are represented by an attorney, because it omits certain tasks and duties that will be performed throughout the process by your attorney.
Who or What is the Chapter 7 Trustee in Bankruptcy?
The Chapter 7 Trustee is an independent person appointed automatically in all Chapter 7 cases by the United States Trustee’s Office (an administrative branch of the U.S. Department of Justice). The Trustee’s role is to liquidate (meaning, turn into cash) any non-exempt assets you have. The Trustee then distributes those funds to your creditors according to their statutory priority in the bankruptcy code. The Trustee also monitors your case and will refer any incidences of fraud to the F.B.I. The Trustee can also object to the granting of discharge in your case if he/she believes your case was not filed in good faith (such as you have too much excess income to file a Chapter 7) or if you have committed fraud in connection with your petition and schedules.
Most assets are exempt up to a certain amount. You should check with your attorney as to which, if any, of your assets are subject to being taken by the Trustee.
The Trustee does not represent you and the Trustee does not represent any creditor in your case.
What is the 6-Month Lookback Period in Chapter 7?
This refers to income calculations on the bankruptcy “means test” to determine eligibility to file your case. The test starts by looking at your gross income received in the six (6) calendar months prior to your case being filed. If that number is higher than the median income for your household size and geographic location, then you go through the full means test calculation to determine if a “presumption of abuse” arises. Doing a means test calculation and determining eligibility to file a Chapter 7 can only be done after getting all the necessary information in a comprehensive consultation. I do these calculations as part of the initial consultation.
How Often Can You File Chapter 7 Bankruptcy in California?
There is no time limit for filing any bankruptcy case, as long as you are eligible to file under the given Chapter. But to receive a discharge of debts in a Chapter 7 case, there must be the following time elapsed from the dates of filing of the prior case and new case:
- Prior case discharge-Chapter 7: 8 years from date of filing.
- Prior case discharge-Chapter 13: 4 years from date of filing.
Should My Corporation Business File Chapter 7?
In most cases, the real issue here are personal guarantees and liability of the owners of the corporation. And filing bankruptcy for the corporation does not change the personal liability of the owners, unless of course the debts are somehow paid in full from the sale of assets. Thus, owners in this situation should be looking at their personal bankruptcy options (Chapter 7, 11, or 13).
Corporations, including LLCs, LLPs and Partnerships, do not receive a discharge of debts in Chapter 7. So, getting rid of debts would not be a reason for a corporation to file a Chapter 7 bankruptcy case.
Chapter 7 can be beneficial for corporations where there are a lot of assets to be liquidated to pay creditors. When you file a Chapter 7 case, a Trustee is appointed who is in charge of selling the assets and disbursing them in the right priority to creditors. Doing this takes the owner off the hook for doing all this and having to prove assets were sold for highest value and nobody got preferential treatment.
But the main reason Chapter 7s are filed for Corporations is where the owner(s) want to start a new business and need some or all of the assets of the existing corporation to proceed. And the key here is to avoid what is known as “successor liability” for the new entity. So, by filing a Chapter 7 for the existing corporation, the owners of the new corporation can purchase the necessary assets from the Chapter 7 Trustee of the “old” corporation and that provides somewhat of a shield from creditors going after the new corporation on a successor liability theory.
This is not, by any means, a complete solution to avoid successor liability and you should get adequate legal representation to set up the new entity properly so as to best avoid this issue.