Interviewer: What is the true benefit of filing bankruptcy?
Marilyn Minger: It really depends. What is sort of considered the biggest immediate benefit a debtor gets – at the moment of filing – is the automatic stay. There are certain circumstances when the automatic stay does not apply, but for the most part it does. When the petition is filed and the automatic stay goes into effect, it is like the debtor’s throwing up his or her hands and saying to their creditors, “Stop, stay away. I am going to figure out how to do this. Stop trying to collect on my debts and let me take some control of the process.” That’s what the automatic stay does. It means that no one can come after that debtor to try and collect the debt, whether through phone calls or continuing with pending proceedings. Now a creditor still can try and collect a debt if they think they have a debt that is not dischargeable, but they cannot try to collect through the debtor. The creditor can talk to the debtor’s attorney and/or bring any issues it may have to the bankruptcy court. But creditors can no longer contact the debtor or try to collect on their debts without going through the bankruptcy court. You can stop foreclosures, wage garnishments, repossessions and bank levies by filing bankruptcy. For example, if a foreclosure sale is scheduled for noon and you file it at 11:30, the sale cannot go through.
Marilyn Minger: While the automatic stay is very important no matter under which chapter the debtor files, filing under the different chapters give the debtor opportunities to do different things. Chapter 7 sort of takes a snapshot of your financial picture and if your financial picture fits within what’s called the means test, which was instituted in 2005, then generally all your dischargeable debt can go away fairly quickly and that’s pretty much all your unsecured debts (but not including student loans, domestic support obligations, some debt to the government, debts incurred through fraud or deceit, and some other debts). As I said, not all of it goes away but generally the credit cards debt, medical bills, and personal loans do. A chapter 13, on the other hand, may be the right chapter to file if the debtor is unable to file a chapter 7 because of his or her income, has fallen behind on payments on secured debts, or owns more property than he or she is able to exempt and yet wants to keep. Under a chapter 13, the debtor can pay down his or her debts through a three- to five-year plan, and if there are unsecured debts leftover at successful completion of the plan, those debts generally are discharged.
Interviewer: What is a benefit of completing a bankruptcy?
Marilyn Minger: A phrase we use around bankruptcy is “fresh start”. And bankruptcy truly can provide that, whether it is through a chapter 7 or a chapter 13. As an example, if you are living in the Bay Area and have $10,000 in credit card debt and $10,000 in medical bills, are making $15 an hour with few prospects for improvement, and trying to support even one other person, you’ve basically got nowhere to go. Without some sort of miracle, that debt could follow you for a long time. It’s just not going to happen that you are going to be able to pay it back, and you just get farther and farther behind. To have that go away, and to be able again to use your income to support yourself again, and not just pay debt service, that truly is a fresh start. The collection calls go away. The threat of a garnishment or a levy goes away.
Just as a note, because I am an attorney and must remind you of these things, it is fraud to borrow money with no intention of paying it back, so you can’t set yourself up and say, “Well, I may borrow $20,000 and then I’m going to get a discharge at bankruptcy”, you can’t do that if you don’t intend to pay it back at the time you borrow it.
Interviewer: Have you seen people’s lives improve after bankruptcy?
Marilyn Minger: Absolutely. Not only do the phone calls and collection threats and actions stop, but there is more money to eat, for instance. Once you file a bankruptcy you are not required to stop living. I see so many people who spend way too little money for food month in and month out because they are paying 29.9% interest on their credit cards. Life immediately after bankruptcy should not be luxurious or extravagant, but one is allowed to reasonably feed themselves, to go to a movie and out to dinner now and again. Through the bankruptcy process certain property is exempt, meaning the debtor is allowed to keep certain property. With some limitations, a car, your home, your wages, some retirement accounts. The things that allow you to live your life. You’re probably not going to get your boat or plane exempted, at least not in California, but someone who has been paying $1600 on credit cards every month, will have a chance to spend some of that money on food and shelter.
Interviewer: Once a person has decided to file a bankruptcy, how long does it take to file?
Marilyn Minger: If a person decides to file a bankruptcy and work with me, it really depends on the filer how long until the petition can be filed, or the urgency with which the petition needs to be filed. I provide a comprehensive questionnaire through which I gather the information from the debtor that I need to prepare the petition. It is up to the debtor how long it takes to return the questionnaire. Once I have it, generally the petition can be filed within a week or two.
Interviewer: What if a debtor needs to file quicker than that to stop a foreclosure or repossession?
Marilyn Minger: If the circumstances are such that a debtor needs to stop a foreclosure, repossession, wage garnishment or bank levy, an emergency filing can be made. If need be the petition itself can be filed, and then the schedules and statement of financial affairs can be filed generally within the next two weeks. Very basic information is needed for this kind of emergency filing, but a list of all creditors and their addresses is still required.
Interviewer: How long does it take to complete a bankruptcy?
Marilyn Minger: It depends on the circumstances, of course, but a relatively simple chapter 7 can be completed about 90 days after filing. A chapter 13 can be confirmed within two to three months after filing, but the plan itself will take another three to five years to complete.
Interviewer: Is there any kind of planning that a person thinking about filing for bankruptcy can do:
Marilyn Minger: There are certain actions or omissions that can be used to protect assets before one files for bankruptcy, and certain actions that cannot be taken in contemplation of filing a bankruptcy. If a person looks at their debt load and just has no idea how they are going to deal with it, I think it certainly pays to understand if bankruptcy is something that could help the situation. The comment I get most often after a consultation with someone to talk about what’s possible for them through bankruptcy, is “Marilyn, I got the best night’s sleep that I’ve gotten in so long after we talked.” If you are not sleeping because you are worried about how much you owe people and how you are going to pay it back, you owe it to yourself to find out if bankruptcy has anything to offer you.
Marilyn Minger: One of the things that you cannot do in planning to file a bankruptcy is to incur dischargeable debt to payoff nondischargeable debt, and then expect to discharge the dischargeable debt. In other words, if there are nondischargeable taxes that the debtor owes, the debtor cannot pay-off those taxes with credit cards, and then expect to discharge the credit card debt. By the way, if there are income taxes owed, considering when they were incurred, when the returns were filed, and when the IRS assessed the debt, they may be dischargeable.
Marilyn Minger: One of the things that breaks my heart when someone consults about bankruptcy is after they have depleted retirement accounts that they may have had. They use that money to pay on their credit cards until the retirement account is gone, and then they consult an attorney. Retirement accounts, along with other property, can be protected in bankruptcy. Filing for bankruptcy protection may allow you to keep your retirement accounts AND get rid of your credit card debt. Find out before you drain those accounts.
The Initial Requirements of Filing Bankruptcy in California
Interviewer: What should people do to prepare to file? What kinds of paperwork do they need to assemble?
Marilyn Minger: There are two questions that have to be asked: what is the person trying to accomplish through the bankruptcy, and what kinds of relief are they eligible for. Everybody used to be able to file a chapter 7, it didn’t matter what your income was, you could just file a chapter 7. In 2005, Congress introduced the Means Test. So, the first thing the Means Test looks at is the filer’s income for the last 6 months, and that’s income from all sources. Then, the filer needs to have a good idea of his or her monthly expenses, character and extent of their debt, and the approximate value of the property they own. If the debtor has secured debt, he or she should know the balance of the amount owed.
We are a debt relief agency helping people file for bankruptcy relief under the Bankruptcy Code.