Law Offices of Jina A. Nam & Associates

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FAQ's: Bankruptcy

Bankruptcy & Foreclosure

Frequently Asked Questions: Bankruptcy

Q: What is Bankruptcy?

A: It is a federal court process that can help you eliminate & wipe out your debts, or to repay them under a protected payment schedule. For the average individual or consumer, the two common types of bankruptcies are Chapter 7 liquidation and Chapter 13 reorganization. Under a Chapter 7, we ask the court to wipe out most of your debts and provide you with a full discharge. Under a Chapter 13, we ask the court to allow you to propose a payment plan. Under such a payment plan, you must pay some debts in full, but others only need to be paid partially, or not at all, depending on your financial ability.

Q: I hear that the new Bankruptcy Law makes it harder for me to file for Chapter 7. Is this true?

A: Not necessarily; it all depends on your disposable income. The new bankruptcy law still allows most people with financial hardships to file for Chapter 7 protection. But under the new law, we must figure out whether you have enough disposable income to repay some of your debts. First, we compare your current income to the median income for a family of your size in your state. If you make equal or less than that amount, then you are eligible to file for Chapter 7. If you make more, then we subtract certain allowed expenses and required debt payments from your income, and if the net income is enough to repay at least a portion of your unsecured debts over a five year period, then you cannot file for Chapter 7 protection, and instead must file under Chapter 13. For example, in California, if you are a family of four and your annual income is is less than or equal to $77,596.00*, then you are eligible for Chapter 7.

(*For cases filed between November 1, 2010 and March 14, 2011. For the most current information, visit http://www.justice.gov/ust/eo/bapcpa/20101101/bci_data/median_income_table.htm)

Q: Are there exceptions to the Income rules?

A: If you are a Disabled Veteran whose debts were incurred while on active duty, or if you are a business owner and most of your debts were incurred from the operation of the business, then you may not have to meet the new income requirements.

Q: Can I keep my home and my car if I file for Bankruptcy?

A: In a Chapter 7 bankruptcy, you can keep property that is exempt from collection. This includes some equity in your home, cash value of life insurance policies, most retirement plans, most personal property including household furnishings and clothing, and your car or motorcycle as long as the equity does not exceed the exempted amount. All other nonexempt properties are taken from you by the bankruptcy trustee who will try to sell them and distribute the proceeds to your creditors. Under Chapter 13, you will usually not lose any property, including your home, since you fund your repayment plan through your income and not through the sale of your property.

Q: I am facing Foreclosure on my home. Will Bankruptcy help save my home?

A: When you file for bankruptcy, the court will issue what is called an "automatic stay" of collection actions. This will temporarily stop the foreclosure action on your home. However, the stay is only temporary, and is usually lifted by the court upon motion by the lender. If you are facing foreclosure but want to keep your house, you can only keep it under a Chapter 7 if you immediately repay the missed mortgage payments in full and only if your home equity does not exceed the protected exempted amount. But under a Chapter 13, we can help you come up with a repayment plan that includes paying back the missed payments over time, thus saving your home from foreclosure. For a more extensive discussion, see our page on Saving Your Home Through Bankruptcy.

Q: What if my home is worth less than the mortgage balance?

A: Please call us to discuss the various legal options that may be available to you.

Q: Will Bankruptcy discharge my credit card debt? What about my student loans? What about the back taxes I owe to the IRS?

A: Almost all credit card debts will be discharged. Most student loans are not dischargeable. Also, child support & alimony payments cannot be discharged. Certain kinds of tax debts are not discharged, including payroll taxes. However, federal income taxes may be discharged if you meet certain criteria. However, if there are recorded tax liens against your property, then bankruptcy will not wipe away those liens.

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