Rambo Law Offices. Phoenix and San Diego bankruptcy lawyer.

Since the implementation of the new bankruptcy law, which occurred on October 17, 2005, it is a common misconception that filing bankruptcy is no longer possible. This is simply not true. Studies show that 80% or more of the people who filed Chapter 7 under the prior law would still qualify for Chapter 7 under the new law. Additionally, most of those people who cannot qualify for Chapter 7 under the new law, can still qualify for Chapter 13. The two primary consequences of the new law are that the process has become more complicated, and the costs are higher. However, the bankruptcy system will carry on.

Click the links below to view information about the three types of bankruptcy available.

Chapter 7
Chapter 7 Bankruptcy, often referred to as a "straight liquidation," serves to discharge (eliminate) the debtor's liability for most debts and gives the debtor a fresh start. A discharge is available to individuals, not partnerships or corporations, although it can sometimes be used to close the business. Most debts are discharged in Chapter 7 cases, with the exception of certain priority debts such as child support, guaranteed student loans, most taxes, etcetera.

To initiate bankruptcy, you must file a petition and other documents regarding your financial affairs with the court. Filing a petition automatically stays (temporarily stops) creditor's from attempting to collect the debt or taking your assets. Prior to filing the Petition you must attend a financial counseling class.

Bankruptcy law permits an individual debtor to EXEMPT (retain) a proscribed amount of assets. This means that certain assets cannot be used to satisfy creditor claims and the debtor is allowed to keep it. However, if the debt is secured (i.e., has a lien against it) the debtor has the following options: 1) return the collateral and have no further liability to the creditor, 2) keep the asset and reaffirm the debt (agree to still pay all or part of the debt), 3) redeem the assets by paying the current fair market value in a lump sum and have no further liability to the creditor.

The Debtor(s) must attend The First Meeting of Creditors, which occurs about 30 days after the filing date. The Bankruptcy Trustee assigned to the case facilitates the meeting. He or she will ask the debtor(s) questions regarding the accuracy of the documents filed, including information pertaining to income, expenses, and assets. If the Trustee determines there are NON-EXEMPT assets, the Trustee will sell the assets and will distribute the proceeds to creditors. However, it is typical that most or all of the assets have liens against them, which means there is no asset to sell. Although creditors are permitted to attend and ask questions, they usually don't.

The discharge is usually issued approximately 60 days after the First Meeting of Creditors, unless a creditor or Trustee successfully objects to it. A discharge means the bankruptcy has granted by the court and the case is over. Prior to receiving the discharge you are required to attend a financial counseling class. Objections can be based on: the debtor's lack of cooperation or lack of financial records; the debtor's fraudulent transfer, concealment or destruction of assets; or a bankruptcy crime.

In your bankruptcy papers, you must disclose to the court all of your assets and debts. In most cases, you are allowed to keep all your assets under the "Exemption" statutes provided for by law. In other words, exempt assets are protected from the reach of your creditors and the Court and you will be allowed to keep them. The following list of exemptions applies in Arizona (see below for California exemptions):

Type of property	Amount
Homestead (residence)	$150,000 (for both spouses). Includes identifiable cash proceeds from the sale for 18 months after the sale.
Motor vehicle	$5,000 (each spouse)
Wearing apparel	$500 (each spouse)
Engagement or wedding rings.	$1,000 (each spouse)
Table/4 chairs (plus 1 per dependent over 4); couch; chair (plus 1 chair per dependent); 3 coffee/end tables; 3 lamps; rug; bed (plus 1 per dependent); bed table; dresser (plus 1 per dependent); bedding for each bed; TV or stereo; radio; stove; refrigerator; washer; dryer; vacuum; family portraits; oil paintings and drawings made by Debtor.	$4,000 aggregate value (each spouse)
Food, fuel and provisions for 6 months used by Debtor and family.	100%
Musical instruments of Debtor and family.	$250 (each spouse)
Domestic pets, horses, milk cows and poultry.	$500 (each spouse)
Retirement plan qualified under IRS Code 401(a), 403(a)(b), 408, 408 (a), 409, 457 (deferred comp).	100%, except contributions made within 120 days before filing.
Library	$250 (each spouse)
Typewriter, bicycle, sewing machine, family bible, burial lot, rifle, shotgun or pistol (one gun only).	$500 aggregate (each spouse)
Wages	75% of net wages or 30 times the federal minimum hourly wage, whichever is greater, earned as of the date of filing (each spouse).
Watch	$100 (each spouse)
Wheel chair and proscribed health aids.	100%
Pre-paid rents and security deposits for Debtor's residence.	Lesser of $1,000 or 1.5 month's rent (each spouse).
Life insurance proceeds paid or payable to surviving spouse or child.	$20,000
Earnings of minor child.	100%
Health, accident or disability insurance.	100% (certain debts excepted)
Insurance proceeds for damage or destruction of property.	100% of exemption given for damaged or destroyed property.
Cash surrender value of life insurance policies owned by Debtor (for at least 2 continuous years).	100% (beneficiary must be a minor and a dependent)
Damages for wrongful levy or execution.	100%
Annuity (owned by Debtor, not annuity company) for at least 2 years.	100% (beneficiary must be a minor and a dependent).
One single bank account.	$150 (each spouse)
Necessary tools, equipment, instruments and books used in business or profession.	$2,500 (each spouse). Does not include personal motor vehicle.
Machinery, utensils, feed, grain, seed and animals of farmer.	$2,500 (each spouse). Primary income must be from farming.
Arms, uniforms/accountrements required by law.	100%
Unemployment compensation benefits.	100%
Workmen's compensation benefits.	100%
Welfare assistance.	100%
Child support or maintenance.	100%
Fireman's relief and pension benefits.	100%
Police pension benefits.	100%
Teacher's retirement benefits.	100%
Fraternal Benefit Society benefits.	100%
School equipment used to teach.	100%
Firefighting equipment.	100%
Property that belongs to the public.	100%
Social security benefits (protected in bank account if not co-mingled with other funds).	100%

In California, you must elect one of two different sets of "Exemptions," which proscribe how much property you can keep. Below is partial lists of California Exemptions:

Option 1	Option 2
$20,725 in any property used as a residence, or a burial plot. Any unused portion can be applied to any personal property plus $1,100.	$75,000 to $150,000 equity in your residence (amount depends on age, marital status and income).
$3,300 motor vehicle	$2,550 motor vehicle.
$525 per item in clothing, household goods, furnishings, etc.	Reasonably needed household goods, furnishings and clothing. Burial plots.
$1,350 jewelry.	$6,750 jewelry, heirlooms and art.
$2,075 books/tools of the trade.	$6,750 to $13,475 books/tools of the trade (depending on marital status and employment).
Personal injury recoveries to $20,775 (not to include pain and suffering or pecuniary loss).	Personal injury recoveries needed for support.
Disability or health benefits. Life insurance proceeds needed for support. Unmatured life insurance contract accrued avails to $11,075.	Disability or health benefits. Matured life insurance benefits needed for support. Unmatured life insurance loan value $10,775 to $21,550 (depending on marital status).
Alimony or child support needed for support.	Property of business partnership. Business or professional license, except liquor licenses. Inmates trust funds to $1,350.
Most pensions.	Most pensions.
Health aids.	Health aids.
Social security; unemployment; Veteran's benefits; public assistance.	Student financial aid; unemployment; AFDC; aid to blind, aged, or disabled; worker's compensation, relocation benefits.
No wages.	75% of wages paid within 30 days of filing for bankruptcy. Public employees vacation credits, if receiving installments, at least 75%..

Chapter 11
Businesses that want to continue operating but need to restructure their finances may file Chapter 11. Chapter 11 is beneficial because it can be used to reduce the amount of debt, extend the repayment period, and/or liquidate assets. Individuals can file Chapter 11 but it's typically too cumbersome and costly.

Chapter 11 is initiated by filing a petition and other documents with the court. The debtor business becomes a "debtor in possession," which means that it retains control of assets during the bankruptcy.

The debtor must file a disclosure statement regarding financial affairs and a payment reorganization plan. Once the disclosure statement is accepted, creditors may vote on the plan if they will be paid less than owed or their rights are altered. The plan is confirmed if there are sufficient votes in favor of it. If not, the court order it over creditor objections.

The United States Trustee conducts the creditor's meeting, where it and creditors may question the debtor about finances and the reorganization plan. The debtor in possession is required to submit monthly operating reports to the Trustee and to pay a quarterly fee.

Filing a petition automatically stays (temporarily stops) creditor's from attempting to collect the debt or taking assets. However, in certain circumstances a creditor may motion the court to lift the automatic stay, which means it will be permitted to repossess or foreclosure on property if approved.

A debtor in possession is permitted to use assets in the normal course of business but must obtain creditor permission to use cash collateral (secured assets or proceeds derived from the sale of secured assets). Nevertheless, the court may order it if the secured creditor's interest is adequately protected in some other way.

A reasonable plan will be confirmed by the court unless a creditor objects to it for good cause.

Pre-confirmation debts are discharged upon plan confirmation, with certain exceptions. The confirmed plan essentially creates new contracts and the debtor in possession must adhere to the terms.

Chapter 13
A Chapter 13 bankruptcy allows individuals with regular income to reorganize their debts, which often results in a reduction of the total amount of debt that must be repaid to creditors. Individuals and sole proprietors qualify for Chapter 13 (not corporations or partnerships), provided that unsecured debts total $360,475 or less and secured debts total $1,081,400 or less.

To initiate a Chapter 13, a petition and other documents regarding the debtor's financial affairs are filed with the court. The debtor creates and files a three to five year proposed monthly repayment plan within 14 days of filing the petition. The monthly payment is determined based on what the debtor can afford to pay. If the plan is confirmed (accepted), the debtor will make fixed monthly payments to the bankruptcy trustee (person assigned to administer your bankruptcy), who will then distribute payments to creditors.

Filing a petition automatically stays (temporarily stops) creditor's from attempting to collect the debt or taking your assets. Additionally, Chapter 13 stays actions against co-debtors when the debt is a consumer debt (not business debt).

A Chapter 13 plan can help prevent foreclosure of a residence, or repossession of a vehicle, as it permits the debtor to repay the amount in arrears (delinquent) over the life of the plan. Auto loans can be reduced to the fair market value of the car, and the interest rate can be lowered.

The Debtor(s) must attend The First Meeting of Creditors, which occurs about 30 days after the filing date. The Bankruptcy Trustee assigned to the case facilitates the meeting. He or she will ask the debtor(s) questions regarding the accuracy of the documents filed, including information pertaining to income, expenses, assets, and the proposed plan. Creditors are permitted to attend and ask questions, though the usually do not. The plan will usually be confirmed by stipulation if there are no objections to it

If there are objections to the plan, adjustments may need to be made and/or the judge will need to determine whether the plan is reasonable. Common objections are: the creditors would receive more if the debtor's assets were liquidated; or the debtor has additional disposable income to apply to the plan. The debtor may modify the plan any time before the plan is confirmed. The plan is also modifiable after confirmation if circumstances change.

Discharge will occur when all payments of the plan have been made, which means the debtor is no longer liable to those creditors. However, certain debts aren't dischargeable such as such as child support, guaranteed student loans, most taxes, etcetera.