Sacramento Bankruptcy Attorney Blog

As an El Dorado Hills bankruptcy lawyer, I have informed individuals that certain acts prior to filing bankruptcy can result in the denial of their chapter 7 discharge. The bankruptcy law focuses on debtor actions that would unfairly disadvantage creditors. I discuss a few of the areas of special concern below.

A debtor may be denied a discharge where the debtor transferred, concealed, or removed any property, within one year before the filing of a bankruptcy petition or at any time during the bankruptcy while trying to hinder creditors. An example of this prohibited act is where an El Dorado Hills debtor who has been sued transfers money from the debtor's bank accounts to the debtor's friend in an attempt to shield these assets from creditors action. This rule makes sense because filing of bankruptcy is in effect a declaration by the debtor of the debtor's insolvency. It is not equitable for the debtor to be afforded the benefits of insolvency and yet still maintain control or receive the benefits of misdirected assets.

Additionally, concealing or destroying financial records by a debtor may preclude the debtor's chapter 7 discharge. For example, a small business owner may not eliminate old profit and loss statements, payroll records, or tax documents. The reason is that the business transactions and history must be transparent and coherent so that there is a reasonable basis to qualify for bankruptcy under chapter 7.

Bankruptcy, especially chapter 7, offers debtors a chance to regain financial freedom amidst even tremendous financial distress and burdens in the form of credit cards, mortgages, and other debts. To ensure that this relief is being appropriately granted the trustee and court must have the full cooperation from the debtor. That means that the debtor needs to comply with full candor and disclosure in supplying information.

If assets have already been moved by the debtor then the court must have all of the relevant information. A debtor may not simply claim that they do not know what happened. An explanation from the debtor is necessary and the court will evaluate the sufficiency of the information.

During the case a debtor must generally comply with the trustee as the trustee administers the estate. That may require handing over estate property in a timely fashion. Where there is a court order, the debtor must normally comply with the order. Failure to comply with the trustee or court may even revoke a discharge that has already been granted in a chapter 7 case. Therefore, it behooves the debtor to pay special attention to all mail from the court or trustee in the case.

Individuals often approach a bankruptcy attorney when they feel a sudden urgency to respond to pressure from a creditor. In Sacramento that urgency comes in many forms: loss of job, a lawsuit, increasing mortgage payment, and a number of other events that can take anyone off track. When one of these events comes unexpectedly there may be little time to respond and most people don't have the cash reserves or assets to buy enough time to get back on their feet. Most creditors are unwilling to settle with desperate borrowers. Ultimately, when the options to pay a credit card or change the interest on a mortgage are insufficient to help remedy a borrowers issues, the borrower finds themselves in an tough situation. They realize that based on their current finances they are unlikely to ever get back on there feet. With that feeling, debtors lose the motivation to earn a living, accumulate assets, and strive toward retirement and a successful financial outcome.

In turn, those individuals who wish to utilize the resources under the bankruptcy code, will file bankruptcy. Chapter 7 is more common than other types of filings like chapter 11 or chapter 13 because it tends to be the least expensive means to obtain relief from creditor action. That's because a bankruptcy attorney can prepare a chapter 7 in most cases rather quickly. In the Eastern District of California, there is usually only one court appearance, and that is at a creditors meeting, also known as a 341 meeting. In addition, a discharge in a chapter 7 case frequently can be obtained within four months of filing.

Chapter 7 is known as a liquidation chapter, meaning that most debts and most assets are eliminated. However, some debts, like students loans, are not normally discharged unless there is a hardship demonstrated. Some other types of debts are not discharged under any circumstances. Most of the time though, credit card debt is discharged if the debtor qualifies for this type of filing. This result can offer great relief for someone who is on a limited income and would be strained by trying to maintain a high interest revolving account.

Many Sacramento residents ask me whether they can keep their house or car if they file chapter 7. It usually depends on whether there is debt secured by the asset, whether the individual can afford to continue to pay that monthly payment, or whether the individual has any equity in the property. For example, if one of my clients had a mortgage of $200,000 on their home and they decided that they did not want their home foreclosed and to have to surrender it, they would need to have sufficient income to make the monthly payment. What if my client's car was worth $10,000 without any debt secured by this item? If there was a sufficient exemption value remaining, my client could probably keep the car, even one of this value.

Sometimes however, an individuals monthly income is too high for chapter 7 and therefore chapter 13 or chapter 11 might be more fitting. Other times a debtor wishes to reduce the secured debt associated with certain types of eligible property and therefore chapter 7 may not be the best fit even if they qualify.

These are just a few considerations on the subject. This is not legal advice.