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Chapter 7 bankruptcy: Questions and answers
To wipe out many debts for a fresh start.
* What debts aren't affected?
Primarily criminal fines, bills from recent luxury purchases and back-owed child support and alimony.
* Will my student loans be erased?
They'll still be owed in full, except in rare cases in which undue hardship can be proved.
* Will past-due income taxes be eliminated?
You probably won't be able to get out of paying what you owe the IRS, in full, for recent tax years. Sometimes you can get a break on older tax debts.
* Who can file?
You're generally eligible if your average monthly income is less than the state median -- currently $4,099 for a one-person household in California -- over the six months before filing. If you made more than the median, you'll have to take a means test to see whether you qualify. An online version of the test is at www.legalconsumer.com/bankruptcy/nolo.
* Will I need a lawyer?
Often not, especially if you don't have a lot of assets to turn over to creditors. You might want to hire a bankruptcy petition preparer, who'll usually charge about $200 to do the paperwork. The best way to find a good one is to get a recommendation from someone who has been through the process. The preparers are strictly prohibited by law from giving legal advice.
* What's the filing fee?
It's $299, but it can be waived.
* What happens to my possessions?
Anything you own that hasn't been exempted by law can be taken by the trustee and auctioned to raise cash for creditors. But as a practical matter, because of exemptions and the low auction value of most used items, the trustee often takes nothing.
* Can I keep my house?
A Chapter 7 filing probably won't help much if you're in serious mortgage trouble. Foreclosure proceedings are halted by a filing, but usually for only a couple of months, and missed payments aren't forgiven. The good news is that if you've built up equity in your house, California provides an exemption that makes it less likely a trustee will want to auction it off.
* Can I keep my car?
Californians can get an exemption to help save a car from auction. But if you have a luxury auto that's nearly paid off, the trustee might take it.
* Are some possessions protectedfrom auction?
Items that are partly or wholly protected include food, clothing, work tools, tax-deferred retirement accounts, animals and burial plots.
* Will I meet with the trustee?
Yes. Usually there will be just one meeting, which creditors can attend.
* How long does the bankruptcy process take?
Usually four to six months. If it's a successful filing, all but exempted debts are canceled.
* Can I file for this type of bankruptcy again?
If your filing goes all the way through, you can't file again for eight years from the original filing date.