In general, debtors are not asked the circumstances that caused their bankruptcy.  You must provide your income, expenses and assets.  In general the fact that your financial problems are caused by job loss, divorce, medical bills, or just plain bad financial choices makes no difference.  In order to qualify for a chapter 7 bankruptcy discharge, you must have acted honestly with your creditors, and cannot pay your debt based upon your current income (and average income over the 6 months prior to filing).  In a very small percentage of bankruptcy cases, when a creditor or the Office of the U.S. Trustees alleges that you have engaged in fraud, bad faith, intentional misstatements or other abuses of bankruptcy system, you must explain your actions and financial condition. 

 

 

In most bankrutcy filings, the debtors are allowed to keep all their property.  Bankruptcy law provides exemption statutes that allow you to protect your property from your creditors.  In California, the state has adopted two exemption schemes for your use (CCP sections 703 and 704).  Your attorney is best positioned to give you advice on which bankruptcy chapter to file, and which exemption scheme will best protect your property.  During a free bankruptcy law consultation, I will tell you specifically how these exemption schemes apply to you.  Even if your assets exceed the amount you are allowed to protect under California's exemption statutes, you may be able to file a chapter 13 bankruptcy and pay a small amount such as 2% to keep your home, cars & other property.   

 

 

A common technique used to protect property from a lien, sherriff's sale, or other creditor's reaches is to transfer the property to a relative.  First, under California law, this is called a fraudulent convenyance.  You cannot legally transfer your property to a relative to keep your creditors from collecting on it.  This technique is not very good for a number of reasons.  First, if the property you are transferring is a home, unless you get title insurance and do the transfer through a title company, if you ever attempt to sale or refinance your property, it will not work.  In order to get title insurance, virtually all title companies are requiring that all liens filed after the time of the last insured sale or refinance of your property be paid.  The title insurance companies are not willing to insure your title against "quit claim deeds" or other other transfers that may have been done to keep your creditors from collecting it.  Therefore, your transfer or quit claim deed did nothing more than delay the inevitable plus you will have a pay all the interest that accumulated on your debt.  In 10 years, judgment debts double.  Second, creditors can avoid the transfer by filing a Fraudulent Conveyance Action against the party you transferred the property.  Therefore, your relative or friend would now be in a lawsuit, they have no chance of winning, and may be liable for the additional attorney's fees to back out such a transfer.  Third, a creditor may alway garnish your wages.  Thus, transferring your property to a relative does little more than expose your relative to a lawsuit, and most likely just delays the inevitable collection of the lawsuit.   

 

 

A transfer of your home, car or other property up to two years before filing bankruptcy clearly serves no purpose, and may actually make your bankruptcy case worse.  Under the current law, the bankruptcy trustee can avoid transfers of real estate property made up to ten years before your bankruptcy filing if the purpose of the transfer was to frustrate or prevent your creditors from collecting on a judgment or other debt. 

 

A transfer of property for less than its fair market value is called a "preference" under bankruptcy law.  A bankrutpcy trustee can avoid the transfer by filing a lawsuit in the bankruptcy court called an adversary proceeding.  In general, if you are not able to prove the transfer was a fair transaction, such as what would have been paid or done if an unrelated third party had purchased the property, the transaction will be undone.  This means your relative or third party would be sued in the bankruptcy court and the court could take the property out of their name.  The unfortunate result is that you may lose your right to claim your bankruptcy exemptions, even if you would have been able to exempt the property if it had not been transferred.  If you have transferred assets, an experienced bankruptcy attorney can help you minimize the effects or even correct the mistake prior to filing bankruptcy.   

 

 

If you hire an attorney to represent you in your bankruptcy, you will generally not have to go to bankrutpcy court.  All debtors are required to attend a creditors' meeting.  The name of this meeting is kind of misleading because generally creditors did not attend and are not considered to have waived any rights by not attending.  A creditors' meeting is a meeting where you (and your attorney, if you hired one) appear in front of the bankruptcy trustee to answer any questions about your bankruptcy petition, your financial condition, and your actions.  There are generally about 10 bankruptcy creditors' meetings scheduled per hour.  So the amount of time alloted for each case is just a few minutes.  At the top of each hour, the bankruptcy trustee will generally spend a few minutes telling the debtors some procedural information.  Most bankruptcy attorneys will provide you with a list of typical questions asked in thier area.  Therefore, there should be little suprise about how the meeting will go, and what questions may be asked.  The only time that a court appearance is required is in the few cases in which Office of the U.S. Trustees or your creditors allege bad faith, fraud, or other actions that are abuses of the bankruptcy law.  Thus, if you hire an attorney, I believe that 99% of debtors do not have to attend any court appearances.  You are always allowed to come and observe the proceedings as bankruptcy court are public forums.  You should understand that because most bankruptcy attorneys will have many cases on the court's calendar that day, they will not have time to meet with you about your case on that day.  If you have matters to discuss about your bankruptcy case, you should call your attorney to discuss these matters at a different time.    

 

 

Most studies cite unemployment or income loss, medical problems, and divorce or a combination of the three as most common reasons for someone filing bankruptcy.  You can read a recent study by clicking the following link.  Illness and Injury Contributes to Bankruptcy Filings.