How to Rebuild Credit After Bankruptcy

Bankruptcy is often a last resort for an individual struggling with keeping current on rent payments. This does not mean that bankruptcy is the end of a person’s financial life. Quite the opposite; it is a new beginning. It takes 7 to 10 years for a bankruptcy to be erased from a person’s credit report. In the meantime, it is important to take steps to rebuild credit.

The most important thing that a consumer can do to improve his or her credit is to practice responsible spending habits. Maintaining a budget and making sure that all monthly payments are made on time is crucial to re-establishing credit worthiness. It takes 7 years for a delinquent payment reported to a credit agency to be removed from a credit report, so it takes consistent payments over that long period of time to clear a credit report of all delinquencies. People should invest in saving after their bankruptcy to avoid falling into dire straits again in the future.

It is also important to check your credit report for any problems or mistakes. If a debt had been discharged and it still appears on your credit report as delinquent, it may be a violation of the Fair Credit Reporting Act. Errors or mistakes can damage your credit even further and should be disputed. Credit reports are available annually for free from each of the credit reporting agencies, TransUnion, Experian, and Equifax.

In order to re-establish credit after a bankruptcy, a consumer might need to apply for a secured credit card. This credit card requires a deposit of money with a bank as a guarantee of payment. Usually, this security collects interest. It also helps to open a new checking or savings account. After a few months of responsible spending, applications for credit cards may come in. Obtaining a second credit card will improve a consumer’s credit rating, but it is important to pick a card that will not tempt the holder to splurge unnecessarily. A gas card can help an individual repair his or her credit while effectively preventing bad shopping habits common with other cards. The balances on the cards should be paid off in full every month and the cards should not be closed. Together, payment history and total amount owed against available credit make up 65 percent of an individual’s credit score.

If you have filed for, or are considering bankruptcy, the bankruptcy attorneys at Schneiders & Associates can help. Contact our office today to schedule your appointment. 

By: William E. Winfield, Esq.

Bankruptcy & Your Small Business

Financial hardship is difficult for any individual but for business owners, it can be particularly stressful as the line between personal and business finances may become blurred.  You may have racked up a lot of personal credit card debt and may be considering filing for personal bankruptcy, but you are concerned about how bankruptcy will affect your small business. Or, your business could be struggling and you may wonder how a business bankruptcy will impact your personal finances.

First, you need to know about the three most common types of bankruptcy: Chapter 7, Chapter 11 and Chapter 13. Under a Chapter 7 bankruptcy, which is a liquidation, assets are used to pay debts, and any remaining debts are “wiped out”.  A Chapter 7 filing can be utilized for both individuals and businesses. A Chapter 11 or 13, which are also available for individuals and businesses, commonly referred to as reorganization, allows debtors with a regular income to set up a new timetable for paying off creditors, while keeping their assets.

The second thing to consider is how your business is set up. If you are a sole proprietorship, and are simply operating the business in your own name, then there is no way to separate your personal assets and liabilities from those of your business. Therefore, any business assets (in excess of the exemption you are allowed) could be surrendered as a part of the bankruptcy. Also, any receivables of the business or other potentially valuable business property could be claimed by creditors in a bankruptcy.

If your business is operated under a separate entity, such as an LLC (limited liability company), an LLP (limited liability partnership), or a corporation, the shares of your business that you own are assets. If partners are involved in the business, the bankruptcy trustee who represents the interest of the creditors could become a de facto substitute partner and force a liquidation of the business.

If your business is struggling, but you are personally doing fine financially, you may consider a business bankruptcy. If you aren’t interested in keeping your business open, you may consider filing a Chapter 7, which will simply liquidate the business. A Chapter 7 is probably best if the business is not going anywhere, does not have significant assets, or if the debts are so completely overwhelming that it’s not possible to restructure them. Keep in mind that vendors and other creditors may have obtained a personal guarantee from you, in which case, you may be personally on the hook for your business’s liabilities, even if you do file bankruptcy for your company.  Personal guarantee clauses are common on many credit applications and commercial leases.

If your business is fundamentally sound, but because of excessive debt, bad contracts, or other unfortunate circumstances faces significant liquidity issues, a Chapter 11 may be appropriate.  A corporate reorganization can be complex and requires a significant time investment from the owners and managers who have to work with creditors and attorneys. It can also be expensive. Unfortunately, most reorganizations ultimately fail.

If you are considering business or personal bankruptcy, it’s important to carefully assess your individual circumstance. Consult with a bankruptcy attorney at Schneiders & Associates, L.L.P. who can advise you of all your options and help you navigate the process.

By: William E. Winfield, Esq.

What is Pre-bankruptcy Credit Counseling?

By: William E. Winfield, Esq.

Today, individuals who are seeking relief under Chapter 7 or Chapter 13 of the Bankruptcy Code are required to complete credit counseling with an agency approved by the U.S. Trustee’s office. The purpose of pre-bankruptcy credit counseling is to determine if the debtor qualifies for bankruptcy or whether an informal payment plan is a better option.

In any event, credit counseling is necessary even if a payment plan is not feasible. Moreover, counseling must be completed within the 180-day period before the bankruptcy filing. Also, a certification of completion must be filed with the bankruptcy court within 15 days of the filing date. If the required course is not completed the bankruptcy petition will be dismissed.

The fact that participation in credit counseling is mandatory does that mean the debtor must agree with the counselor’s recommendations, which are based on an assessment of the debtor’s financial situation. In addition to informal payment plan, a credit counselor can also recommend a formal repayment plan under Chapter 13. This plan must be filed along with the other bankruptcy documents. On the other hand, the counselor may find that a Chapter 7 filing is the only option. Ultimately, the courts are inclined to agree with the agency’s recommendations.

It is important to note that this is not the only counseling bankruptcy filers must agree to. If the bankruptcy petition is approved, it is also necessary to complete an approved course on consumer debt, before the debts are discharged. The goal of this course is to educate debtors about finances, including matters such as how to develop a budget, manage money, and use credit responsibly.

In the end, the decision to file for bankruptcy is difficult and one that requires serious consideration. While filing for personal bankruptcy can help a distressed debtor make a fresh start or work out a payment plan, bankruptcy can cause long lasting damage to his or her credit worthiness. Regardless, it is best to speak to an experienced bankruptcy attorney at Schneiders & Associates, L.L.P. who can help explore all the options.


The Pitfalls of Hiring a Bankruptcy Petition Preparer

By: William Winfield, Esq. 

It might sound counter-intuitive, but filing for personal bankruptcy is expensive. Besides paying attorney fees, a debtor must also pay the court costs associated with filing the bankruptcy petition and accompanying documents. Then there are the expenses associated with attending the mandatory pre- and post-filing consumer credit courses. So when presented with the opportunity to save a few bucks by hiring a bankruptcy petition preparer (BPP) to draft your bankruptcy petition and other required documents, you might wonder why you would pay an attorney to do the “same job”.

There are, in fact, several good reasons to retain an attorney to prepare your bankruptcy paperwork rather than hiring a BPP to do so. Or, presented another way, there are many potential pitfalls of hiring a BPP to do the job.

When Congress enacted broad amendments to the U.S. Bankruptcy Code in 2005, it also added new sections. Among them is Section 110, which established guidelines of required ethical behavior for BPPs and penalties for those who negligently or fraudulently prepare bankruptcy petitions. Under the Code, a BPP is a person other than an attorney or someone who works directly for a supervising lawyer, who prepares, for compensation, bankruptcy paperwork intended to be filed in a United States bankruptcy court.

One of the major drawbacks of hiring a BPP rather than a licensed bankruptcy attorney is that the BPP is prohibited from offering legal advice.  This means, for example, that if you have a question about how a specific aspect of the bankruptcy code might impact your case, only the lawyer is permitted to answer. The BPP is not.

Another pitfall to hiring a BPP is that they cannot even advise you which chapter of bankruptcy might best resolve your financial situation. That information is also considered legal advice, so only a lawyer can give you those directions.

Would you like to go to bankruptcy court with a lawyer or by yourself? If you hire a BPP, it’s likely you’ll be there alone because BPPs are not permitted to represent clients in court, although lawyers are. You might have read every book about filing personal bankruptcy before you hired a BPP to prepare your petition and other accompanying documents, but it’s not likely you or your BPP will know and adhere to the Local Rules in effect in your jurisdiction. Just what are Local Rules? They are guidelines established by each bankruptcy court that govern matters such as when a debtor’s paycheck stubs must be filed with the Court.

While hiring a bankruptcy petition preparer might save you money in the short term, it won’t offer you the opportunity to make the best possible decision nor the peace of mind that you will get from retaining a qualified, knowledgeable bankruptcy professional.  If you have questions or concerns about filing bankruptcy, or even to determine if bankruptcy is the right choice for you, please feel free to contact the bankruptcy attorney at Schneiders & Associates, L.L.P., who is a Board Certified Specialist in Bankruptcy Law.  Our bankruptcy attorney can guide you through the process and, in addition, discuss viable alternatives to filing for bankruptcy.

If I’m planning on filing bankruptcy, can I take on more debt?

It seems like a perfect plan. If a consumer is about to declare bankruptcy to discharge all or most of his or her debts, why wouldn’t that consumer try to increase his or her credit card debt as much as possible to maximize the benefit granted by bankruptcy protection? The answer is simple.  It won’t work.

Generally speaking, credit card debts are dischargeable in bankruptcy. However, a bankruptcy trustee examines a consumers spending in the months leading up to a bankruptcy petition. If excessive amounts are charged to a credit card prior to the claim being filed, the credit card company may file an adverse proceeding challenging the bankruptcy petition and preventing the debt from being discharged. If luxury items were purchased, or items not necessary for the support and maintenance of the debtor, those charges might not be discharged. Examples of items that might be considered luxury purchases by the court include vacations, expensive clothing or cosmetics, additional vehicles, household furnishings, jewelry, artwork, magazine subscriptions, cameras, and computers. Any charge of more than $650.00 will set off red flags, both with the bankruptcy trustee and the creditor.

If cash advances were taken out in the months immediately preceding the petition, the creditor may sue the consumer for fraud. If the cash advance is for more than $925.00, there is a presumption that the debt is not dischargeable.  If a consumer makes payments on the debt prior to declaring bankruptcy, it can help to demonstrate that he or she had intended to repay the debt. Showing that an unexpected life event occurred making the bankruptcy unavoidable can also help a creditor to prove that he or she had no intention to defraud creditors.

If a consumer makes expensive purchases immediately before declaring bankruptcy, it is counter-productive. The debts will not be discharged, meaning that the consumer will still be in debt, even after having completed all the requirements of the Bankruptcy Court. The goods and services purchased will not be worth the debt that remains after the bankruptcy is completed effectively ruining the consumer’s credit without a benefit. The entire Bankruptcy Petition might be dismissed for the attempted fraud. Participating in suspicious spending that might provoke a challenge from a creditor is a bad idea. As inviting as it might seem to load up on debt before seeking a discharge, the system is designed to prevent consumers from doing so.

If you find yourself burdened with debt that cannot be paid, you should consult a bankruptcy attorney at Scheiders & Associates, LLP promptly to discuss your best options.

Common Reasons Why a Bankruptcy Petition might be Dismissed

By William Winfield, Esq.

1. Bankruptcy Fraud:
It cannot be overstated how important it is to tell the truth and accurately disclose all income assets, debts, and other required information when preparing a Bankruptcy Petition. If a Court finds that a Petitioner committed a willful fraud, the Petition will likely be dismissed. In California, the Court may also impose criminal penalties including fines and incarceration.

2. Failing the Means Test:
In order to be granted a discharge under Chapter 7 Bankruptcy protection a Petitioner’s disposable income must be low enough to pass the means test. The Court compares the Petitioner’s average income for the six month period before filing and compares it to the state median for a similar household. If the Petitioner’s income is below the median, than he or she qualifies automatically. However, if the Petitioner makes more than half median income, the Court must examine the Petitioner’s expenses to determine whether he or she qualifies for a discharge. If the means test is failed, the Trustee will likely offer the Petitioner the opportunity to convert the Bankruptcy to a Chapter 13 reorganization instead of a discharge before dismissing the Petition altogether.

3. Failure to Complete Mandatory Credit Counseling Courses:
Every Bankruptcy Petitioner is required to complete two credit counseling courses as a part of the Bankruptcy proceeding. The course can be completed online or over the phone. After the course is taken, a certificate proving it was completed must be filed with the Court.  If a Petitioner is not in compliance with this procedure, the case will be dismissed by the Trustee.

4. Not Paying Filing Fees:
If a Petitioner is indigent, he or she may apply for a waiver of Court fees, but unless a waiver is granted, a case will be dismissed for failure to pay filing fees. You may apply for a waiver of your court fees. The court will take into account your income and expenses when granting or denying your waiver. Unless you receive a waiver, the court will dismiss your case if you fail to pay the required filing fees.

5. Improperly Completing Forms or Failure to Submit all Required Documents:
It is important to take time and ensure that all paperwork filed with the Court is completed properly. If any financial disclosures, forms, schedules, or other documents required by the court are improperly completed or omitted, or if any information is missing, a bankruptcy court might dismiss the Petition.  If the trustee requests pay stubs, tax returns, or other documents to verify the information in the Petition, it would behoove the petitioner to get that documentation to the Trustee as quickly as possible.

6. Not Attending the Meeting of Creditors:
Early on in the Bankruptcy process, the Trustee holds a meeting of creditors to allow a Petitioner’s creditors to appear and ask questions under oath about the papers submitted. This process usually lasts only a few minutes and creditors rarely appear, but if a Petitioner fails to appear, the Trustee will likely dismiss his or her claim.

7. Failing to Make Chapter 13 Plan Payments:
Reorganization plans under Chapter 13 of the Bankruptcy code are designed to allow Petitioners some breathing room to pay off their debts with more reasonable monthly payments. However, the Petitioner must act in good faith when preparing a repayment plan and afterwards, by actually making the payments. If the payments are not made without a good reason, the Bankruptcy will be dismissed.

If you find yourself burdened with debt that cannot be repaid, you should consult a bankruptcy attorney at Schneiders & Associates, LLP promptly to discuss your best options. The bankruptcy attorneys at Schneiders & Associates, LLP are experienced at guiding clients through the bankruptcy process to help avoid your petition being dismissed.

What You Need to Know About Bankruptcy

By: William Winfield, Esq.

Bankruptcy is designed to protect individuals, small businesses, and corporations from being overwhelmed by debt.  The process involves reorganization and restructuring of debt so that a significant portion of it is discharged or “forgiven”, and the remainder is repaid at a lower rate. Bankruptcy is designed to enable an individual or company to continue to function and prevent ongoing harassment from creditors. The two basic types of bankruptcy are liquidation and reorganization.

Discharge in Bankruptcy

There are several types of discharge in bankruptcy, but not all debts are able to be discharged.  A secured creditor may enforce a lien to recover property secured by a particular loan, such as an automobile or a house. If the debtor wants to retain such property, payments must be paid to these creditors. Also, while many debts can be discharged, and the debtor who declares bankruptcy can be protected from harassment by most creditors, there are other debts that are deemed to be non-dis-chargeable, including,taxes, penalties, fines, student loans, child support and alimony payments.

Types of Bankruptcy

The various types of bankruptcy are named for the chapters of the U.S. Bankruptcy Code in which they are defined. The two most common forms of bankruptcy filed in the U.S. are Chapter 7 and Chapter 13, and bankruptcies under these chapters are typically filed by individuals or couples. On the other hand, a Chapter 11 bankruptcy is usually filed by businesses.

Chapter 7 bankruptcy is also referred to as liquidation because under this process the bankruptcy trustee takes charge of, and sells, some of debtor’s property to pay back a portion of the accumulated debt.  Chapter 7 bankruptcy is designed to relieve the debtor of unsecured debts, such as credit card and medical bills. In order to qualify for Chapter 7 bankruptcy, however, the debtor must have little or no disposable income. This means that if you earn too much money, you cannot apply for this type of protection.  Chapter 7 bankruptcy, therefore, is usually helpful to low income debtors with few assets, and typically discharges debts within 3 to 5 months.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, unlike Chapter 7, is a form of reorganization of debt. This filing is designed to assist debtors with regular income who can repay at least some portion of their debts through a structured repayment plan. While many debtors, because of their elevated income or asset level, find it necessary to file Chapter 13, there are also other advantages such as the ability to catch up on delinquent mortgage payments. Debtors who file for Chapter 13 are permitted to keep all of their assets as long as they make structured payments to pay off their non-dis-chargeable debts.  Chapter 13 bankruptcy plans are usually completed within a period of 3 to 5 years.

Although the vast majority of debtors seeking individual relief from debt file for Chapter 7 or Chapter 13, there are a number of other types of filings used for various purposes. The most common of these is Chapter 11 bankruptcy.

Chapter 11 Bankruptcy is another type of bankruptcy reorganization available to individuals, corporations and partnerships. Where Chapter 13 bankruptcy limits the amount of debt that can discharged, chapter 11 does not. Therefore, Chapter 13 is typically used by businesses undergoing financial struggles and looking to reorganize. Because it is fairly cumbersome for individuals — being both expensive and time-consuming — Chapter 11 is generally only used by individuals with debt levels too high for Chapter 13 filing, or by individuals with extraordinarily high assets or complicated finances.

There are a number of other chapters of bankruptcy, such as those applying to family farms or fisheries or designed to relieve municipalities or school districts of overwhelming debt, which can also be deliberated with you by the board certified bankruptcy attorneys at Schneiders & Associates, LLP. If you find yourself burdened with debt that cannot be repaid, you should consult a bankruptcy attorney at Schneiders & Associates, LLP promptly to discuss your best options.

Five Assets That Won’t Be Taken by the Bankruptcy Court

By: William Winfield, Esq.

When a person files for bankruptcy protection, his or her assets must be collected by the bankruptcy trustee and liquidated to reimburse debtors before the petitioner’s debts can be discharged. In order to keep bankruptcy petitioners from falling below the poverty line, there are certain assets that can be retained as exempt. This is not an exhaustive list, but covers the most commonly used federal bankruptcy exemptions.

1. Homestead exemption: If a bankruptcy petitioner owns a home, he or she may protect equity in the home. The amount of this exemption in California can range from $22,975.00 to $175,000.00 worth of equity in the home. The amount of the exemption depends on a number of factors including whether a family member lives in the home, age of the home owner, whether the owner is disabled etc., and whether the Debtor is filing using Federal or State exemptions. This issue needs to be carefully considered with legal counsel.  If a Debtor owns no home or has no equity, the Debtor can claim a miscellaneous exemption of up to $22,975.00 which will be allocated to other property of the Debtor.

2. Vehicle exemption: Throughout much of the country, it is difficult to work or earn money without an automobile. Federal law allows a person to keep his or her automobile with a value up to $3,675.00. If the car is worth more than the amount allowed by the exemption, an individual may seek additional funds from other exemptions to keep the asset. Alternatively, the vehicle will be sold and the exemption amount given to the petitioner.

3. Personal property exemptions: These include $1,550.00 for jewelry, $2,300.00 for specialized tools and educational materials related to employment, and $12,250.00 for household goods, appliances, furnishings, clothing, etc.

4. Personal Injury exemption: The proceeds of a personal injury award may be held as exempt up to $22,975.00.

5. Wildcard exemption: A person is permitted to exempt as much as $1,225.00 for any other property he or she wants to keep after the bankruptcy above the other exemptions. This can be applied to increase the amount permissible to another exemption, most commonly the vehicle exemption. If the petitioner so chooses, he or she may opt to use the exemption on liquid assets, leaving the petitioner with more cash on hand after the bankruptcy is complete.

There are a number of other exemptions which may apply. Since situation is different, it is highly advisable to consult with legal counsel before filing bankruptcy. States may make other exemptions available or use different values than the federal exemptions. If you have questions about bankruptcy, contact experienced bankruptcy attorney, William Winfield at

What Happens to My Car When I File Chapter 7?


 If an individual filing for Chapter 7 bankruptcy owns an automobile, that vehicle may become the property of the bankruptcy estate used for the purpose of making creditors whole. If the car has a lean on it from the lending institution, the loan must be reaffirmed or redeemed, or the vehicle must be surrendered.  If the loan is reaffirmed, the individual who took out the loan must sign a contract agreeing to continue making payments to the lender. The car loan will be unaffected by the bankruptcy, and the debt will not be discharged. An individual in bankruptcy may use the opportunity to renegotiate the terms of the loan for his or her benefit, though the new agreement must be approved by the bankruptcy court. 

When an individual chooses to satisfy a car loan through redemption, that person must work with the lender to determine the current value of the automobile. The individual must pay the lender that amount, thereby settling the debt for less than its full value. If a person is not able to meet either of these sets of conditions, the car must be surrendered to the bankruptcy estate and the debt associated with it will be discharged. The creditor cannot take the car until after the bankruptcy is completed unless it files a motion with the court to repossess the vehicle earlier.

If there is no loan on the car, a bankruptcy petitioner still has options available. Both federal and state rules allow individuals to exempt personal possessions and motor vehicles up to a maximum value from the bankruptcy estate. If a bankruptcy petitioner is able to declare the entire value off the car as exempt or if the non-exempt value is negligible, the bankruptcy trustee will allow the petitioner to keep the car. If an automobile in bankruptcy is worth significantly more than the amount allowed by the exemption, the petitioner may pay the trustee the balance between the value of the car and the exempt portion. Alternatively, the petitioner may surrender the automobile to the bankruptcy trustee who will sell it and return the exempt portion to the petitioner. In any case, the petitioner has the right to decide what should happen to his or her car.

There are a number of legal factors to consider when filing bankruptcy, each with its own legal consequences. An experienced bankruptcy attorney at Schneiders & Associates, LLP can help. Please contact us to discuss what is right for you.

When Disfavored Businesses Go To Pot

By William E. Winfield, Esq.

When Disfavored Businesses Go To Pot

Marijuana dispensaries are legal businesses under California law, but the distribution of marijuana is a Federal offense. As a result a Marijuana distribution business is not eligible for Federal Bankruptcy Relief.

This issue came up in Colorado recently where Frank Arenas operates a marijuana wholesale business. Mr. Arenas and his wife sought personal bankruptcy relief under Chapter 7 but the case was dismissed because individuals involved in criminal occupations are not allowed to seek relief under the Bankruptcy Code.  A Bankruptcy Appellate Panel  authored an opinion in which the trio of Bankruptcy Judges sustained the dismissal with these words:  ”possessing , growing and dispensing of marijuana and assisting others to do that are federal offenses … Can a debtor in the marijuana business obtain relief in the federal bankruptcy court? No.”

The Tenth Circuit Court of Appeals has granted a stay pending appeal. This marks the first time this issue has been considered at such a high judicial level.

Unless Congress takes the unlikely step of changing Federal marijuana laws, this bodes to be an interesting discussion with potential ripple effects on Counties like Ventura which restrict Marijuana distribution because it still constitutes a Federal Crime.

This issue has caught the attention of scholars and pundits who have scheduled programs on this topic and related issues at upcoming seminars throughout the country. (E.g. an American Bankruptcy Institute Meeting in December 2015 features this topic – “Selling Unusual Assets in Bankruptcy and Their Tax Aspects (Pot, Porn and Puppies)”.)

In the meantime, operators of legal Pot businesses have fewer options for insolvency relief. 

William E. Winfield is an attorney at Schneiders & Associates, L.L.P. He has been practicing in creditors’ rights and debtors remedies for 30 years and is board certified in Business Bankruptcy by the American Board of Certification.  He is also available for appointment as a Receiver.