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Castro Law > Areas of Practice > Bankruptcy

Service Offerings

  • Consultation and Financial Review
  • Workouts and Financial Restructures
  • Chapter 7 & 13 Bankruptcies
  • Adversary Proceedings / Bankruptcy Litigation
  • Credit Repair
  • Debt Defense
  • Wage Garnishments and Levies

Frequently Asked Questions

The Bankruptcy Code provides protection for individuals and businesses from creditors. You need a qualified attorney to determine whether you qualify for bankruptcy protection and which chapter under the Code could provide you with the most protection from your creditors: allowing you to discharge the most debt while keeping the most assets.

What is the difference between the chapters?
  • Chapter 7- Liquidation of assets and discharge of debts.
    • Financial Analysis:
      • Assets
        • May be able to keep your home if little or no equity.
        • Bankruptcy trustee may sell non-exempt assets to repay creditors.
      • Liabilities
        • Unsecured debt is generally discharged.
        • Tax debt is not generally dischargable.
        • Student loans are not generally dischargable.
      • Income
        • If your income over the last 6 months is lower than the median income for other California families of the same size you may qualify for a Chapter 7, otherwise the court looks at your expenses to see if you qualify.
      • Expenses
        • The “means test” is used to examine your “disposable income” to determine your ability to repay creditors.
  • Chapter 11- Used by both individuals and small businesses. “Reorganization” allows business to remain in operation while repaying creditors.
  • Chapter 13- Debt reorganization with court-monitored repayment plan lasting 3-5 years.
    • Keep your assets.
    • Repay your creditors with your disposable income.
    • If income is below the median income, generally a 3 year plan.
    • If income is above the median income generally a 5 year plan.
    • Typically repay 100% of priority and secured claims.
How do I stop creditors from harassing me?

Once a bankruptcy petition is filed the Automatic Stay keeps creditors from proceeding with ANY collection activity including letters, calls and even foreclosure.

Can I file for bankruptcy if I have filed for bankruptcy before?

You can only file Chapter 7 once every 8 years. You must wait 6 years after filing Chapter 13.

How much does Chapter 7 cost?

Attorney fees for each case differ but usually run between $1500 to $3000, plus actual costs: Chapter 7 has a $335 filing fee plus you must pull a credit report and take 2 credit classes (approximately $100).

How long does a Chapter 7 take?

Once the Bankruptcy Petition is filed it usually takes between 4-6 months for the case to be closed and the debts to be discharged.

What assets can I keep?
  • California has 2 lists of “exempt property”. One list favors homeowners, the other list favors non-homeowners. The property you keep generally depends upon whether it falls under an exemption on one of these two lists.
  • “Reaffirmation” may allow you to keep some secured debts, such as a car, if you are current on your payments and agree to maintain your payments.
  • “Redemption” sometimes allows you to buy back certain “under secured” assets at market value, such as a car that is worth less than the total amount you owe on it.
Are all types of debt dischargable?

Generally tax debts, student loans and child support debts, among others, are not dischargeable.

What does bankruptcy do to my credit?

A bankruptcy is reported on your credit report for up to 10 years.

What if I have not filed my taxes in a long time?

You must be current on your income tax filings to file bankruptcy.

What if there are still liens on my home after bankruptcy?

A Motion can be filed with the bankruptcy court to “avoid the lien” (sometimes called “Lien Stripping”).


Secured vs. Unsecured Debt
  • Debt backed or secured by collateral to reduce the risk associated with lending. An example would be a mortgage, your house is considered collateral towards the debt. If you default on repayment, the bank seizes your house, sells it and uses the proceeds to pay back the debt.
  • A loan not backed by an underlying asset. Unsecured debt includes credit card debt, medical bills, utility bills and any other type of loan or credit that was extended without a collateral requirement. It presents a high risk for lenders since they may have to sue to get the money they’re owed if the borrower doesn’t repay the full amount owed. As a result of this high risk, unsecured debt tends to come with a high interest rate. Unsecured debt can be wiped out by bankruptcy, but taking this dramatic step makes it more difficult to obtain financing for the next 7 to 10 years.

A legal process whereby payments towards a debt owed by an individual can be paid by a third party – which holds money or property that is due to the individual – directly to the creditor. The third party in such a case is generally the individual’s employer and is known as the “garnishee”. Garnishments are typically used for debts such as unpaid taxes, monetary fines, judgments and child support payments.


The legal right of a creditor to sell the collateral property of a debtor who fails to meet the obligations of a loan contract. A lien exists, for example, when an individual takes out an automobile loan. The lien holder is the bank that grants the loan, and the lien is released when the loan is paid in full. Another type of lien is a mechanic’s lien, which can be attached to real property if the property owner fails to pay a contractor for services rendered. If the debtor never pays, the property can be auctioned off to pay the lien holder.

Consumer Protection Laws
  • Major Federal Consumer Protection Laws
    • The major federal laws that govern financial institutions and protect individuals in their financial dealings are:
      • Truth in Lending Act requires a lender to tell you how much it will cost to borrow money so that you can compare the terms of credit offered by different lenders.
      • Fair Credit and Charge Card Disclosure Act requires a lender offering you a credit card to tell you the annual percentage rate (APR), the amount of any annual fee, and whether you have a grace period to pay your bill before a finance charge is added.
      • Fair Credit Reporting Act controls how your credit history (the record of how you pay your bills) is kept by credit bureaus and used by lenders.
      • Equal Credit Opportunity Act prohibits lenders from discriminating against you in a credit transaction on the basis of certain personal characteristics such as race, color, religion, national origin, sex, marital status, age, because you receive public assistance or because you’ve exercised your rights under the Consumer Credit Protection Act.
      • Fair Debt Collection Practices Act lays out the rules a debt collector must follow when trying to collect a debt from a consumer.
      • Home Equity Loan Consumer Protection Act requires a lender to give you complete information about the home equity loan plan it offers—first when you receive an application and again before you first use the line of credit.
      • The Home Ownership and Equity Protection Act requires disclosures and imposes substantive limitations on mortgage transactions having rates or fees above a certain percentage or amount. It also requires disclosures about the potential costs for reverse mortgages.
      • Fair Housing Act prohibits lenders from discriminating against you in real estate mortgage or home improvement loans on the basis of race, color, religion, national origin, sex, familial status, or handicap.
      • Real Estate Settlement Procedures Act states that lenders must give purchasers information about the costs required to close a mortgage loan. It also protects consumers from unnecessarily high real estate settlement costs by prohibiting certain business practices. This applies when you take out or refinance a loan secured by real estate such as a mortgage loan or a home equity loan.
      • Fair Credit Billing Act requires that a lender promptly correct a mistake on your credit card bill.
      • Expedited Funds Availability Act limits how long a bank may delay your use of the funds you deposit in an account.
      • Truth in Savings Act requires lenders to disclose the terms of their deposit accounts in a uniform way.
      • Electronic Fund Transfer Act limits an individual’s liability if their ATM card is lost or stolen and requires investigation and correction of errors made to your account.
  • California Department of Business Oversight website: dbo.ca.gov

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