Frequently Asked Questions

The 3 Biggest Bankruptcy Myths

1. Will I lose my home if I file bankruptcy?

Usually, no. Filing bankruptcy does not automatically mean you will lose your home. In fact, for many homeowners, protecting or saving the home is one of the main reasons they file bankruptcy in the first place.

The answer depends on several things, including how much equity you have, what you owe on the property, whether you are current on the mortgage, the exemptions available to protect your equity, and whether you file Chapter 7 or Chapter 13.

In a Chapter 7 case, the key issue is generally whether your equity can be protected. Chapter 13 can provide additional options and is frequently used by homeowners who are behind on their mortgage because it may allow them to stop a foreclosure and catch up on missed payments over time.

The important point is that you should not assume bankruptcy will cause you to lose your home. In many cases, bankruptcy is actually the tool used to protect it. That is why protecting the home is one of the first things we analyze before deciding whether bankruptcy makes sense.

2. Will bankruptcy ruin my credit?

Bankruptcy will usually cause an initial hit to your credit. But that is only part of the story.

Many people considering bankruptcy already have damaged credit because of high balances, late payments, collections, charge-offs, or lawsuits. Once the bankruptcy is filed, those financial problems are no longer continuing in the same way, and the process of rebuilding credit can begin.

What often surprises clients is how quickly that rebuilding can happen. It is not unusual for clients to see their credit begin improving within months after filing. For some people, rebuilding after bankruptcy can be much faster than trying to recover while continuing to carry debt they cannot realistically pay. In some situations, bankruptcy can put someone years ahead of where they might have been if they had simply continued struggling with the debt.

There is no guarantee that your credit score will improve, how quickly it will improve, or what credit will be available to you after bankruptcy. But bankruptcy does not mean your credit is ruined forever.

For many people, the better question is not simply, “What will bankruptcy do to my credit?” but, “How long will it take me to rebuild if I file bankruptcy compared with trying to work my way out of the debt without it?”

3. Do I make too much money to file bankruptcy?

Probably not simply because of your income. There is no single income level where someone automatically becomes ineligible for bankruptcy.

One of the biggest misconceptions about Chapter 7 is that you cannot qualify if your income is above the median. That is not necessarily true. Even if your income is above the California median income for your household size, you may still qualify for Chapter 7.

Being above the median generally means that we need to take a closer look at your income, expenses, household circumstances, and the types of debt you have. The Chapter 7 means test—the income-and-expense calculation used in determining Chapter 7 eligibility—includes additional calculations and deductions, so being above the California median is not the end of the analysis.

And if Chapter 7 is not the right option, Chapter 13 may still provide substantial relief by allowing you to reorganize debt, protect property, catch up on missed payments, or address other financial problems.

Do not assume you make too much money for bankruptcy. Some people with relatively high incomes still qualify for Chapter 7, and others may have very good Chapter 13 options. The complete financial picture matters much more than simply comparing your income to one number.

Other Common Bankruptcy Questions

4. How do I know if bankruptcy is right for me?

Bankruptcy is not automatically the right answer just because you have debt.

The real question is whether bankruptcy puts you in a meaningfully better financial position than the alternatives. That depends on things like your income, monthly expenses, the amount and type of debt you have, whether you own a home or business, whether you are facing a lawsuit, garnishment, foreclosure, or repossession, and what you are trying to accomplish.

Sometimes Chapter 7 is the best solution. Sometimes Chapter 13 makes more sense. And sometimes the better answer is not to file bankruptcy at all.

The goal is not simply to file a case. The goal is to understand your options and choose the one that gives you the best practical path forward.

5. How do I know which type of bankruptcy I should file?

For most individuals, the main options are Chapter 7 and Chapter 13.

Chapter 7 is generally the faster process and is often used to eliminate unsecured debts such as credit cards, personal loans, and medical bills. But whether Chapter 7 is appropriate depends on your income, assets, debts, and other financial circumstances.

Chapter 13 is a repayment plan that usually lasts three to five years. It can be especially useful if you are behind on a mortgage or vehicle, need time to catch up on payments, have property you need to protect, or have debts that require a more structured solution.

One chapter is not automatically better than the other. The right choice depends on what you own, what you owe, your income, and most importantly, what you are trying to accomplish.

6. If I’m married, does my spouse have to file bankruptcy too?

No. Married couples are not automatically required to file bankruptcy together.

Sometimes it makes sense for both spouses to file, especially when most of the debts are joint. In other situations, only one spouse may need to file.

Even if only one spouse files, however, the non-filing spouse’s income, jointly owned property, joint debts, and California community property rules can still affect the bankruptcy analysis.

The right approach depends on whose name is on the debts, how property is owned, each spouse’s income, and what you are trying to accomplish. Before filing, we look at the household as a whole and determine whether one spouse or both spouses should file.

7. Should I try debt consolidation instead of bankruptcy?

In my experience, bankruptcy is often a more reliable and comprehensive solution than debt settlement or many so-called debt consolidation programs.

Many clients come to me after first trying a debt relief program. They may have paid thousands of dollars into the program, only to find that some debts were never settled or that only a few creditors agreed to participate. In many of these programs, clients are advised to stop making payments to their creditors while money accumulates for future settlements. During that time, interest and fees may continue to grow, credit can deteriorate, and creditors remain free to file a lawsuit against you.

That creates a major weakness: the entire plan may depend on each creditor voluntarily agreeing to a settlement. It can take only one creditor filing a lawsuit and obtaining a wage garnishment or bank levy to make the proposed payment plan unworkable.

Bankruptcy works very differently. It is a legal process governed by federal law. Eligible debts are dealt with through the bankruptcy case, and creditors generally do not get to decide individually whether they want to participate. The automatic stay—the legal protection that stops most collection activity—usually takes effect immediately, and a discharge—the elimination of qualifying debts—can permanently relieve you of those debts.

Bankruptcy is not the right answer for everyone, and a true consolidation loan at a reasonable interest rate can sometimes make sense. But when someone has substantial debt and needs a comprehensive solution, bankruptcy is often far more powerful and predictable than trying to negotiate separately with multiple creditors.

8. Will bankruptcy stop the collection calls and letters?

Usually, yes.

When a bankruptcy case is filed, the automatic stay generally takes effect immediately. The automatic stay is a federal law that stops most creditors from continuing collection activity against you.

That usually means collection calls, collection letters, lawsuits, garnishments, levies, and other collection efforts must stop.

There are exceptions, and certain creditors or types of debts may be treated differently, but for many clients one of the first noticeable benefits of filing bankruptcy is that the collection pressure stops.

9. Can bankruptcy stop a lawsuit, wage garnishment, foreclosure, or repossession?

In many cases, yes—but timing can be critical.

Filing bankruptcy usually creates an automatic stay that stops most collection activity. Depending on the circumstances, that can stop a pending lawsuit, wage garnishment, bank levy, foreclosure, or vehicle repossession.

But bankruptcy works best when there is still time to act. If a foreclosure sale has already occurred, a vehicle has already been repossessed, or other legal deadlines have passed, the available options may be much more limited.

If you are facing a lawsuit, garnishment, foreclosure, or repossession, it is usually better to review your options early rather than waiting until the last possible moment.

10. Will I lose my car or other property if I file bankruptcy?

Usually, no. Most people who file bankruptcy do not lose any property. However, what you are able to keep depends on your individual circumstances.

Bankruptcy law provides exemptions—laws that protect certain property from creditors. Whether a particular asset is protected depends on what you own, how much it is worth, how much you owe against it, the exemptions available to you, and whether you file Chapter 7 or Chapter 13.

Vehicles are a good example. If you have a car loan and want to keep the vehicle, you will generally need to continue dealing with that secured debt. If the vehicle is paid off or has significant equity, we need to determine whether that equity can be protected.

The same analysis applies to bank accounts, household property, investments, valuable personal property, and other assets. Before filing a case, we identify what you own and determine how it will be treated so that there should be no surprises after the bankruptcy is filed.

11. I own a business. Will I lose it if I file bankruptcy?

Usually, no. In many cases, if you have a profitable business that you want to continue operating, there may be a way to keep the business running while addressing your personal financial problems through bankruptcy.

The answer depends on how the business is structured, what it is worth, what assets and debts it has, your ownership interest, your income from the business, and whether Chapter 7 or Chapter 13 is the better option. A sole proprietorship can also raise different issues than a corporation or limited liability company.

Bankruptcy can also be useful in the opposite situation. If the business is no longer profitable and you want to close it, bankruptcy may help you deal with the debts and personal liabilities connected to the business and allow you to make a cleaner financial transition.

The important point is that owning a business does not automatically prevent you from filing bankruptcy, and filing bankruptcy does not automatically mean the business has to close. The goal is to determine whether the better strategy is to protect and continue the business or use bankruptcy as part of an orderly exit from a business that is no longer working.

12. Will bankruptcy get rid of all my debt?

Bankruptcy can eliminate many types of debt, but not every debt is dischargeable.

Credit cards, personal loans, medical bills, old utility bills, and many other unsecured debts can often be eliminated. Other debts, including many domestic support obligations, certain taxes, and some student loans, may survive bankruptcy.

Secured debts, such as a mortgage or vehicle loan, also require a separate analysis because the bankruptcy discharge may eliminate your personal liability while the creditor may still have rights against the property securing the debt.

That is why we look at the type of debt you have, not just the total amount. For many people, eliminating the debts that can be discharged is enough to completely change their financial situation even if a few obligations remain afterward.

13. I filed bankruptcy before. Can I file again?

Often, yes.

There is an important difference between being allowed to file another bankruptcy case and being eligible to receive another discharge. The timing of your prior case, the chapter you previously filed, the chapter you are considering now, and whether you received a discharge can all affect your options.

A prior bankruptcy also does not necessarily mean that another case would provide no benefit. For example, someone who previously received a Chapter 7 discharge may later need Chapter 13 to address mortgage arrears, taxes, secured debts, or other financial problems.

There can also be special rules affecting the automatic stay if you have had bankruptcy cases dismissed recently.

So if you filed bankruptcy before, do not assume you cannot file again. We need to look at when the prior case was filed, what chapter it was, how it ended, and what you need bankruptcy to accomplish now.

14. Will I have to go to court and convince a judge to approve my bankruptcy?

Usually, no. One of the biggest misconceptions about bankruptcy is that you will walk into a courtroom, stand in front of a judge, explain why you need bankruptcy, and then wait for the judge to decide whether you deserve it. That is generally not how a routine consumer bankruptcy works.

If you meet the legal requirements, properly disclose your financial information, complete the required steps, and otherwise comply with the Bankruptcy Code, there usually is not a judge making a subjective decision about whether you should be allowed to file bankruptcy.

Most clients never have to appear in a courtroom before a bankruptcy judge at all. You will normally attend a meeting with the bankruptcy trustee, called the 341 meeting. In most cases, the meeting is conducted by Zoom, lasts only about five minutes, and I will be there with you. The trustee asks a short series of questions about the information filed in your case. This is not a court hearing, and the bankruptcy judge does not attend.

A judge can become involved if there is a disputed issue, an objection, a motion that requires a ruling, or another unusual circumstance. Even then, I will usually attend the hearing, present the legal argument, and advocate for you. In many situations, you will not need to appear personally unless your testimony or attendance is specifically required.

For most people, bankruptcy is primarily a legal and administrative process—not a situation where you have to stand in front of a judge and convince the court that you deserve a fresh start.

15. What actually happens when I decide to file bankruptcy?

The process usually starts with a telephone consultation. We will talk about your financial situation, what problems you are facing, and what you are hoping to accomplish. If bankruptcy appears to be a good option, I will explain the next steps and what type of bankruptcy may make sense.

I will then email you a questionnaire and a list of the documents and information I need to prepare your case. Once I have everything, I review your income, debts, property, expenses, and recent financial activity and prepare the bankruptcy documents.

Before anything is filed, we go through the bankruptcy documents together so you understand what is being filed and have an opportunity to ask questions.

In most cases, once I have all of the required information and documents, we can complete the process and file the case within a few weeks or less. If there is a true emergency—such as an imminent foreclosure, wage garnishment, bank levy, or repossession—we may be able to file within a few days, depending on the circumstances and whether we have the information necessary to file the case properly.

Once the case is filed, the automatic stay usually takes effect immediately. From there, I continue representing you through the bankruptcy process, including preparing you for and attending the 341 meeting with you.

16. How long does bankruptcy take?

A typical Chapter 7 case usually takes about 90 days from filing to discharge, although some cases take longer if unusual issues arise.

Chapter 13 works differently. A Chapter 13 repayment plan generally lasts three to five years. During that time, you make payments through the bankruptcy trustee while working toward completion of the plan and a discharge of qualifying remaining debts.

The important distinction is that you do not have to wait until the end of the case to receive many of bankruptcy’s protections. The automatic stay generally begins when the case is filed, so relief from most collection activity can start immediately even though the bankruptcy itself continues afterward.

17. How much does it cost to file bankruptcy?

The cost depends on the type of bankruptcy and the complexity of your case.

There are court filing fees, attorney fees, and relatively small fees for the required bankruptcy courses. Chapter 7 fees are generally handled differently from Chapter 13, where some attorney fees may be paid over time through the Chapter 13 plan.

Before you decide to file, I will explain the expected fees and how they will be paid so you understand the cost before moving forward.

For many clients, however, the cost of filing bankruptcy is relatively small compared with the potential financial benefit. Spending a few thousand dollars to eliminate tens of thousands of dollars—or sometimes much more—in qualifying debt can completely change your financial position.

The real comparison is usually not simply, “How much does bankruptcy cost?” It is, “What will it cost me to continue carrying this debt, paying interest, dealing with collection activity, and trying to solve the problem without bankruptcy?”

About Working With Our Office

18. Why should I choose the Law Office of David S. Neinchel?

Bankruptcy is an important financial decision, and the attorney you choose should take the time to understand your entire situation before recommending a course of action. With more than 16 years of bankruptcy experience, I have helped clients through a wide range of bankruptcy and financial problems and understand that no two cases are exactly alike.

My approach is practical and individualized. I look at your income, debts, property, business interests, pending lawsuits, tax issues, and long-term goals before deciding whether Chapter 7, Chapter 13, or a nonbankruptcy solution makes the most sense.

I also believe preparation matters. Potential problems should be identified before a case is filed, not discovered afterward. My goal is to give you clear advice, explain the risks and options in plain English, and develop a strategy that addresses your particular financial situation.

Most importantly, you should leave the process understanding your options, knowing what to expect, and feeling confident that there is a clear plan for moving forward. Whether that plan involves bankruptcy or another solution, the goal is to help you get control of the situation and move toward a more stable financial future.

19. Will I work directly with David?

Yes. You will work directly with me throughout your case.

I personally review your financial situation, discuss your options with you, prepare and review your bankruptcy case, answer your questions, and represent you throughout the process.

You will not be passed from one person to another or wonder who is handling your case. I want you to know who is responsible for your matter, understand what is happening, and be able to speak directly with the attorney representing you when questions or issues arise.

20. Does contacting your office mean you are my attorney?

No. Calling the office, submitting the website contact form, having an initial consultation, or sending information to me does not by itself create an attorney-client relationship.

Before I can represent you, I need to review your matter, confirm that I am able to accept the representation, and we must enter into a written engagement agreement. Any required initial payment must also be made.

Until those steps are completed, you should not assume that I am representing you, protecting any deadlines, or taking action on your behalf.

Once I am retained, I will explain exactly what happens next and work directly with you throughout the representation.

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General Information Disclaimer

This page provides general information, not legal advice. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.