February 3rd, 2009
Bankruptcy FAQ
What is Bankruptcy?
Bankruptcy is a federally created way for people, in need, to eliminate their debts.
Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court.
Bankruptcy is a legal proceeding to allow a person who cannot pay his bills a “fresh start” in life. Depending on the type of debt you have, and the type of Bankruptcy you file for, many, if not most or all of your debts, can be eliminated (“discharged”) by this process. The legal right to file for Bankruptcy is provided by Federal law, and the legal process is administered by the Federal Bankruptcy Court. There are generally two types of Bankruptcy applicable to most consumers — Chapter 7 (a liquidation) or Chapter 13 (a repayment plan).
Can my creditors still try to collect money from me after I file for Bankruptcy?
No. Once you file for Bankruptcy, your creditors must immediately stop trying to collect money from you. This means they cannot legally call or write to you to collect money, start or continue a lawsuit against you, start or continue to garnish (take a portion of) your paycheck, start or continue to “freeze” your bank account, or engage in any other activities to try and collect money from you. This includes repossessing your car or foreclosing on your home. Pursuant to Bankruptcy law, this immediate freeze on all collection activities is referred to as the “automatic stay”.
What are the “common signs” of someone who should consider filing for Bankruptcy?
Generally speaking, you should consider Bankruptcy, if: (a) you are afraid to answer your telephone because of all the collection calls, or hate going through your mail; (b) all or most of your credit cards are already at their maximum spending amounts; (c) you can only afford to pay the minimum payments listed each month on your credit card statements; (d) you cannot make the required monthly payment arranged for you by a credit counseling service; (e) you have been rejected for a debt consolidation loan; (f) you are taking money out of your retirement funds to pay your credit cards; or (g) you are arguing with relatives over your finances or are preoccupied with your debt.
If some or all of these scenarios sound all too familiar, you should explore the option of filing for Bankruptcy. Just remember, you are not alone. Former Texas Governor John Connolly had filed for Bankruptcy protection, not to mention many major U.S. companies. Thomas Jefferson, for one, was consumed by his overwhelming debt. However, you have an advantage that was not then available to Jefferson - the Federal Bankruptcy laws.
What is Chapter 7?
Chapter 7 is a typical bankruptcy that wipes the slate clean. Chapter 7 eliminates most types of debt to give you a fresh start.
Chapter 7 is the bankruptcy provision most frequently used by individuals. It involves the complete liquidation of a debtor’s property to pay creditors and wipes out the remaining debts, giving the debtor what’s known as a “fresh start”. However, the debtor can retain certain property that is specifically “exempt” depending her State’s law, such as tools of one’s trade, limited equity in a car and house, and some personal effects.
What types of debt does Chapter 7 Eliminate?
Chapter 7 eliminates credit card bills, medical bills, judgments, lawsuits, broken leases, reposed car debts and even payday loans.
Only certain types of debts can be discharged or eliminated through Chapter 7 bankruptcy. These types of debts, commonly referred to as either “unsecured debts” or “dischargeable debts,” include debt from: medical bills, credit cards, repossessions, consumer debt, unpaid rent or utilities, certain types of loans, judgments, collections.
What types of debts are not eliminated by Chapter 7?
Generally, Government debts such as parking tickets and student loans are not eliminated in a Chapter 7. Court ordered debts such as child support and alimony are typically not eliminated either.
The types of debt that cannot be discharged through Chapter 7 bankruptcy include student loans, child support, alimony or spousal support, court fines or penalty fees, restitution or damages to personal injury victims, tax debt, and debt to the government.
Can I file a Chapter 7?
So long as you do not have any significant assets, such as a lot of equity in a house or a car, you should be able to file a Chapter 7. Generally, if you are having a hard time making ends meet, you qualify for a Chapter 7.
How much does it cost to file a Chapter 7?
It depends on the complexity of your case and how much time I need to adequately represent you, however, Chapter 7’s usually start at $1275.00
Can I keep my house and car if I file a Chapter 7?
Yes, as long as you do not have significant equity in either the home or the car.
House: It depends on the value of your house. You can keep certain exempt equity in your house the value of which depends on the state where you live (or you recently lived). Car: It depends on the value of your car and the state where you live.
Can I get credit after filing Chapter 7?
YES, in fact you will receive credit card solicitations immediately following the bankruptcy process. Moreover, you can purchase a new home or a car as soon as you get your discharge from the bankruptcy (discharge usually occurs 4 months after filing).
What amount of debt is needed to file a Chapter 7 bankruptcy?
If you cannot foresee any way to pay off your debts in a reasonable amount of time, you should file a Chapter 7 bankruptcy. The amount is not necessarily relevant, what matters is your ability to pay the debts back.
Can I file Chapter 7 if I have already filed one before?
You must wait six years before filing another Chapter 7. However, Chapter 13 bankruptcy may be an option for you.
Eight (8) years from the date you filed a prior Chapter 7 bankruptcy. If you received a discharge in a completed Chapter 13, you will have to wait 6 years to file a new Chapter 7.
What is a Chapter 13?
Chapter 13 is a repayment plan that pays back a portion of your debt based on your income. You must have steady income to file a Chapter 13.
A chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” ( HYPERLINK “http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/chapter13.html” \l “one#one” 1) If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. §1322(d). During this time the law forbids creditors from starting or continuing collection efforts.
Why would someone file a Chapter 13 instead of a Chapter 7?
Chapter 13 is necessary to stop the foreclosure process on your home or the repossession process on your car. In addition, if you earn too much money, you must file a Chapter 13.
The one advantage of Chapter 13 over Chapter 7 Bankruptcy is the full discharge option which is not applicable under Chapter 7 filing. For example, if a debtor manages to complete all necessary payments in the plan, he/she is given a full plan discharge. (There are a few exceptions to this case, which your attorney will guide you about if necessary.) Yet another advantage of the Chapter 13 filing is that a repayment can be created even if creditors disagree with it, as long as it is approved by the Court. Although, in all fairness the court allows creditors also to file an objection, in case they may have any.
How long does a bankruptcy stay on my credit report?
A bankruptcy may remain on your credit report for 7-10 years after your bankruptcy case has been discharged. However, you may be able to get credit during that time.
Will I lose my job if I file for Bankruptcy?
No. It is a violation of Federal law for your employer to fire you or otherwise discriminate against you because you filed for Bankruptcy. As a practical matter, unless your employer is one of your creditors, it is unlikely they would ever find out that you filed for Bankruptcy.
Do I have to list all of my creditors in my Bankruptcy?
Yes. You are not allowed to arbitrarily pick which of your creditors you want to list and which ones you don’t in your Bankruptcy — you must list them all, including money owed to relatives. At any rate, you can always voluntarily repay which ever of your creditors you wish (for example, your relatives) after the Bankruptcy proceeding is over. Also, keep in mind that debts owed which are not listed in your Bankruptcy will not be legally discharged (eliminated) in your Bankruptcy. Thus, it is also in your best interests to list all of your creditors.
Can I transfer some/all of my assets to a friend/relative for little/no value in return before I file for Bankruptcy?
No. This would constitute a fraudulent conveyance — do not do this, as you would create tremendous legal problems for yourself. Just as you are required to list all of your creditors, you are also required in a Bankruptcy filing to list all of your assets. We can help you legally arrange your assets to take full advantage of your allowable exemptions — and can often legally achieve the same results that you are trying to accomplish through a fraudulent conveyance. So don’t do something foolish that you will live to regret.
Isn’t filing for Bankruptcy “morally” wrong?
The answer to this question is really very subjective and depends on the personal beliefs of an individual. I can tell you this — the Bankruptcy laws have existed in this country for the past 100 years, and the prevailing theme of these laws is that it is in this country’s best interests to allow people to have a “fresh start” in life, so that they can try again, and hopefully contribute to society (i.e., make money and pay taxes) in the future. These laws are there to protect you and because a decision was made a long time ago that it benefits society, as a whole, to have them.
If it bothers you that you are not repaying your creditors in full, you can always, at some point in the future, when your Bankruptcy proceeding is over, voluntarily repay your creditors. Believe me, they will be happy to take your money then. This way, you could repay them on your terms, when it is convenient for you.
Will I need to appear in Court if I file for Bankruptcy?
Yes. If you file for a Chapter 7 or 13, you will need appear in Court for what is called the “Meeting of the Creditors” or “Section 341 Meeting”. Your creditors have the right to appear at this meeting and ask you questions under oath. The meeting will be conducted by the Trustee, who is an attorney in private practice who administers your case on behalf of the Court.
The Trustee will also ask you questions under oath which generally center on whether your Bankruptcy forms were properly filled out, whether you disclosed all relevant information regarding your financial circumstances, and also on whether you have any “non-exempt” assets (See “Information on Chapter 7″ for an explanation of what “exempt” and ”non-exempt” assets are). If you file for a Chapter 13, you will also need to appear for a “Confirmation Hearing” before a Bankruptcy Court Judge, to determine if your Chapter 13 Plan will be approved (or “confirmed”) by the Court.
These Hearings are tape recorded, and are under penalty of perjury, so it is important that you are properly prepared in advance for these Hearings. If you retain this Law Office to represent you, Mr. Ahrens will personally appear with you at these Hearings to protect your rights. Mr. Ahrens will also personally prepare you in advance for these Hearings, so that you will know what to expect and will feel comfortable with the process.
What forms of payment does the Law Office of Randy J. Risner accept for service?
We gladly accept the following forms of payment: Cashiers Check, Personal Check, Money Order or Cash.
How can I get in contact with an attorney who can help me?
Contact the Law Office of Randy Risner by e-mail (randyrisner@sbcglobal.net) or telephone (559.274.9370) to set up a free, no obligation personal consultation.
Starr & Starr FAQ
General Bankruptcy questions:
What are the different types of bankruptcy and their eligibility requirements?
The U.S. Bankruptcy Code provides for the following types of bankruptcy filing:
Chapter 7 — Liquidation — provides for the liquidation of a debtor’s assets by a trustee to raise cash to pay off creditors’ claims. The stages in a chapter 7 case are discussed below. Companies, as well as individuals, can file for chapter 7 (individual consumer debtors are subject to eligibility requirements, discussed below). Spouses can file a joint-case. The 2005 Amendments to the Bankruptcy Case have increased the complexity of individual consumer chapter 7 cases.
Chapter 9 - Municipal Bankruptcy - protects financially-distressed municipalities from creditors while the municipality creates and negotiates plans to adjust its debts.
Chapter 11 - Reorganization - provides for reorganization of a debtor under a reorganization plan that is voted on by the debtor’s creditors. However, it is possible for a business debtor to liquidate its assets in chapter 11 under a “liquidating plan”. Companies as well as individuals can file for chapter 11. However, chapter 11 is typically not suitable for individual or consumer debtors unless they have a high net worth or high income. The stages in a chapter 11 case are discussed below.
Chapter 12 - Family Farmer or Fisherman Debt Adjustment - provides for adjustment of debts of a family farmer or fisherman with regular income and subject to certain debt caps.
Chapter 13 - Wage Earner Debt Adjustment - provides for adjustment of debts of an individual with regular income (spouses can file a joint-case). Total unsecured debt cannot exceed $336,900 and secured debt cannot exceed $1,070,650.
Chapter 15 - Ancillary and Other Cross-Border Case - provides a mechanism for dealing with foreign bankruptcy cases where the debtor has assets or creditors in the U.S.
What are the principal goals and aims of bankruptcy?
The purpose of bankruptcy is to provide a forum for a financially troubled debtor to deal with all his, her or its creditors in a single unified proceeding, and a mechanism to satisfy creditors’ claims. For a business, the goal of bankruptcy is either to provide an orderly liquidation of the debtor and its assets or to reorganize. For an individual, the goal of bankruptcy is to get his or her debts wiped out. The Bankruptcy Code provides for a “discharge” of debts — which is the elimination of the individual debtor’s personal liability for his or her pre-bankruptcy debts (subject to certain exceptions discussed below). The discharge of debt is intended to give the debtor a fresh start.
What is the bankruptcy estate?
Upon the filing of a bankruptcy case by or against a debtor, an “estate” is created consisting of all of the debtor’s property wherever located in the world. This holds true whether the debtor is an individual or business entity (such as a partnership, corporation or limited liability company). The bankruptcy estate is protected from creditors by the automatic stay discussed below.
What is the automatic stay and what is its scope?
The stay bars action by all creditors to enforce their pre-bankruptcy claims against the debtor and the debtor’s property, regardless of whether the creditor had notice of the commencement of the debtor’s bankruptcy case. Filing a bankruptcy petition triggers the automatic stay. Action taken by creditors that violates the stay is not legally binding and is void. Actions of this type include filing a lawsuit against the debtor after the debtor files for bankruptcy, without permission of the Bankruptcy Court. There are limited exceptions to the stay, including for governmental agencies to enforce health, safety and public welfare laws and for domestic support obligations, among others. Creditors also can move to have the stay lifted for “cause” including lack of adequate protection of an interest in property. In addition, if a creditor is stayed as to property of the estate (for instance, property subject to the creditor’s lien, such as a mortgage), the creditor can also obtain relief from stay if it can establish that the debtor has no equity in the property and it is not necessary to an effective reorganization.
Who are the usual players in a bankruptcy case?
There are a variety of players in a bankruptcy case as follows:
Debtor - is the person or business that files for bankruptcy relief.
Trustee - is the person appointed by the U.S. Trustee in a chapter 7 case (or elected by creditors to replace the person appointed by the U.S. Trustee in a chapter 7 case) to collect and liquidate the assets of the debtor. In a chapter 11 case, if the Court orders the appointment of a trustee for cause one is appointed by the U.S. Trustee and takes over the management of the debtor and ousts its existing management. Most trustees are attorneys or accountants.
U.S. Trustee - A branch of the Department of Justice tasked with overseeing the administration of bankruptcy cases. The U.S. Trustee plays an oversight role, particularly in chapter 11 cases.
Creditors Committee - A committee of creditors appointed in chapter 11 cases by the U.S. Trustee usually consisting of creditors who hold the seven largest unsecured claims against the debtor. The creditors committee acts as a representative body to advance the interests of unsecured creditors as a whole. In many bankruptcy cases there is insufficient creditor interest for a creditors committee to be formed. Committee members are unpaid but receive reimbursement of expenses. A creditors committee may, subject to Bankruptcy Court approval, hire professionals, such as attorneys, accountants and financial advisors to represent the committee and advance the interests of unsecured creditors in the bankruptcy case. The fees of such professional are paid out of the debtor’s bankruptcy estate and not by individual committee members.
Bankruptcy Court - The bankruptcy court is a federal court of the United States and constitutes a unit of the district court. In some locations the bankruptcy court is housed in the same building as the district court, while in others it is in a separate building.
Bankruptcy Judge - A bankruptcy judge is a judge appointed for a 14 year term by the Court of Appeals in the federal district in which the bankruptcy court is located. Most bankruptcy judges previously worked as attorneys in private practice or for the government.
Secured Creditor - A creditor that is secured by a lien against property of the debtor as the result of a voluntary agreement that the debtor entered into (such as, for example, a bank loan secured by a lien on assets, a mortgage on real estate, or a car loan secured by a vehicle), or as the result of a court judgment or order (such as, for example, a judgment lien recorded against real estate, or a writ of attachment against a debtor’s equipment), or as the result of a particular law (such as tax liens, that create a lien against the debtor’s property when certain notice and filing requirements are met).
Unsecured Creditor - A creditor who has a claim that is not secured by a lien against property of the debtor.
Priority Creditor - Certain types of claims are priority claims under the Bankruptcy Code. These are claims that get paid in full before any distribution is made to general unsecured claims. Priority claims include most tax claims and domestic support obligations (alimony, child support, etc.).
What is a preference claim?
A preference under the Bankruptcy Code is a payment on a pre-existing debt made to a creditor within 90 days prior to the date of the debtor’s bankruptcy filing (or one year in the case of a transfer to an “insider” of the debtor) that allows the creditor to recover more than it would recover if the assets of the debtor were liquidated in a case under chapter 7 and the creditor received a proportionate distribution on its claim along with other creditors in same class and entitled to the same priority of treatment under the Bankruptcy Code. The intent of the Bankruptcy Code is that similarly situated creditors should receive equal treatment. The preference law is intended to advance this and also prevent pre-bankruptcy collection efforts that disrupt the debtor’s business or financial affairs. Trustees (or debtors in possession in chapter 11 cases) have the ability to pursue preference claims. Trustees and DIPs often bring preference claims against all recipients of payments by a debtor during the 90 day pre-bankruptcy preference period. There are a number of defenses under the Bankruptcy Code to a preference claim that a defendant in a preference case may be able to utilize, most notably the “new value defense” and “ordinary course of business defense”.
What is a fraudulent transfer claim?
Claims of fraudulent transfer under the Bankruptcy Code are based on a transfer of money or other property of the debtor made within one year (two years for cases filed after October 17, 2006) prior to the date of the debtor’s bankruptcy filing, regardless of whether the transfer was made voluntarily or involuntarily by the debtor, if
(1) the debtor made the transfer with actual intent to defraud creditors, or
(2) received less than reasonably equivalent value in exchange for the transfer and was either (a) insolvent (i.e., debts greater than assets or unable to pay debts as they became due in the ordinary course of business) or became insolvent because of the transfer, or (b) engaged in business for which the remaining capital of the debtor left after the transfer was unreasonably small. There are a number of defenses under the Bankruptcy Code to a fraudulent transfer claim that a defendant in a fraudulent transfer case may be able to utilize.
Personal Bankruptcy questions:
What type of bankruptcy are individuals eligible for and what are the requirements of each?
Individuals are eligible to file bankruptcy under chapter 7, 11, 12 or 13.
Chapter 7 — Liquidation — provides for the liquidation of a debtor’s assets by a trustee to raise cash to pay off creditors’ claims. The stages in a chapter 7 case are discussed below. Individual consumer debtors are subject to eligibility requirements, discussed below. Spouses can file a joint-case. The 2005 Amendments to the Bankruptcy Case have increased the complexity of individual consumer chapter 7 cases (discussed further below).
Chapter 11 - Reorganization - provides for reorganization of a debtor under a reorganization plan that is voted on by the debtor’s creditors. Chapter 11 is typically not suitable for individual or consumer debtors unless they have a high net worth or high income. The stages in a chapter 11 case are discussed below.
Chapter 12 - Family Farmer or Fisherman Debt Adjustment - provides for adjustment of debts of a family farmer or fisherman with regular income and subject to certain debt caps.
Chapter 13 - Wage Earner Debt Adjustment - provides for adjustment of debts of an individual with regular income (spouses can file a joint-case). Total unsecured debt cannot exceed $336,900 and secured debt cannot exceed $1,010,650. Chapter 13 is discussed further below.
What are consumer debts and why are they important in personal bankruptcy cases?
The Bankruptcy Code defines consumer debts as debt incurred by an individual primarily for a personal, family or household purpose. There are special provisions of the Bankruptcy Code that are only applicable to individuals having consumer debts. The “means test” (discussed below) only applies to an individual debtor in a chapter 7 case whose debts are primarily consumer debts. Debt that an individual incurred for a business, trade or profession that he or she was engaged in would not be consumer debt.
What is the “means test” for chapter 7 and why is it important?
As a result of the 2005 amendments to the Bankruptcy Code a “means test” was introduced for eligibility for chapter 7. An individual who is unable to pass the means test will have his or her chapter 7 case dismissed (subject to certain exceptions), or must convert his or her case to a case under chapter 11 or chapter 13.
An individual chapter 7 debtor with primarily consumer debts will be subject to the means test if his or her “current monthly income” (based on average monthly income for 6 months prior to bankruptcy) is above the median income for a family of the same size. In New York this means the debtor’s income on an annual basis cannot be greater than $42,896 for an individual ($51,994 for a family of 2, $62,815 for a family of 3 and $74,501 for a family of 4). In New Jersey the debtor’s income on an annual basis cannot be greater than $53,557 for an individual ($63,357 for a family of 2, $80,239 for a family of 3 and $93,176 for a family of 4). Current monthly income includes regular contributions to household expenses from a nondebtor and includes income for the debtor’s spouse if the petition is a joint petition (husband and wife both filing bankruptcy), but does not include social security income.
If the debtor’s income is below the median listed above for the states listed above (each state has its own requirement), the debtor is eligible for chapter 7 bankruptcy. If the debtor’s income is greater than the median income listed above, the debtor must past the “means test”. The means test starts with the debtor’s monthly current income (based on income for last 6 months) and subtracts (1) expenses for food, clothing, utilities, transportation and housing based on permitted monthly expenses specified by IRS standards (not the debtor’s actual expenses), (2) average monthly secured debt payments, (3) average monthly priority debt payments, and (4) a few other expenses in certain limited categories, such as educational expenses of dependents of the debtor, and expenses to care and support elderly, chronically ill, or disabled household members. The remaining net amount after deducting these expenses is the debtor’s “disposable income” and leads to the following results:
Disposable income of less than $100. If the debtor has disposable monthly income of less than $100, the debtor is eligible to file chapter 7.
Disposable income of between $100 - $166.67. If the debtor has disposable monthly income of between $100 - 166.67, we look at the total disposable income the debtor would have for five years (i.e., $6,000 - 10,000). If the $6,000 - 10,000 total disposable income for 5 years is at least 25% of the debtor’s total unsecured debtor, the debtor fails to satisfy the “means test” for chapter 7 (but can file chapter 13).
Disposable income of greater than $166.67. If the debtor has disposable monthly income of more than $166.66, the debtor fails to satisfy the “means test” for chapter 7 (but can file chapter 13).
If my income is above the median income for my state for a family of my size does that mean I fail the “means test” and cannot file chapter 7 bankruptcy?
If your income is below the median income for your state for a family of your size, it means you do not have to complete the “means test.” If your income is above the median income for your state for a family of your size it does not mean you fail the means test. It means you have to complete the means test. The results of the means test will determine your eligibility for chapter 7 bankruptcy. This is a complicated area and required the assistance of an experienced bankruptcy attorney. At Starr & Starr, PLLC, we have invested in what we believe is the best computer software available on the market today for the purposes of calculating the means test.
Will I lose all of my property if I file bankruptcy
When a consumer debtor files bankruptcy, he or she gets to keep certain property from the bankruptcy estate that is created by the bankruptcy filing. This property the debtor gets to keep is called “exempt” property and is based on specific laws exempting certain types of property to encourage the debtor’s fresh start. The exemption laws vary from state to state and New York and New Jersey are not nearly as generous regarding exemptions as some other states. In New York there are exemptions for equity in a debtor’s home ($50,000 for single debtor, $100,000 for joint debtors), life insurance, annuities, and pension plans, among others. Debtors who file bankruptcy without the assistance of a competent bankruptcy attorney risk losing property of significant value by failing to claim the exemptions to which they are entitled. Maximizing the exemptions to which you are entitled is part of what we do at Starr & Starr, PLLC when we represent you in a personal bankruptcy filing.
Will all my debts get discharged (wiped out) in bankruptcy?
Certain types of debt automatically do not get discharged in bankruptcy, such as many types of taxes, student loans (unless the debtor can show undue hardship would result from failure to discharge the loans), most government fines and penalties, court restitution orders, domestic support obligations (such as alimony, child support, etc.), and debts in connection with divorce decrees, among others.
There are other types of debts that the creditor has the right to bring a lawsuit in the Bankruptcy Court (called an adversary proceeding) against the debtor to determine the dischargeability of the debt. The creditor can sue the debtor for a judgment determining that the debt will not be wiped out in bankruptcy.
Some examples of debts that can be excepted from discharge upon court order are:
Money, property, services or extension, renewal or refinancing of credit obtained by false pretenses, false representation or actual fraud
Consumer debt owed to a single creditor above the dollar limits specified in the Bankruptcy Code for luxury goods or services incurred within the time period specified in the Bankruptcy Code prior to the debtor’s bankruptcy filing (the term “luxury goods” does not include goods or services reasonably necessary for the support or maintenance of the debtor or dependents of the debtor).
Cash advances above the dollar limit specified in the Bankruptcy Code incurred within the time period specified in the Bankruptcy Code.
Debts for willful and malicious injury of the debtor to another person or entity or property of another person entity.
An experienced bankruptcy attorney, such as the bankruptcy attorneys at Starr & Starr, PLLC, can analyze a consumer debtor’s debts to determine if there is a risk of certain debts being automatically nondischargeable, or of potentially being found nondischargeable by the Bankruptcy Court. Pre-bankruptcy planning may facilitate the dischargeability of certain types of debt.
What are the stages in an individual consumer chapter 7 case?
- Pre-Filing Stage -
Initial Meeting with You. You meet with us for a free in-person initial consultation to discuss your bankruptcy and non-bankruptcy options and determine if a chapter 7 bankruptcy filing is the right solution for you. We discuss services to be provided by Starr & Starr, PLLC and agree on the fee for such services. You sign our standard Engagement Letter and pay our fee (or make installment payment arrangements with us). We discuss our chapter 7 intake Checklist and the documentation and information that you will need to supply us, as well as your obligations as a client.
Follow-Up Meeting. We schedule an in-person follow-up meeting to complete our Bankruptcy Questionnaire and review the supporting documentation that you supply. At the follow-up meeting we will determine the exemptions that you are entitled to claim in property. We then prepare the first draft of your bankruptcy petition, schedules, statement of financial affairs, creditors’ matrix and other papers required in connection with your chapter 7 case.
Credit Counseling. You must complete a mandatory pre-bankruptcy creditor counseling program with one of the credit counseling agencies approved by the U.S. Trustee’s Office before we can file your bankruptcy petition. There are currently three approved providers with which we have made arrangements. The program takes approximately 2 hours and can be completed by you at your convenience prior to bankruptcy filing. Telephone, internet and live in-person programs are available. After you complete the credit counseling program, the provider electronically sends us a certificate of completion that we need for your bankruptcy filing.
Bankruptcy Petition & Schedules Signing Session. You meet again with us in person to review your petition, schedules, statement of financial affairs and creditors’ matrix for accuracy. We make any final changes that may be needed. You sign your petition and other papers. If you are paying us under an installment arrangement you provide us with the unpaid balance of the total fee at this time.
- Filing & Post-Filing Stage -
Filing of Petition. We electronically file your petition, schedules, statement of financial affairs, creditor matrix and other papers required in connection with your chapter 7 case. The automatic stay goes into effect once the petition is filed and bars your creditors from further litigation or enforcement efforts (other than in the bankruptcy court), unless they obtain relief from the stay. After filing, we send to you for your records one complete set of your petition, schedules, statement of financial affairs, creditor matrix and other papers we filed in your case.
Communication with chapter 7 trustee. We provide the chapter 7 trustee appointed in your case with a copy of all documents that the debtor is required to provide to the trustee as the result of the 2005 amendments to the Bankruptcy Code. We send you a copy of any correspondence we send to the chapter 7 trustee.
Meeting of Creditors & Preparation for Meeting. After your case is filed the Meeting of Creditors will be scheduled at which the chapter 7 trustee will ask you questions concerning your financial affairs, the circumstances leading to your bankruptcy filing, and raise any questions he/she may have concerning your schedules and/or statement of financial affairs. This meeting is required to be scheduled within 20-40 days after you file your bankruptcy petition. The meeting is typically scheduled about 30 days from the date the petition is filed. Typically creditors do not attend this meeting, although they are entitled to attend and ask questions by law. If you hire Starr & Starr, PLLC, one of our attorneys will represent you at the meeting.
Shortly after your case is filed we will learn the date and time your meeting of creditors has been scheduled. We will send you a letter advising you of the date and time, along with a map and directions and some information about the type of questions most commonly asked by the chapter 7 trustee. A day or so before the meeting we will have a telephone conference with you to prepare you for the meeting of creditors and discuss any questions you may have about it.
Financial Management Course. Within 45 days of the date first scheduled for the Meeting of Creditors you are required to complete the Pre-Discharge Financial Management Course. We suggest you complete it as soon as possible after the Meeting of Creditors. The same credit counseling agency that provided you with pre-bankruptcy credit counseling can provide you with the Financial Management Course. After you complete the Financial Management Course, the provider electronically sends us a certificate of completion that we will file in your bankruptcy case.
Discharge. The goal of a personal chapter 7 bankruptcy filing is to obtain a discharge (legal elimination) of your debts. As discussed above, certain types of debts may be automatically excepted from discharge, or subject to the exception from discharge by order of the Bankruptcy Court. A discharge is supposed to be granted within 60 days after the date first set for the meeting of creditors. The one exception is if a creditor or other party in interest (such as the chapter 7 trustee) files an objection to discharge, which is uncommon.
How does chapter 13 work?
Only an individual with regular income can file chapter 13. You can be self employed if you can show you have a regular income and only operate as a sole proprietor under your own name or under a trade name (i.e., “doing business as” or “d.b.a.”), and do not have a separate business entity, such as a corporation or a limited liability company. Total unsecured debt cannot exceed $336,900 and secured debt cannot exceed $1,010,650. In chapter 13 the debtor repays creditors over time based on the money left over each month after expenses. The debtor pays the chapter 13 trustee each month who then mails checks to each of the debtor’s creditors. In chapter 13 the debtor gets to keep all of his or her property. Chapter 13 is commonly used to stop a foreclosure and cure defaults over time. The typical chapter 13 plan is 3 years. However, as a result of “means testing”, chapter 13 debtors with income above the state median must submit 5 year plans. Creditors do not get to vote on a debtor’s chapter 13 plan, but get to object. The plan is subject to Bankruptcy Court approval at a confirmation hearing. In a chapter 13 case the chapter 13 trustee plays an important role in reviewing chapter 13 plans and raising objections to such plans.
What are the benefits of chapter 13 (why file chapter 13 instead of chapter 7)?
The main benefit of chapter 13 compared to chapter 7 is that in a chapter 13 bankruptcy case the debtor gets to keeps all of his or her property and satisfies creditors claims through the chapter 13 plan. So, by way of example, if a debtor owned a house and wanted to keep living in it but is behind on mortgage payments, the debtor could cure the arrears (the payments that have fallen behind) through the plan and keep living in the house. Alternatively, in a chapter 13 case the debtor could seek to refinance or sell his or her house (subject to Bankruptcy Court approval). That is not usually possible in a chapter 7 case.
If the debtor is a renter and has fallen behind on rent payments (but an eviction order has not yet been entered), for instance, due to a period of illness or unemployment, the debtor could use a chapter 13 plan to cure the defaulted portion of rent through the plan.
Chapter 13 can also be used to keep a car where the debtor has fallen behind on payments.
In addition, in a chapter 13 case there is a co-debtor stay. So if one spouse files bankruptcy and the other does not, joint creditors cannot pursue the non-filing spouse. This can be beneficial to help preserve the credit standing of the non-filing spouse.
Chapter 13 is a complex area of bankruptcy law and requires the assistance of an experienced bankruptcy attorney.
Why do I need an attorney to file bankruptcy? Can’t I represent myself?
You do not have to have an attorney to file bankruptcy. The law allows you to represent yourself. However, if you represent yourself you are still held to the same standard as if you had an attorney. You will need to be able to analyze and decide how to answer all of following questions, among others, yourself, and correctly complete and file the required documents:
Chapter of bankruptcy to file under (chapter 7, 13, or 11, and why)?
Which creditors to list as secured, priority, and unsecured?
Which addresses to use for your creditors (- - & if you use the wrong address the debt will not be wiped out - -)?
Which exemptions in property to claim and why?
Whether you want to reaffirm any debts and if so how do you do that?
Whether any of your debts are or may be nondischargeable and how to deal with them?
Whether you have co-debtors and how to list them?
Which debts to list as contingent, unliquidated or disputed on your schedules?
How to value your personal and real property on the schedules?
The list above is not a complete list of the things that must be considered in personal bankruptcy case.
In addition, as the result of the amendments to the Bankruptcy Code in 2005 there are particular pre-filing and post-filing obligations that a debtor in bankruptcy must comply with that an attorney would usually take care of.
Finally, if you don’t hire an attorney you will also have to represent yourself at the Meeting of Creditors held pursuant to Section 341(a) of the Bankruptcy Code.
Why do I need an attorney to file bankruptcy? Can’t I Just Hire a Paralegal for a Lot Less Money?
There are paralegal services that claim to assist people with bankruptcy filing. They are not lawyers and not knowledgeable about bankruptcy law. By law they are not allowed to provide any legal advice. All they are allowed to do is fill out the numerous forms and schedules required to be filed with the Bankruptcy Court based on information you provide. Basically, they are just expensive “typing services” that can’t advise you whether or not to file bankruptcy, what chapter of bankruptcy to file if you decide to file bankruptcy, or how to fill out the forms and schedules needed in your bankruptcy case. The United States Trustee, in the Southern District of New York and elsewhere, has filed lawsuits against paralegal services prohibiting them from engaging in the unauthorized practice of law. See, Martini, as the United States Trustee v. We the People Forms and Service Centers USA, Inc., et al. (U.S. Bankruptcy Court S.D.N.Y., Adv. Pro. # 05-01434, and Stipulated Final Judgment entered). Many debtors have had bad results from using paralegal services for bankruptcy filings, such as having their cases dismissed or losing homes that could have been saved had the debtor hired a competent bankruptcy attorney.
