What is bankruptcy?

The legal process of Bankruptcy provides relief to individuals or businesses (“debtors”) who owe more money than they can pay right now. A matter of federal law, it is a right found in Article I, Section 8, Clause 4 of the United States Constitution. The United States Bankruptcy Court handles these cases. The United States Bankruptcy Code divides into several Chapters that contain different types of relief. Most debtors file cases under Chapter 7.

This Chapter of the Bankruptcy Code allows debtors to discharge most unsecured debts such as credit cards, medical bills, and personal loans. Other Chapters of the Bankruptcy Code allow a debtor to work out a plan to repay some or all of the money owed over time (Chapters 11, 12, or 13). When one files a bankruptcy case, a stay goes into effect, stopping most collection efforts against a debtor. Creditors, in most cases, cannot call you, proceed with lawsuits, and send collection letters.

Should I file for bankruptcy?

This is a tough question. If you feel overburdened by debt and cannot pay your bills as they become due, bankruptcy is certainly an alternative. Some cases are easy.

The individual working for a minimum wage with $50,000 in credit card debt must file. The now disabled 60-year-old with $50,000 in medical bills likewise lacks realistic options outside of bankruptcy. The laid-off factory worker with little employment prospects who can no longer afford the house payment, car payment, and credit card debts most likely needs to file.

Every situation differs. As a rule of thumb, we tell clients to look at the next 3-5 years. If you tighten the financial belt during this time, do you see yourself getting ahead or simply treading water?

What chapter is right for me?

You can decide which chapter of the Bankruptcy Code best suits your needs. Whether to file a bankruptcy and under which chapter to file depends on the particular circumstances of the debtor. A simple statement cannot spell out all the different things to consider.

Also, considering your facts, comparing them to each chapter’s requirements, and deciding which chapter to select, would be giving you legal advice. The decision of whether to file a bankruptcy and under what chapter is extremely important. You should only decide this with competent legal advice from an experienced bankruptcy attorney after reviewing all of the relevant facts of the debtor’s case.

With that said, most individuals file a Chapter 7 bankruptcy to wipe out their unsecured debt. The other forms of bankruptcy involve reorganizations filed for several reasons that may or may not exist in your case. When we meet with you, we assess your case to determine if you can benefit from one of the bankruptcy chapters.

How much does it cost to file for bankruptcy?

Filing for bankruptcy is no longer an inexpensive option. The 2005 amendments to the Bankruptcy Code made the process more complex and time-consuming. When you file for bankruptcy, you have to pay a filing fee that can range from $239 in Chapter 12, $274 in a Chapter 13 case, $299 in Chapter 7, and $1,039 for Chapter 11.

In addition, you now have to complete a pre-filing credit briefing and a post-filing financial education course which can total $100. This means that the costs alone run around $399 for a Chapter 7 case. On top of that amount, you have to pay the attorney fee for your case. Legal fees are based on the amount of work to be done.

A Chapter 7 case that requires one Court appearance costs less than a Chapter 13. This requires several Court appearances and involves us representing you for 3 – 5 years. Income higher than the “median amount” requires more legal work because we must complete the “long-form” Means Test. Also, businesses, self-employed individuals, clients with asset issues, or clients with many creditors or secured debts pay higher fees.

When we meet with you, we assess your situation and let you know how much it costs you to file for bankruptcy. Including the filing fee and counseling fees, a basic no-issue Chapter 7 case begins at $1,800 ($299 filing fee + $100 counseling fees + $1,401 attorney fees). Basic Chapter 13 cases can begin at around $1,800 – $2,000 upfront fees with additional fees paid through the plan.

Can I make payments over time?

Yes, we offer an installment plan. Once you pay us an initial retainer of $100 – $500, we allow you to refer your creditor calls to us. This should stop most of the creditor harassment. Then, make regular payments to us. However, we do not prepare your bankruptcy to file until paid in full.

What happens after I file bankruptcy?

Upon filing the original petition with the Clerk’s Office, the “automatic stay” immediately takes effect. It prohibits all creditors from taking any collection action against the debtor or their property. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 includes several limitations on the imposition of the automatic stay, especially for repeat filers. Check with an attorney before assuming all your debts stayed.

Although the stay is automatic, you must advise creditors of the stay. Using the creditor matrix provided by the debtor, the court issues a notice to all creditors. This notice advises them of the filing of the bankruptcy, the case number, the automatic stay, the name of the trustee assigned to the case (if filed under chapter 7, 12, or 13), the date set for the meeting of creditors (called the “341 meeting”), the deadline set for filing objections to the discharge of the debtor, the dischargeability of specific debts, whether, and where to file claims. The exact information in the notice differs depending on the chapter the debtor files the case under.

What happens in a Chapter 7 case?

In a Chapter 7 case involving an individual debtor, the creditors generally have 60 days from the first date set for the meeting of creditors to object to the discharge of the debtor or the dischargeability of a specific debt. If the deadline passes without any objections to the debtor’s discharge being filed, the court will issue the discharge order. If any objections to the dischargeability of specific debts are filed, they will be heard by the court but will not delay granting a discharge concerning other debts.

Within the bankruptcy, an objection to discharge or the dischargeability of certain debts comprises a separate lawsuit. It can result in a trial before the judge assigned to the case. Corporate and partnership Chapter 7 debtors do not receive discharges. With no assets from which to pay creditors, the trustee prepares a report of no distribution, and the case closes.

Non-exempt assets means funds will be available for distribution to creditors. The court sets claims deadlines and notifies all creditors to file their claims. The trustee proceeds to collect the assets, liquidates them, and distributes the proceeds to creditors. When the assets are completely administered, the court closes the case.

What happens in a Chapter 13 case?

In a chapter 13 case, creditors can object to the plan. If creditors or the trustee files no objection, they can confirm the plan filed. Once they confirm the plan, the trustee distributes the proceeds of the debtor’s plan payments to creditors until the debtor completes the plan or the court dismisses or converts the case.

Upon completing the chapter 13 plan, the court issues a discharge order, the trustee prepares a final report, and the case will be closed. In a chapter 12 case, the confirmation hearing must be concluded within 45 days of filing the plan. The court may consider the dismissal of the case if a plan is not confirmed.

What happens in a Chapter 11 case?

In a chapter 11 case, a debtor’s conference occurs with the United States trustee’s staff before the creditors’ meeting. At the debtor’s conference, the United States Trustee goes over the responsibilities and restrictions on the debtor-in-possession. They explain the quarterly fees and monthly operating reports. Generally, it discusses the debtor’s financial situation and the scope of the anticipated plan of reorganization.

A disclosure statement must be filed with the plan and approved by the court before votes for and against the plan can be solicited. After the estate has been fully administered, the court enters a final decree closing the case. A chapter 11 estate may be considered fully administered and closed before the payments required by the plan have been completed.

What is the creditor’s meeting?

A “meeting of creditors” is the single event all debtors must attend in any bankruptcy proceeding. The meeting occurs outside the judge’s presence. Usually, it occurs between 20-40 days from the date the original petition is filed with the court. In chapter 7, 12, and 13 cases, the trustee assigned by the court on behalf of the United States Trustee conducts the meeting. In chapter 11 cases where the debtor is in possession and no trustee is assigned, a United States Trustee’s office representative conducts the hearing.

What can I expect to happen there?

The meeting permits the trustee or representative of the United States Trustee’s Office to review the debtor’s petition and schedules with the debtor face-to-face. The debtor must answer questions under penalty of perjury concerning the debtor’s acts, conduct, property, liabilities, financial condition, and any matter that can affect the administration of the estate or the debtor’s right to discharge.

This information enables the trustee or representative of the United States trustee’s Office to understand the debtor’s circumstances and facilitates efficient administration of the case. Additionally, the trustee or representative of the United States Trustee’s Office asks questions to ensure that the debtor understands the positive and negative aspects of filing for bankruptcy.

What is the meeting of creditors?

The meeting, also referred to as the “meeting of creditors,” comprises the next step. Creditors recieve notification that they may attend. They question the debtor about the location, disposition of assets, and any other matter relevant to the administration of the case. However, creditors do not need to attend these meetings. In general, they do not waive any of their rights by failing to appear. The meeting usually lasts only a few minutes.

It can continue if the information provided by the debtor does not satisfy the trustee or representative of the United States Trustee’s Office. However, suppose the debtor fails to appear and provide the information requested at the meeting. In that case, the trustee or representative of the United States Trustee’s Office can request to dismiss the bankruptcy case. The court orders the debtor to cooperate, or holds them in contempt of court for willful failure to cooperate.

What is a discharge?

The court issued the discharge order and permanently prohibits creditors from collecting dischargeable debts against the debtor personally. This does not prevent secured creditors from seizing collateral if the debtor does not keep up payments or other creditors from pursuing property of the estate. Some debts cannot be discharged.

Others found non-dischargeable depend on particular circumstances. In a chapter 7 case, the bankruptcy court orders discharge the debtor of all dischargeable debts once the time for filing complaints objecting to discharge expires.

Unless:

• The debtor is not an individual.
• A complaint objecting to the debtor’s discharge has been filed.
• The debtor failed to complete an instructional course concerning personal financial management.
• Within the past eight years, the debtor had a previous discharge.
• The debtor filed a waiver of discharge.

In chapter 11 cases, the court must grant a discharge after the completion of all payments by individuals. At least, the amounts paid do not equal less than the amount paid under a chapter 7 liquidation. Otherwise, the confirmation of a plan of reorganization discharges the debtor from dischargeable debts that arose before the date of the order of relief.

Unless:

• An order confirms the plan provides otherwise.
• A liquidating plan is the plan.
• Denial of a discharge in a chapter 7 case under 11 U.S.C. 727.

In chapter 12 and chapter 13 cases, the court orders discharges the debtor of dischargeable debts after they complete all payments under the plan, or before plan completion, after notice and hearing, if they meet the requirements of 11 U.S.C. §§ 1228(b) or 1328(b).

The granting of a discharge does not automatically result in the closing of a case. All contested matters, adversary proceedings, and appeals must resolve. The appointed trustee or debtor-in-possession must file a final report and account and request entry of a final decree before the Clerk’s Office closes the case.

Do I have to do anything else to receive my discharge?

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 includes several new bars to discharge. For example, all individual debtors must complete an instructional course concerning personal financial management and submit a certification of completion.

Chapter 13 debtors must certify any current domestic support obligations. In some circumstances, a case may close without the discharge granted. If that happens, the debtor needs to pay a fee to reopen the case and file the missing documents for the discharge.

What debts are dischargeable?

11 U.S.C. § 523 lists exceptions to discharge. In general, all other debts are dischargeable. Some debts listed in 11 U.S.C. § 523, such as those based on fraudulent conduct, embezzlement, or willful, malicious injury to another, are discharged. Unless one files a complaint to deny the discharge of that debt with the bankruptcy court. Ordinarily, you must file these complaints within 60 days of the first date set for the meeting of creditors.

Additionally, debts not listed on your bankruptcy schedules or incurred after filing bankruptcy generally do not discharge. Most tax debts and student loans are nondischargeable, including child support and alimony obligations. Property settlements in divorce are nondischargeable in a Chapter 7 case.

What is a reaffirmation agreement?

A reaffirmation agreement occurs when a bankruptcy debtor becomes legally obligated to pay all or a portion of an otherwise dischargeable debt. You must file such an agreement within 60 days after the first date set for the meeting of creditors. An original, executed reaffirmation agreement filed with the Clerk must occur no later than 60 days after the first date set for the meeting of creditors.

Reaffirmation is enforceable without hearing or court order if the agreement accompanies a declaration or affidavit of the debtor’s attorney. The reaffirmation agreement must include form B240A along with the reaffirmation agreement cover sheet form B27. A reaffirmation agreement filed without an attorney’s declaration or affidavit or one that creates a presumption of undue hardship requires a hearing. You must appear in person at the hearing.

The judge asks you questions to determine whether the reaffirmation agreement imposes an undue burden on you or your dependents and is in your best interests. Reaffirmed debts do not discharge. The bankruptcy court normally only reaffirms secured debts where the collateral holds importance to your daily activities.

Are Reaffirmation Agreements are strictly voluntary?

Yes. The Bankruptcy Code nor other state or federal law requires them. You can voluntarily repay any debt instead of signing a reaffirmation agreement. There may be valid reasons for wanting to reaffirm a particular debt. Since a reaffirmation agreement takes away some of the effectiveness of your discharge, we advise you seek legal counsel before agreeing to a reaffirmation.

Even if you sign a reaffirmation agreement, you can change your mind within a minimum of 60 days after filing the agreement with the court. If your discharge date occurs more than 60 days after the agreement filing with the court, you can change your mind until your discharge date. If you reaffirm a debt and fail to make payments as agreed, the creditor can take action against you to recover any property used as security for the loan. You remain personally liable for any remaining debt.

What can I do if a creditor keeps trying to collect money after I file for bankruptcy?

Suppose a creditor continues to attempt to collect a debt after filing the bankruptcy to violate the automatic stay. In that case, immediately notify the creditor in writing that you filed bankruptcy. Provide them with either the case name, number and filing date or a copy of the petition that shows the filing.

If the creditor continues to collect, the debtor can take legal action against them to obtain a specific order from the court prohibiting them from taking further collection action. If the creditor willfully violates the automatic stay, the court can hold them in contempt of court and punish them. Any such legal action brought against the creditor normally requires representation by a qualified bankruptcy attorney.