What is bankruptcy?

Bankruptcy is a legal process designed to provide relief to individuals or businesses (“debtors”) who owe more money than they can pay right now. Bankruptcy is a matter of federal law. It is a right found in Article I, Section 8, Clause 4 of the United States Constitution. Bankruptcy cases are filed in the United States Bankruptcy Court.

The United States Bankruptcy Code is divided into a number of Chapters that contain different types of relief. Most debtors file cases under Chapter 7. This Chapter of the Bankruptcy Code allows debtors to wipe out (discharge) most of their unsecured bills (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 bankruptcy is filed, a stay goes into effect which stops most collection efforts against a debtor. Creditors in most cases, cannot call you, cannot proceed with lawsuits, and cannot send you collection letters.

Should I file for bankruptcy?

This is a tough question. If you are overburdened by debt and having trouble paying your bills as they become due, bankruptcy is certainly an alternative to you. Some cases are easy.

The individual working for minimum wage that has $50,000 in credit card debt would have very little choice but to file. The 60-year-old who is now disabled and has $50,000 in medical bills would likewise have no realistic option outside of bankruptcy. The factory worker laid off with little prospects of employment and can no longer afford the house payment, car payment, and credit card debts would most likely have to file.

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

What chapter is right for me?

You have a choice in deciding which chapter of the Bankruptcy Code best suits your needs. The decision of whether to file a bankruptcy and under which chapter to file depends on the particular circumstances of the debtor. There is no way that a simple statement can spell out all the different things to be considered.

Also, considering your personal 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 an extremely important decision. It should be made only with competent legal advice from an experienced bankruptcy attorney after a review of all of the relevant facts of the debtor’s case.

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

How much does it cost?

Filing for bankruptcy is no longer an inexpensive option. The 2005 amendments to the Bankruptcy Code made the process more complex and more time-consuming. When you file for bankruptcy, you will have to pay a filing fee that can range from $239 in Chapter 12, $274 in Chapter 13, $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, which requires several Court appearances and involves us representing you for 3-5 years. If your income is higher than the “median amount, more legal work is required because the “long-form” Means Test must be completed.

The fee is also higher for business bankruptcies, self-employed individuals, clients with asset issues, or clients with many creditors or secured debts. When we meet with you, we assess your situation and let you know how much it will cost for you to file for bankruptcy.

Including the filing fee and counseling fees, a basic no-issue Chapter 7 case begins at $1,800.00 ($299 filing fee, $100 counseling fee, and $1,401 attorney fee). Basic Chapter 13 cases can begin at around $1,800-$2,000 upfront fees with additional fees being 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. You then can make regular payments to us. However, we do not get your bankruptcy ready to file until we have been 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 and prohibits all creditors from taking any collection action against the debtor or the debtor’s 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. You may want to check with an attorney before assuming that all your debts stay.

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

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 the granting of a discharge with respect to other debts. An objection to discharge or to the dischargeability of certain debts is considered a separate lawsuit (an adversary proceeding) within the bankruptcy and may result in a trial before the judge assigned to the case.

Corporate and partnership chapter 7 debtors do not receive discharges. If there are no assets from which creditors can be paid, the trustee prepares a report of no distribution, and the case is closed. If there are assets that are not exempt, 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, liquidate them, and distribute the proceeds to creditors. When the assets are completely administered, the court closes the case.

In a chapter 13 case, creditors are given an opportunity to object to the plan. If no objection is filed by creditors or the trustee, the plan may be confirmed as filed. Once the plan is confirmed, 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 completion of the chapter 13 plan, the court issues a discharge order, the trustee prepares a final report, and the case is closed. In a chapter 12 case, the confirmation hearing must be concluded within 45 days of filing the plan. The court may consider dismissal of the case if a plan is not confirmed.

In a chapter 11 case, a debtor’s conference is held 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, explains the quarterly fees and monthly operating reports, generally discusses the financial situation of the debtor, 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 that ALL debtors must attend in any bankruptcy proceeding. It is held outside the presence of the judge and usually occurs between 20-40 days from the date the original petition is filed with the court.

What can I expect will happen there?

In chapter 7, chapter 12, and chapter 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 representative of the United States Trustee’s office conducts the hearing.

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 is required to answer questions under penalty of perjury concerning the debtor’s acts, conduct, property, liabilities, financial condition, and any matter that may 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.

The meeting is referred to as the “meeting of creditors” because creditors are notified that they may attend and question the debtor about the location, disposition of assets, and any other matter relevant to the administration of the case. However, creditors are not required to attend these meetings and, in general, are not considered to have waived any of their rights by failing to appear.

The meeting usually lasts only a few minutes and may be continued if the trustee or representative of the United States Trustee’s Office is not satisfied with the information provided by the debtor. If the debtor fails to appear and provide the information requested at the meeting, the trustee or representative of the United States Trustee’s Office may request that the bankruptcy case be dismissed or the debtor is ordered by the court to cooperate or be held in contempt of court for willful failure to cooperate.

What is a discharge?

The discharge order is issued by the court and permanently prohibits creditors from taking action to collect dischargeable debts against the debtor personally. This does not prevent secured creditors from seizing collateral if payments are not kept up, or other creditors from pursuing property of the estate. Some debts are not dischargeable.

Others may be found to be non-dischargeable depending on particular circumstances. In a chapter 7 case, the bankruptcy court orders that the debtor is discharged of all dischargeable debts once the time for filing complaints objecting to discharge has expired.

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
• The debtor has a previous discharge within the past eight years
• The debtor filed a waiver of discharge

In chapter 11 cases, if the debtor is an individual, a discharge must be granted by the Court after all payments are complete, or, at least, the amounts paid are not less than the amount that would have been 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:

• The plan or order confirming plan provides otherwise.
• The plan is a liquidating plan.
• The debtor would be denied a discharge in a chapter 7 case under 11 U.S.C. 727.

In chapter 12 and chapter 13 cases, the court orders that the debtor is discharged of dischargeable debts after the debtor has completed all payments under the plan, or prior to plan completion, after notice and hearing, if the requirements of 11 U.S.C. §§ 1228(b) or 1328(b) have been met.

The granting of a discharge does not automatically result in the closing of a case. All contested matters, adversary proceedings, and appeals must be resolved and 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 will close 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 the granting of a 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 that any domestic support obligations are current. In some circumstances, a case may be closed without the discharge being granted. If that happens, the debtor has to pay a fee to reopen the case and file the missing documents to get 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 a complaint to deny the discharge of that debt is timely filed with the bankruptcy court.

Ordinarily, these complaints must be filed within 60 days of the first date set for the meeting of creditors. Additionally, debts not listed on your bankruptcy schedules or that incurred after you filed bankruptcy are generally not discharged. Most tax debts and student loans are nondischargeable as are child support and alimony obligations. Property settlements in divorce are nondischargeable in a Chapter 7 case.

What is a reaffirmation agreement?

A reaffirmation agreement is an agreement by which a bankruptcy debtor becomes legally obligated to pay all or a portion of an otherwise dischargeable debt. Such an agreement must generally be filed within 60 days after the first date set for the meeting of creditors.

An original and executed reaffirmation agreement filed with the Clerk no later than 60 days after the first date set for the meeting of creditors is enforceable without hearing or court order if the agreement is accompanied by a declaration or an affidavit of the debtor’s attorney.

The reaffirmation agreement must be filed on form B240A along with the reaffirmation agreement cover sheet form B27. If a reaffirmation agreement is filed without an attorney’s declaration or affidavit or creates a presumption of undue hardship, a hearing is required. 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 whether it is in your best interests. Since reaffirmed debts are not discharged, the bankruptcy court will normally only reaffirm secured debts where the collateral is important to your daily activities.

Reaffirmation agreements are strictly voluntary. They are not required by the Bankruptcy Code or other state or federal law. You can voluntarily repay any debt instead of signing a reaffirmation agreement, but 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, legal counsel is advisable before agreeing to a reaffirmation. Even if you sign a reaffirmation agreement, you have a minimum of 60 days after the agreement is filed with the court to change your mind.

If your discharge date is more than 60 days after the agreement is filed with the court, you have until your discharge date to change your mind. If you reaffirm a debt and fail to make the payments as agreed, the creditor can take action against you to recover any property given as security for the loan. You may remain personally liable for any remaining debt.

What can I do if a creditor keeps trying to collect money after I have filed bankruptcy?

If a creditor continues to attempt to collect a debt after the bankruptcy is filed in violation of the automatic stay, you should immediately notify the creditor in writing that you have filed bankruptcy, and provide them with either the case name, number, filing date, or a copy of the petition that shows it was filed.

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