The new bankruptcy law has passed and been signed into law. The main provisions became effective for cases filed on or after October 17, 2005.
The new bankruptcy law has passed and been signed into law. The main provisions became effective for cases filed on or after October 17, 2005.
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Means Test – New Bankruptcy Reform Act
Under the old bankruptcy laws, you can choose which form of bankruptcy best fits your needs. It is possible to file for Chapter 7 immediately. But when the new bankruptcy law goes into effect in October, you will have to first pass a two-part means test before filing for Chapter 7 bankruptcy.
First, a quick definition of Means Test:
Means = Money, property, or other wealth (source: Dictionary.com)
Your Income Vs. Your State's Median Income
In the first part of the means test, your monthly income multiplied by 12 is compared to your state's median annual income. Your state's median income would be below your state's highest incomes and above your state's lowest incomes.
If your income falls at or below your state's monthly median income, then your Chapter 7 bankruptcy filing will likely be successful.
On the other hand, if your monthly income does not fall below your state's median income, then your income will then be factored into a formula. Your formula results will determine your ability to file for Chapter 7.
Means Test Formula:
Under the Means Test, any creditor, trustee or judge will look at your monthly income, minus certain living expenses like food and rent. Your Chapter 7 bankruptcy will likely be successful if you are unable to pay at least $6,000 over the next five years ($100 per month). However, if you can pay at least $10,000 over five years ($166.67 per month or more) your Chapter 7 will likely be denied.
If you could afford more than $6,000 but less than $10,000 over five years, then a mathematical calculation determines whether your Chapter 7 will likely be successful or not. If you could afford to pay 25% or more of your unsecured debt, then a Chapter 7 will likely be denied. If you can't afford to pay 25% of your unsecured debt, your Chapter 7 filing will likely be successful. Examples of unsecured debts would include medical and credit card bills. Note that you can still opt for Chapter 13 in either of these cases.
Conclusion: You should be aware that the new bankruptcy law now lets the government decide what is best for you. The updates take away discretion from the Judges to judge cases based on individual circumstances. It is doubtful that the courts can make exceptions for results. If you are considering bankruptcy, the time to file is now.
Means Test: You must pass the test to file Chapter 7:
The means test was added to the Bankruptcy Code to create objective standards for determining which individuals are "worthy" of relief in Chapter 7. It applies only to individuals and only those individuals whose debt is primarily consumer debt.
The means test is calculated comparing the average income for the past six months, annualized, to the median income for households of the same size in the debtor's state of residence. If the debtor's income is less than or equal to the state median income, the debtor "passes" the means test and may file Chapter 7.
If the debtor's income exceeds median income, a further analysis is performed, looking at the debtor's disposable income, trying to estimate what the debtor could pay to unsecured creditors in a hypothetical Chapter 13. THe debtor's disposable income is calculated applying a mix of actual and standardized expenses to the historical average income! If the debtor can pay $10,000 in five years or at little as $167/month to creditors, a presumption arises that a Chapter 7 filing is "abusive".
If the debtor's income exceeds median income, a further analysis is performed, looking at the debtor's disposable income, trying to estimate what the debtor could pay to unsecured creditors in a hypothetical Chapter 13. THe debtor's disposable income is calculated applying a mix of actual and standardized expenses to the historical average income! If the debtor can pay $10,000 in five years or at little as $167/month to creditors, a presumption arises that a Chapter 7 filing is "abusive". IRS collection
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What bankruptcy reform means to consumers:
In most courts, you are innocent until proven guilty. But that might not be true if you declare bankruptcy in a few months.
Congress wants to make it so onerous and grueling to declare bankruptcy that fewer people will even try. A proposed revision of the bankruptcy code would make it more difficult for insolvent people to cast off their debts and get a fresh start.
Instead, more debtors would be forced into debt-repayment plans.
The proposed overhaul of bankruptcy law (see highlights), which is expected to pass and has the president's support, is designed to encourage people to avoid bankruptcy court altogether. It requires debtors to try to work out repayment plans through counseling agencies before they can step into bankruptcy court.
A presumption of abuse:
Debtors who declare bankruptcy anyway are likely to encounter officially sanctioned suspicion. Under the proposed law, if you earn more than half of other families of the same size, and you declare bankruptcy, the court is required to assume that you are cheating. It's called a "presumption of abuse." If you can't prove that you're not abusing the bankruptcy system, you'll have to find a way to pay your debts.
It's like being presumed guilty until proven innocent.
The presumption of abuse is part of a "means test" to determine whether a debtor deserves to have some or all debts wiped away. The means test will determine whether a debtor can declare Chapter 7 bankruptcy, in which the court forgives all debt that is not backed by collateral, or Chapter 13 bankruptcy, in which the debtor repays some or all debt during three to five years of court supervision.
Bankruptcy Reform Highlights
Most of the provisions of this legislation will go into effect on October 17, 2005. Below are some highlights of some of the new provisions.
SOME OF THE NEW REQUIREMENTS:
1) Debtor Education: There are two levels of debtor education that will be required under the new legislation (not so affectionately referred to by some in the profession as BARF).
a) Pre-filing education: In order to qualify for either Chapter 7 or Chapter 13 bankruptcy relief, the new law requires debtors to file with the bankruptcy petition a certificate from an approved credit counseling agency certifying that the debtor has completed a credit counseling session. The good news is that this pre-filing requirement can typically be completed online or in a 30 minute phone call, so this provision shouldn't be too daunting.
b) Post-filing education: Before a debtor can obtain a discharge under either Chapter 7 or Chapter 13 the debtor must attend a financial management course administered by an approved provider. The US Trustees Office is charged with the responsibility of either administering the course or outsourcing the administration of the course to approved agencies. I've heard through the grapevine that in some jurisdictions, the US Trustee will set up the 341 meeting in the morning and then offer the course for all of the debtors that attended their meetings later that afternoon.
2) Waiting period between cases: A debtor in a Chapter 7 case can be denied a discharge if the debtor was a debtor in a prior Chapter 7 case that was filed within 8 years of the second case. The date of filing is the important date, not the discharge date. Currently, the rule is 6 years. The new legislation also imposes a waiting period for a Chapter 13 discharge if the debtor received a discharge in a Chapter 7 case within 4 years of the filing of the Chapter 13. Currently there is no waiting period.
3) Dischargeability: Dischargeability refers to the types of debt that can be eliminated in bankruptcy.
a) Student loans - The new legislation changes current legislation expanding protection for creditors who loan money for educational benefits. The current rule is that if the money is owed to a "not for profit" institution or to a "government insured student loan program" then the debt would be non-dischargeable, absent a showing of undue hardship. The new legislation will no longer draw a distinction between a "for profit" and a "not for profit" institution. Basically, ALL loans for educational benefits will not be discharged in bankruptcy, absent a showing of undue hardship.
b) Credit card debts - The new law expands protection to credit card companies. First, if a debtor incurs a cash advance within 90 days of filing of more than $750 or buys a "luxury" item of more than $500 within 90 days of filing, this credit card use creates a presumption of fraud. Current law doesn't create that presumption unless the use was more than $1,500 and within 60 days of the filing. Also, if the court finds that credit card debt was incurred by false pretenses, actual fraud, or with the intent to file bankruptcy, such charges wouldn't be discharged under Chapter 13! Currently, these types of debt wouldn't be discharged in Chapter 7 provided the creditor filed a successful objection, but could still be discharged in a Chapter 13 payment plan (after the debtor completes the plan payments paying whatever percentage the debtor could afford).
This does not mean that debtors can't discharge credit card obligations, just obligations that were incurred fraudulently.
4) Means Testing: This is probably the most talked about provision to the new legislation. Under current law, a debtor's Chapter 7 case can be dismissed for substantial abuse. The Bankruptcy Code doesn't define substantial abuse and over the years case law developed defining the term, much to the dismay of the credit card industry that didn't agree with most of the court opinions on the subject. This led to the huge lobbying effort in Congress and it appears the credit card industry got its payday with this new legislation.
The current legislation would allow the dismissal of a Chapter 7 case for abuse, not substantial abuse. The new legislation creates a presumption of abuse when a debtor fails the means test. The means test is complicated.
Basically, the debtors' average monthly gross income for the last 6 months (excluding social security benefits and certain victim's payments) is multiplied by 12 and compared to the state's median income for the same family size. If the debtor's income is below the state's median income for the same family size, no presumption of abuse is found and the debtor does not have to apply the rest of the means test. If the debtor's income exceeds the state's median, then the means test must be applied and the debtor's case can be challenged by any party in interest (creditors, the interim trustee, the US Trustee, or the Judge).
The means test imposes a "reasonable" budget onto the debtor's income and determines whether the debtor, under the means test has an ability to repay unsecured debts in a Chapter 13 case. The frustrating part of this is that the means test is taking a lot of discretion away from judges to weigh individual circumstances on a case by case basis to determine abuse. The means test also imposes artificial income and expenses on the debtor in determining whether the debtor has "means" to repay creditors. Even worse, the budget numbers the new law requires the debtor to use for expenses are the numbers the IRS uses when it determines a tax cheaters ability to pay delinquent taxes. The expense allowances are fairly minimal because those standards are meant to punish tax cheaters for cheating on taxes.
New Bankruptcy Laws - Means Testing
As proposed, new bankruptcy laws under the Bankruptcy and Abuse Prevention Act contains many formulaic management techniques. One of these formulas presumes abuse based upon financial means of a debtor. A three pronged formula is provided by these new bankruptcy laws for an automatic presumption of abuse according to § 704(b)(2), if monthly income, reduced by expenses, multiplied by 60, is not less than the lesser of either (A)(1) the greater of 25 percent of general unsecured claims, or (A)(2)) $6,000, or (B) $10,000.
Confusing? Not really. Let's walk through slowly.
A hypothetical married couple that each earn minimum wage generates $1,785 gross household income per month. Then subtract $1,175 for allowed expenses according to the new bankruptcy law proposal incorporating IRS living allowances. Next, multiply that remainder by 60 to derive $36,600 as a test measure to determine eligibility for federal debt relief.
This couple's test measure under new bankruptcy laws is over the $6,000 limit of part (A)(1), also over the 25% unsecured limit if they owe less than $146,400 in unsecured liability as provided in (A)(2), and finally, is also over the $10,000 maximum limit provided in (B) above.
The formula imposes a "less than the lesser" standard under these new bankruptcy laws. This standard requires passage of all three prongs of the test to avoid automatic presumption of abuse, which in turn, eliminates all possibility of federal debt relief in three different ways. In application, spouses who each earn minimum wage fail all three prongs of the test created by new bankruptcy laws and are automatically presumed financially abusive and extravagant unless they jointly owe at over $146,400 in unsecured liabilities as a starting point.
Magic of legislative math - new bankruptcy laws eliminate debt relief without a word:
Calculate mo. interest at typical credit cards rates on $146,400. The interest alone - approximately $2,318 - is far above the combined mo. net income of both spouses. Lenders usually refuse loan requests if current payments exceed 33% of net mo. income. To borrow $146,400 this couple would need approximately $7000 in monthly take home pay (requiring over $120,000 income during the preceding year) to file Ch. 7.
By using harsh formulas rather than plain language, new bankruptcy laws eliminate the possibility of Ch.7 for most individuals. Minimum debt requirements eliminate low income individuals. Further, if disposable income exceed $166 per month, new bankruptcy laws also bar filing Ch. 7 for wealthy individuals. Challenged, average or wealthy - all individuals face equally overwhelming odds seeking debt relief through Chapter 7.
Bankruptcy FAQ'sQ: What is the automatic stay?
A: This is an injunction that goes into effect automatically upon the filing of a bankruptcy. It strictly prohibits the commencement or continuation of any acts to collect on a debt that arose prior to filing the bankruptcy. This includes enforcement of judgments, creating or perfecting liens, and many other actions. (It does not apply to collecting alimony maintenance and support).
Q. Does the automatic stay always apply when a bankruptcy case is filed, and if so, for how long?
A: Generally, the automatic stay goes into effect immediately upon filing your case and against acts taken towards you personally until you receive your discharge. Stays against actions towards property you own may last longer or shorter depending on what happens to that property during your case (e.g. it is sold by the Trustee or not, etc.). Note: For cases filed on or after October 17, 2005, there are several limits to the length of the automatic stay: 1. If you had a prior bankruptcy case dismissed under any chapter within one year prior to the filing of your present case, the automatic stay will terminate 30 days after your new case is filed, unless you obtain a court order extending it, for cause and a showing of good faith as to why the prior case was dismissed. 2. If you had more than one prior bankruptcy case dismissed under any chapter within one year prior to the filing of your present case, the automatic stay does not go into effect at all unless and until the court orders it into effect, after a noticed hearing. There are other new limitations on the automatic stay, but you should check with your attorney as to whether they will affect you.
Q: Where Does My Case Get Filed?
A: Your case is filed in the District where you have resided or have your domicile (or for a business, its principal place of business) for the greater part of the 180 day period prior to the date your case is filed.
Q. What are exemptions?
A: Exemptions are protected allowances for the value in certain assets. For example, a homestead exemption protects the equity you have in your home, up to a certain value. All States have different exemption laws which protect the value in certain assets. You need to check with a qualified bankruptcy attorney regarding what exemptions you are entitled to when you file your case. Which State's laws you use depends on where your domicile was located for the 2 years prior to commencing your bankruptcy case (see below).
Q. Which State's exemption laws apply to my assets?
A: For cases filed after 10/17/05: The exemption laws of whatever State you were domiciled in for the last 2 years. If you lived in more than one State in the past 2 years, then it will be the exemption laws of whatever State you lived in for the 180 day period PRIOR to the start of the last 2 years and if you lived in more than one State during that 180 day period, then it will be the State where you lived for the greater part of that 180 days. Fun, huh? You can thank our Congress and President for that one.
Q. Can I pick and choose who to list in my bankruptcy case?
A: Absolutely not. I don't know where people get this idea. You must list all your assets and all your debts in ANY chapter of bankruptcy. You may voluntarily repay anybody you want after your case is concluded (and you are required to repay any debts that are not discharged), but you are still required to list all your creditors.
Q. Can you be fired or denied employment because of a bankruptcy?
A: No. While an employer can usually find some reason to fire anyone, they cannot use bankruptcy as a basis for doing so. This is set forth in Section 525 of the Bankruptcy Code.
Q. Can I remove liens against my property?
A: Yes. Under certain circumstances, judicial liens and "nonpossessory, nonpurchase-money security interests" may be removed if, based on the value of the asset and the amount of senior liens and encumbrances against it on the date your bankruptcy case is filed, the fixing of the lien causes it to "impair" an exemption to which you are entitled under State (or other applicable) law.
What is bankruptcy?
Bankruptcy is the legal method for a debtor to discharge or relieve debt. Bankruptcy is a way for people or a business who owe more money than they can pay to either work out a plan to repay the money over time or to have their debt wiped out. While no debtor is guaranteed a total discharge, most debtors who file for bankruptcy are given such relief. One of the primary purposes of the bankruptcy act is to relieve the honest debtor from the weight of oppressive indebtedness and to provide the debtor with a fresh start. Title 11 of the United States Code regulates the filing of a bankruptcy. If the debtor initiates the bankruptcy it is called a voluntary bankruptcy. If the creditor initiates the bankruptcy it is called an involuntary bankruptcy. In an involuntary bankruptcy the debtor has the opportunity to contest the petition. While the debtor is either working out a plan or the trustee is gathering the available assets to sell, the Bankruptcy Code provides that creditors must stop all collection efforts against the debtor. The Bankruptcy Code regulates what chapter you must file under, what bills can be eliminated, how long payments may be extended, what possessions you may keep, and all other details concerning the bankruptcy.
What is the Bankruptcy Code?
The Bankruptcy Code refers to Title 11 of the United States Code. (11 U.S.C. º 101-1330) Federal Law governs bankruptcy.
Where do I get a copy of my states local rules?
Copies can be obtained at the public service counters in the Clerk`s office of the Bankruptcy Court. In addition, many Bankruptcy Courts now have their rules online.
Who can file for bankruptcy?
Any person, partnership, corporation or business trust may file bankruptcy. In addition, charitable or social organizations may also file for bankruptcy. United States citizenship is not a requirement for filing bankruptcy.
Do I need an attorney to file bankruptcy?
Federal law does not require you to have an attorney. You are allowed to file pro se, that is, on your own without an attorney. However, without the assistance of an attorney, it is extremely difficult to do so successfully. Hiring a competent attorney is highly recommended.
What if I am married?
If you are married, you may file a joint petition. A joint petition is the filing of a single petition by an individual and the individual`s spouse. In order to qualify for a joint petition, you must be married on the date that the joint petition is filed. Unmarried persons, corporations and partnerships must each file a separate case. If you are an individual and have a business, you may not file a single petition for yourself and your business; each must be a separate bankruptcy case.
Will I lose my house, car, and other personal property?
Not necessarily, each state has laws that determine which items or property are exempt from being taken away. For example, many states exempt personal items such as furniture and clothing. In addition, other kinds of property are exempt up to a limit. These exemption limits mean that any equity that you have in the property above the limit is not exempt. The Bankruptcy Court can take the property and sell it, pay off any creditors, give to you the exemption amount, and keep the rest for other creditors.
Does my divorce decree protect me if my ex-spouse has filed for bankruptcy and she has listed me as a co-signer on a Schedule D?
If you are contractually bound with your ex-spouse on a debt, the creditor can require the entire payment of that debt from your share of the community property even though the divorce decree assigns the debt to your ex-spouse. Depending on the terms of your divorce decree, you may be able to have certain support obligations under it determined to be non-dischargeable by the bankruptcy court or in state court. If you find out that your ex-spouse has filed for bankruptcy, you should seek legal advice to find out your possible obligations.
Will filing bankruptcy effect my credit rating?
Unfortunately it will. However, most individuals are able to rebuild their credit within a few years. If you are currently contemplating bankruptcy, then it is likely that your current credit rating has already been effected. A discharge of your current debt may provide the opportunity to rebuild your credit with steady, regular payments on a new account.
How long will a bankruptcy show on my credit reports?
The Bankruptcy Court has no jurisdiction over credit reporting agencies. The Fair Credit Reporting Act, 6 U.S.C. Section 605, is the law that controls credit reporting agencies. The law states that credit reporting agencies may not report a bankruptcy case on a person`s credit report after ten years from the date the bankruptcy case is filed. Other bad credit information is removed after seven years. The larger credit reporting agencies belong to an organization called the Associated Credit Bureaus. The policy of the Associated Credit Bureaus is to remove chapter 11 and chapter 13 cases from the credit report after seven years to encourage debtors to file under these chapters.
Can I file for bankruptcy every few years?
No. Once a discharge is granted, a debtor who filed under chapter 7 or 11 is prohibited from filing for another 6 years.
What chapter should I file under?
Your particular circumstances will determine the best chapter for you to file under. Choosing the appropriate chapter is very important. The decision whether to file a bankruptcy and under what chapter is an extremely important decision and should be made only with competent legal advice from an experienced bankruptcy attorney after a review of all of the relevant facts concerning your case.
What is a chapter 11 bankruptcy?
Chapter 11 is the reorganization chapter available to businesses and individuals that have substantial assets and/or income to restructure and repay their debts. Creditors vote on whether to accept or reject a plan of reorganization that must be approved by the court. Chapter 11 allows flexibility in structuring the reorganization. Some plans may even release a debtor from ongoing contracts such as a commercial lease or service contract. Because of the flexibility, if you think that you are nearing financial trouble, you should consult with an attorney before you reach a financial crisis. There is no debt limit under Chapter 11. However, only a chapter 11 debtor that qualifies as a small business may request expedited treatment under chapter 11. To qualify as a small business, the debtor must be engaged in commercial or business activities, other than the ownership of real property, and the total of its secured plus unsecured debts must be less than $200,000. Due to the expense and complexity of chapter 11, the decision to file a chapter 11 petition should be made in consultation with an attorney. In addition to the filing fee paid to the Clerk, a quarterly fee must be paid to the U.S. Trustee in all chapter 11 cases.
What is a chapter 13 bankruptcy?
Chapter 13 is the debt repayment chapter for individuals with regular income whose debts do not exceed $1,000,000 ($250,000 in unsecured debts and $750,000 in secured debts), including individuals who operate businesses as sole proprietorships. It is not available to corporations or partnerships. Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future income. Each chapter 13 debtor proposes a repayment plan that must be approved by the court. The amounts set forth in the plan must be paid to the chapter 13 trustee who distributes the funds for a small fee. Many debts that cannot be discharged can still be paid over time in a chapter 13 plan. After completion of payments under the plan, chapter 13 debtors receive a discharge of most debts.
What should I do if I cannot make my chapter 13 payment?
If the debtor cannot make a chapter 13 payment on time according to the terms of the confirmed plan, the debtor should contact the trustee by phone and by letter advising the trustee of the problem and whether it is temporary or permanent. If it is a temporary problem and the payments can be made up, the debtor should advise the trustee of the time and manner in which the debtor will make up the payments. Significant changes in the debtor`s circumstances may require that the plan be formally modified. If the problem is permanent and the debtor is no longer able to make payments to the plan, the trustee will request that the case be dismissed or converted to another chapter. The determination of whether to modify, dismiss or convert a case requires the same kind of analysis as is needed for the initial decision whether to file bankruptcy and under what chapter. Therefore, the debtor should seek counsel from a qualified bankruptcy attorney before attempting to make such a decision. If the debtor delays making a voluntary decision and cannot make the plan payments, the court may dismiss the case.
What is a chapter 7 bankruptcy?
Chapter 7 is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases are commonly referred to as straight bankruptcy or liquidation cases, and may be filed by an individual, corporation, or a partnership. Under chapter 7, a trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. In the case of an individual, the debtor is allowed to claim certain property exempt. In exchange for this, the debtor gets a discharge, which means that the debtor does not have to pay certain types of debts. Corporations and partnerships do not receive discharges. Consequently, any individuals legally liable for the partnership`s or corporation`s debts will remain liable. Therefore, individual bankruptcies may be required as well as the corporation or partnership bankruptcy.
What is a chapter 12 bankruptcy?
Chapter 12 offers bankruptcy relief to those who qualify as family farmers. There are debt limitations for chapter 12, and a certain portion of the debtor`s income must come from the operation of a farming business. Family farmers must propose a plan to repay their creditors over a period of time from future income and the court must approve it. Plan payments are made through a chapter 12 trustee who also monitors the debtor`s farming operations while the case is pending.
What is a chapter 9 bankruptcy?
Chapter 9 is only for municipalities and governmental units, such as schools, water districts, some utility companies and other similar organizations.
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, and others may be found to be non-dischargeable depending on particular circumstances.
What debts are dischargeable?
11 U.S.C. º 523 lists exceptions to discharge. In general, all other debts are dischargeable. Some debts listed in 11 U.S.C. º 523, such as those based on fraudulent conduct, embezzlement or willful and malicious injury to another, are discharged unless a complaint to deny discharge of that debt is timely filed with the bankruptcy court. Ordinarily, these complaints must be filed within sixty (60) days of the first date set for the meeting of creditors. Additionally, debts that were not listed on your bankruptcy schedules or that were incurred after you filed bankruptcy are generally not discharged. Denial of a discharge goes to the debtor`s entire proceeding, while determination of non-dischargeability goes to a particular debt only. A request for denial of discharge is usually granted because the debtor has defrauded a creditor, concealed property of the estate, made a false oath, presented or used a false claim, refused to obey any lawful order of the court and other reasons contained in the Bankruptcy Code. A non-dischargeability of a debt excepts a particular debt from the discharge. This means that if the debt is determined non-dischargeable the debtor is still obligated to that creditor.
What is a priority debt?
priority debt is a debt entitled to priority in payment in a bankruptcy case. A general listing of priority debts is given in 11 U.S.C. º 507 of the Bankruptcy Code. Examples of priority debts are some taxes, wage claims of employees, debts related to goods and services provided to a debtor`s estate during the pendency of a bankruptcy case. In addition, alimony, maintenance or support of a spouse, former spouse, or child is considered a priority debt. If you have questions deciding which of your debts are entitled to priority status, you should consult an attorney.
What is a secured debt?
A secured debt is a debt that is backed by property. A creditor whose debt is secured has a right to take property to satisfy a secured debt. For example, most homes are burdened by a secured debt. This means that the lender has the right to take the home if the borrower fails to make payments on the loan. Most people who buy new cars give the lender a security interest in the car. This means that the debt is a secured debt and that the lender can take the car if the borrower fails to make payments on the car loan.
What is an unsecured debt?
A debt is unsecured if you have simply promised to pay someone a sum of money at a particular time, and you have not pledged any real or personal property as collateral for that debt. Typically, all credit cards are an unsecured debt.
What is an administrative debt?
An administrative debt is a priority debt. An administrative debt is created when someone provides goods or services to your bankruptcy estate. The best example of an administrative debt is the fees generated by attorneys and other authorized professionals in representing the bankruptcy estate.
What are exemptions?
11 U.S.C. º 522(b) allows an individual debtor to exempt real, personal, or intangible property from the property of the estate. State law protects exempt assets from distribution to your creditors. Typically, exempt assets include vehicles up to a certain dollar amount, the equity in your home up to a certain amount, and tools of the trade. Exemptions are claimed on Schedule C. As with all schedules, it is important to fully complete and provide all the information requested. If no one objects to the exemptions you have listed within the time frame specified by the bankruptcy court, these assets will not be a part of your bankruptcy estate and will not be used to pay creditors through your bankruptcy case. Deciding which assets are exempt and how and if you can protect these assets from your creditors can be one of the more important and difficult aspects of your bankruptcy case. It is extremely important to consult an attorney if you have any questions regarding the issue of exempt assets.
What is a Plan of Reorganization?
The Plan of Reorganization is a document that sets out how a debtor-in-possession will repay creditors. The plan divides creditors into classes. It specifies the treatment of claims for each class of creditor and provides a means for the plan`s implementation. The debtor-in-possession has the exclusive right to file a plan for up to 120 days after the filing of the petition. After this exclusivity period has expired, creditors may file a plan.
What is a Disclosure Statement?
The Disclosure Statement is a document that provides a profile of the corporation, financial information and an overview of the proposed Plan of Reorganization. This information is useful to creditors in deciding whether to accept or reject the proposed Plan of Reorganization.
What documents do I need to start a bankruptcy?
Federal forms include: Form 1--Voluntary Petition (2 pages), Form 6--Schedules A through J, Summary, and Declaration, Form 7--Statement of Financial Affairs, and Form 8--Statement of Intention. In addition, you must file the appropriate local forms.
Are bankruptcy forms available on the Internet?
Yes. Many states have made their bankruptcy forms available online.
Where else can I obtain forms to file bankruptcy?
The Bankruptcy Court and many office supply stores carry bankruptcy forms.
Where do I file my bankruptcy case?
The bankruptcy court is a federal court. The federal court system is divided into judicial districts. Every state has at least one judicial district. Your local phonebook should have a listing of the federal bankruptcy court in your state. If you need further assistance, you can contract your local bar association.
How do I file a document with the court?
Bankruptcy petitions, pleadings and other papers may be submitted for filing by mail or in person at the Clerk`s Office public counters. After completing, assembling, and two hole punching the top/center of the original and all copiesof your bankruptcy papers, mail or deliver them to the appropriate divisional Clerk`s Office accompanied by the filing fee payment or a completed application to pay fees in installments. The Clerk`s Office will file stamp and return one copy to you. If your petition is mailed, you must include a self-addressed, stamped envelope of sufficient size to obtain your file stamped copy.
Can I ask questions to the Clerk at the Bankruptcy Court?
No. A bankruptcy case is a legal proceeding. Title 28 of the United States Code prohibits any member of the Clerk`s Office staff from giving any advice that may be considered legal in nature.
What is the role of the Clerk`s Office?
The Clerk`s Office provides a variety of services to the bankruptcy judges, attorneys and the public. The Clerk`s Office staff provides clerical and administrative support to the court by filing and maintaining case-related papers, signing ministerial orders, collecting authorized fees, sending notices, entering judgments and orders, and setting hearings. The services provided by the Clerk`s Office to attorneys and the public include responding to requests for information and making copies of papers in bankruptcy court files. Although Clerk`s Office staff cannot give you legal advice, the U.S. Bankruptcy court is a source for many forms and local rules which you will need to file your bankruptcy petition and related documents.
What services can a bankruptcy petition preparer provide?
Bankruptcy petition preparers are permitted to provide services limited to the typing of forms. They may not advise you in any way. Their services are subject to various statutory requirements and limitations. Although bankruptcy preparers are required to sign all documents prepared for filing, they are not authorized to sign any document on your behalf. Therefore, you and if filing a joint petition your spouse, must also sign all documents. The bankruptcy petition preparer should furnish copies of all prepared documents to you at the time they are presented to you for signature. Further, bankruptcy law prohibits bankruptcy petition preparers from collecting or receiving any court fees connected with the filing of your case. Consequently, all court fees connected with the filing of your case, including the filing fee and miscellaneous administrative fee, should be paid directly by you to the court. The failure of any bankruptcy petition preparer to comply with the law should immediately be brought to the attention of any trustee appointed in your case and the local Office of the United States Trustee.
What is a bankruptcy trustee and who is the United States Trustee?
In all chapter 7, 12, 13 and in some chapter 11 cases, a case trustee is assigned. In chapter 7 cases they are called Panel Trustees. In chapter 12 and 13 cases they are called Standing Trustees. The trustee`s job is to administer the bankruptcy estate, to make sure creditors get as much money as possible, and to run the first meeting of creditors, (also called the 341 meeting, because 11 U.S.C. º 341 of the Bankruptcy Code requires that the meeting be held). The trustee either collects and sells non-exempt estate property, as in the case of a chapter 7, or collects and pays out money on a repayment plan, as in the case of a chapter 13. The trustee can require that you provide, under penalty of perjury, information and documents, either before, after, or at the meeting. You should always cooperate with the trustee, since failure to cooperate with the trustee could be grounds to have your discharge denied. Trustees do not have to be lawyers. The court does not pay trustees. The United States Trustee appoints the trustees. The trustees report to the court, but their fees come out of the bankruptcy filing fees or as a percentage of the money distributed to creditors in the bankruptcy. The United States Trustee`s Office is part of the U.S. Department of Justice, and is separate from the court. The United States Trustee`s Office is a watchdog agency, charged with monitoring all bankruptcies, appointing and supervising all trustees, and identifying fraud in bankruptcy cases. The United States Trustee`s Office cannot give you legal advice, but they can give you information about the status of a case, and you can contact them if you are having a problem with a trustee, or if you have evidence of any fraudulent activity. In monitoring cases, the United States Trustee reviews all bankruptcy petitions and pleadings filed in cases, and participate in many proceedings affecting the case. However, they do not administer the case themselves. They can bring motions in the bankruptcy, such as ones to dismiss the case, or to deny the debtor`s discharge.
Chapter 11
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 will go over the responsibilities and restrictions on the debtor-in-possession, explain the quarterly fees and monthly operating reports, and generally discuss 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.
Chapter 12
In a chapter 12 case, the confirmation hearing must be concluded within forty-five (45) days of filing the plan. The court may consider dismissal of the case if a plan is not confirmed.
Chapter 13
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 will distribute 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 will issue a discharge order; the trustee will prepare a final report, and the casewill be closed.
I`ve filed for bankruptcy, now what?
As soon as your case is officially filed with the court you are granted an automatic stay. Creditors are legally prevented from attempting to collect on any debt owed to them by you. This means that creditors must stop all collection activity, including telephone calls, harassing letters, repossessions, foreclosures, lawsuits, and wage garnishments. Although the stay is automatic, creditors need to be advised of the stay. The court issues a notice to all creditors advising them of the filing of the bankruptcy. The creditors are informed of the following: the case number; the automatic stay; the date set for the creditor meeting; the deadlines for filing objections to the discharge of the debtor and; the deadlines for filing objections to the discharge of specific debts. The exact information that is required in the notice differs depending on the chapter under which the case is filed.
Filing of Claims
The written statement filed in a bankruptcy case setting forth a creditor`s claim is called a proof of claim. The proof of claim should include a copy of the obligation giving rise to the claim as well as evidence of the secured status of the debt if the debt is secured. Under the Federal Rules of Bankruptcy Procedure, with limited exceptions, claims filed by creditors, except governmental units, in chapter 7, 12 and 13 cases must be filed within ninety (90) days after the first date set for the meeting of creditors. If a creditor files a claim after the specified deadline, you may object to the claim as being untimely filed. For purposes of obtaining your discharge, it may be important for you to file a claim on behalf of a creditor if that creditor should fail to do so. Under the Federal Rules of Bankruptcy Procedure, you (or in chapter 7 and some 11 cases, the trustee) may file a proof of claim on behalf of a creditor within thirty (30) days after the last day for filing claims.
Claims Objections
You are entitled to object to any claim filed in your bankruptcy case if you believe the debt is not owed or if you believe the claim misrepresents the amount or kind of debt (e.g. secured or priority) which you owe. In some circumstances, an objection to claim can be initiated by filing a motion in the bankruptcy court; in other circumstances, it must be initiated by filing an adversary proceeding (like a lawsuit in your bankruptcy case). If you anticipate objecting to claims, youshould seek the advice of an attorney as soon as possible since the objection process can be complicated and time sensitive.
What is the creditor`s meeting?
A meeting of creditors is the single hearing all debtors must attend in any bankruptcy proceeding. It is held outside the presence of the judge and usually occurs between twenty (20) and forty (40) days from the date the original petition is filed with the court. In chapter 7, chapter 12, and chapter 13 cases, the trustee assigned by the court on behalf of the United States Trustee conducts the hearing. 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 hearing 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 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 will ask questions to ensure that the debtor understand the positive and negative aspects of filing for bankruptcy. The hearing is referred to as the meeting of creditors because creditors are notified that they may attend and question the debtor about the location and disposition of assets and any other matter relevant to the administration of the case. However, creditors need not attend these hearings and, in general, are not considered to have waived any of their rights by failing to appear. The hearing 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. The trustee or representative of the United States Trustee`s Office may request that the bankruptcy case be dismissed if the debtor fails to appear and provide the information requested at the hearing. The United States Trustee may also request that the debtor be ordered by the court to cooperate or be held in contempt of court for failing to cooperate.
Chapter 7
In a chapter 7 case involving an individual debtor, the creditors generally have sixty (60) days from the first date set for the meeting of creditors to object to the discharge of the debtor and/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 thegranting 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 will prepare a report of no distribution and the case will be closed. If there are assets that are not exempt, funds will be available for distribution to creditors. The court will set claims deadlines and notify all creditors to file their claims. The trustee will proceed to collect the assets, liquidate them and distribute the proceeds to creditors. When the assets have been completely administered, the court will close the 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 sixty (60) days after the first date set for the meeting of creditors. If the reaffirming debtor is not represented by an attorney, the debtor or creditor must file an application for approval of the agreement, along with a request for hearing. You must appear in person at the hearing. The judge will ask you questions to determine whether the reaffirmationagreement 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 sixty (60) days after the agreement is filed with the court to change your mind. If your discharge date is more than sixty (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 that was given as security for the loan and you may remain personally liable for any remaining debt.
What is redemption?
Redemption allows an individual debtor (not a partnership or a corporation) to keep tangible, personal property intended primarily for personal, family, or household use. The debtor must pay the holder of a lien on the property the amount of the allowed secured claim on the property, which typically means the value of the property. Otherwise, in order to retain the property, the debtor would have to pay the entire amount of the secured creditor`s debt, do a reaffirmation agreement and become legally obligated on the debt again. The property redeemed must be claimed as exempt or abandoned. With redemption, a debtor can often get liens released on personal household possessions for much less than the underlying debt on those secured possessions. Unless the creditor consents to periodic payments, redemption must generally be made in one lump sum payment to the creditor.
What does it mean if a case is dismissed?
A dismissal order ends the case. Upon dismissal the automatic stay ends and creditors may start to collect debts, unless a discharge is entered before the dismissal and is not revoked. An order of dismissal itself will not free the debtor from any debt. Often, a case is dismissed when the debtor fails to do something that is required (such as show up for the creditors` meeting, answer the trustee`s questions honestly, produce books and records the trustee requests), or if it is in the best interests of the creditors. Unless the debtor appeals the order or seeks reconsideration of the order within ten (10) days after entry of the order, the Clerk will automatically close the case.
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. In addition, you should provide them with either the case name, number and filing date, or a copy of the petition that shows it was filed. If the creditor still 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. Further, if the creditor is willfully violating the automatic stay, the court can hold the creditor in contempt of court and punish the creditor by fine or incarceration. Any legal action brought against the creditor will be complex and will normally require representation by a qualified bankruptcy attorney.
Where can I get advice about bankruptcy?
The best course of action is to schedule an appointment with attorney Edward J. Chandler, Esq., who practices within the area of bankruptcy. An initial consultation is available free of charge.
For a Free Consultation, click here
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