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 General
Question
What is Bankruptcy?
Bankruptcy is a legal proceeding filed in the United States Bankruptcy Court that permits
you to obtain a discharge of your obligation to pay certain debts. The bankruptcy laws are intended to allow
an honest but unfortunate debtor an opportunity to get a fresh start.
What is a Chapter 7 Bankruptcy Case?
A Chapter 7 bankruptcy case is one in which the bankruptcy petition is filed under Chapter 7 of the Bankruptcy Code.
Under Chapter 7, a Trustee is appointed to sell or liquidate any of the debtor's “nonexempt" assets or property in order to raise cash
to make payments to creditors. A nonexempt asset is property of the debtor that the law specifically allows the debtor to keep. A
Chapter 7 case is sometimes referred to as a "straight” bankruptcy or a “liquidation” case. The vast majority of those cases were
"no-asset cases" in which the Trustee determined that there were no non-exempt assets that must be liquidated to pay creditors.
A Chapter 7 debtor who cooperates with the Trustee and complies with all of the provisions of the Bankruptcy Code
receives a discharge. A discharge is a Bankruptcy Court order that releases the individual from the legal obligation to pay debts.
Certain debts, such as child support and some taxes, are not covered by the discharge and are known as "non-dischargeable debts."
If you are in default on a loan that is secured by collateral, such as a home mortgage, the creditor can
foreclose on the loan and sell the collateral even after you receive a discharge unless you specifically
agree to remain legally liable for that loan under the original or modified payment terms. This is known as a reaffirmation
agreement.
What is a Chapter 13 Bankruptcy Case?
In a Chapter 13 case, an individual with regular income repays all or a portion of his or her debts over a
three-to-five-year period through a monthly payment plan approved by the Bankruptcy Court. For that reason, a Chapter 13 case
is sometimes referred to as a "wage-earner plan”. The Chapter 13 Trustee does not take possession of non-exempt assets but
supervises the case and administers the payments to creditors under the Chapter 13 plan.
A Chapter 13 debtor who completes all payments provided for in the approved Chapter 13 plan receives a discharge.
Under certain circumstances, a discharge also may be granted to Chapter 13 debtors who do not complete the payments under their plan
because of circumstances beyond their control. A Chapter 13 discharge may allow the discharge of certain debts that may not be
discharged in Chapter 7, which may make Chapter 13 more attractive to you, depending upon your unique circumstances. If the payment
plan is not successful, it may be possible to convert the case and obtain a discharge under Chapter 7.
Recent Changes
In April 2005, President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
The changes made by that Act generally apply to bankruptcy cases filed on or after October 17, 2005. These were the most sweeping
changes made to bankruptcy law since 1978, particularly for cases filed by individual debtors with consumer debts.
One of the most significant changes was adoption of a “means test" for an individual debtor to qualify for
relief under Chapter 7. Depending upon your "means" (that is, your income and expenses relative to local and national benchmarks
as explained in greater detail in Chapter 3), you may not be eligible to file a Chapter 7 case, but you could still choose to file
for a Chapter 13 payment plan.
Other significant recent changes include:
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A mandatory requirement that debtors receive a briefing from
an approved nonprofit budget and credit counseling agency before filing a Chapter 7 or Chapter 13
bankruptcy case
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A mandatory requirement that debtors complete a second approved
course in personal financial management before receiving a discharge; and
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A restriction that you may only file for Chapter 7 bankruptcy
once every eight years. Previously, a debtor could file for Chapter 7 bankruptcy once every six years.
Frequently Asked Questions
How much does a Chapter 7 bankruptcy cost? The fee paid to
the United States Bankruptcy Court for filing a Chapter 7 bankruptcy case is $299. Our attorney’s fee, in
addition to that, is $1200. The fees charged by attorneys are not uniform and vary from place to place and
from attorney to attorney.
How much does a Chapter 13 bankruptcy cost? The portion
of the $3000 fee paid to us up-front is generally $750. If you are represented by an attorney, you will
have to pay an additional fee for his or her legal services. The fees charged by attorneys in Chapter 13
cases are also not uniform and vary from place to place and attorney to attorney, but they are generally
higher than those charged for Chapter 7 cases.
Do I need an attorney to file for bankruptcy? This is
your decision. You are not required to be represented by an attorney, but the advice of an attorney is
generally helpful in understanding your rights and the consequences of your bankruptcy case,
particularly in light of the recent changes to bankruptcy law. If you decide to file a Chapter 7
or Chapter 13 bankruptcy case, the advice and assistance of an experienced bankruptcy attorney is
generally a worthwhile expense.
Can I keep my credit cards after filing? Whether
you will continue to have and use any given credit card account is up to the issuer of the card.
Some issuers may permit you to keep your account if you "reaffirm" payment of your debt to the issuer.
There may be other alternatives available, such as secured or guaranteed payment cards that function
more like debit than credit cards.
Chapter 7 Bankruptcy
Filing a Chapter 7 Case
You commence a Chapter 7 bankruptcy
by filing a Chapter 7 bankruptcy petition with the Clerk
of the United States Bankruptcy Court. The petition must
be accompanied by a filing fee of $299.
At the time you file a Chapter 7
petition (or at least shortly thereafter), you must also
file a Statement of Financial Affairs and a set of
Schedules, which you submit under oath (that is, under
the penalty of perjury) and make a full and accurate
disclosure of your financial circumstances, including a
complete list of all your assets and debts and a
schedule of all of your current income and current
expenditures? In addition, you must file copies of all
payment documents (such as payroll vouchers or stubs) or
other evidence of payment you received from any employer
during the 60 days before your bankruptcy petition was
filed.
Your bankruptcy petition, Statement
of Financial Affairs and Schedules, and other papers,
applications and pleadings filed with the Court are a
matter of public record and are available for review by
your creditors and anyone else at the Clerk's office or
(in most Courts) over the Internet.
Eligibility: General
Subject to the "means test"
established by the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, if you reside in or
have a domicile, place of business or property in the
United States, you are permitted to file a Chapter 7
bankruptcy petition.
There are
rules that determine “venue," meaning in which
bankruptcy court district you may file the petition.
Most individuals must file their Chapter 7 petition
where they currently live, or where they lived for the
most number of days during the 180-day period
immediately before filing the petition.
Before filing a Chapter 7 bankruptcy
case, you must receive a briefing from an approved
nonprofit budget and credit counseling agency. Under
limited circumstances, you may be able to complete the
briefing requirement after filing your petition.
One of the Schedules that you must
file with your bankruptcy petition is a claim of exempt
property. The Chapter 7 Trustee and creditors have the
right to object to your claim of exempt property. The
deadline for filing an objection to your claim of exempt
property is generally 30 days after completion of the
meeting of creditors in your case. If there is an
objection, the validity of the claim of exempt property
is decided by the Bankruptcy Judge.
The Role of the Chapter 7 Trustee
In every Chapter 7 case, a Bankruptcy
Trustee protects the interests of creditors, reviews
all the papers filed in your case, conducts the meeting
of creditors and take a position on whether you have any
assets that are not exempt property.
If the Chapter 7 Trustee concludes
that you do not have any non-exempt property that should
be liquidated, the trustee will issue a "no asset
report". In most cases, the Chapter 7 Trustee issues a
no distribution report shortly after the meeting of
creditors. The role of the Chapter 7 Trustee in your
case typically ends at that point. However, in unusual
circumstances, the Trustee may extend his role by filing
an objection to your discharge.
If the Chapter 7 Trustee determines
that you have assets that are not exempt property, he
will demand that they be surrendered. He has the power
to liquidate your non-exempt assets by selling them to
raise cash to make payments to your creditors. He also
has the power to ask the Court to set aside and recover
certain payments known as "preferences" and certain
transfers known as "fraudulent conveyances. Ask us to
explain these terms if they arise. If approved by the
Court, the Trustee's request may result in the
collection of additional cash for payment to creditors.
The "341" Meeting of Creditors
You must appear and testify, under
penalty of perjury, at the meeting of creditors
conducted by the Chapter 7 Trustee. At the meeting of
creditors, the Chapter 7 Trustee and any of your
creditors who choose to attend may ask you questions
under oath about anything related to your assets,
liabilities, or business and financial affairs.
The meeting of creditors is recorded. In routine Chapter
7 cases, however, the meeting of creditors typically
lasts about 15 minutes. For purposes of establishing
your identity, the Chapter 7 Trustee can request that
you provide at the meeting an original document such as
a driver's license or passport that contains your
photograph. In addition, the Chapter 7 Trustee may
request to see your Social Security card as proof of
your Social Security number. It is important for you to
be sure that the Court and we are aware of your current
mailing address so that you are notified of the date for
the meeting of creditors or of any postponement. You
must be at the meeting. If you believe you may not be
able to attend the meeting of creditors for any reason,
it is important that you notify us immediately. It is
extremely difficult to reschedule.
Tax Returns
You must provide a copy of your most
recent federal income tax return to the Chapter 7
Trustee before the meeting of creditors. If creditors
ask for a copy of the return, you must provide it to
them as well. If you fail to provide a copy of your most
recent federal income tax return, your case will be
dismissed unless you can demonstrate to the Court that
your failure to comply was due to circumstances beyond
your control.
Upon request, you must also file with
the Court copies of all federal income tax returns,
including amended returns, filed while your Chapter 7
case is pending.
Taxing authorities have the right to
request that your case be dismissed if you fail to file
any tax return that becomes due while your Chapter 7
case is pending. If you do not file the return within 90
days after such a request, the Court may dismiss your
case.
Reaffirmation Agreements
A "reaffirmation agreement" is an
agreement between you and a creditor under which you
agree to pay a debt that would otherwise be discharged.
You might enter into such an agreement for any number of
reasons, but most often reaffirmation agreements are
made by debtors to retain possession of a residence or
car that serves as collateral for a loan. If you enter
into such an agreement, you are obligated to pay the
debt even after a discharge is entered in your Chapter 7
case.
A reaffirmation agreement is
enforceable by a creditor only if (1) it is entered into
before your discharge is granted; (2) you receive
certain mandatory disclosure documents before signing
the reaffirmation agreement; (3) it is filed with the
Court; and (4) you do not rescind the agreement during
the applicable rescission period (at least 60 days). In
addition, a reaffirmation agreement is not enforceable
unless either (1) your attorney certifies that the
agreement does not impose an undue hardship on you or
your dependents, or (2) the Court holds a hearing at
which the Bankruptcy Judge advises you of the legal
effects and consequences of a reaffirmation agreement
and determines that the agreement is in your best
interests and does not impose an undue hardship on you
or your dependents. If you do not reaffirm within the
appropriate time period, the automatic stay will
terminate regarding that collateral.
Discharge
A discharge is an Order entered by
the Bankruptcy Court that prohibits creditors from
taking action against you to collect your pre-bankruptcy
debts. Your discharge does not stop a creditor
from collecting from other persons, such as any
co-signers on your loans, who have responsibility for
your debts and who have not filed a bankruptcy petition.
If a friend or relative has co-signed a loan or
guaranteed your debts, they will remain responsible for
those debts even though you have filed for bankruptcy.
If your debts include loans like a
home mortgage loan that are secured by collateral, a
discharge does not affect the creditor's rights against
the collateral. For that reason, a creditor can
foreclose against and sell collateral after you receive
a discharge if you are in default on such a loan unless
you reinstate the loan by negotiating new payment terms.
You are not entitled to receive a
discharge unless you complete a course of instruction in
personal financial management by an approved agency and
file a Certificate with the Court.
Your discharge may be deferred for a
number of reasons, including a timely objection to
discharge, if filed in your case by the Chapter 7
Trustee, the United States Trustee or a creditor.
Shortly after your Chapter 7 petition
is filed, the Court will issue and mail to you and your
creditors a Notice of Chapter 7 Bankruptcy Case, Meeting
of Creditors, and Deadlines.
Exceptions to Discharge
Certain debts are
"non-dischargeable," which means they are not affected
by a discharge and that you are still legally obligated
to repay them. The grounds for "non-dischargeability"
generally relate to the nature of a specific debt. The
Bankruptcy Code includes exceptions to discharge for
debts such as
alimony, maintenance, child support,
some taxes, and criminal restitution, and for certain
claims that creditors can prove you incurred by fraud,
embezzlement, or larceny, or that resulted from willful
and malicious injury. Also, according to the Bankruptcy
Code: debts that are incurred to pay otherwise
non-dischargeable debt may not be dischargeable (for
example, using a credit card to pay otherwise
non-dischargeable tax liabilities); A debt of more than
$500 to any one creditor incurred within 90 days of the
filing of a bankruptcy petition for luxury goods
and services is non-dischargeable;
claims resulting from fraud, embezzlement, or larceny,
or resulted from willful and malicious injury, may also
be. If such a creditor does not file a complaint, its
claim is discharged.
Once you receive a Chapter 7
discharge, you will not be eligible to receive another
Chapter 7 discharge for a period of eight years.
If you previously received a Chapter
13 discharge, you are not permitted to receive another
discharge in a Chapter 7 case filed within six years of
the filing of the earlier case unless (1) your Chapter
13 plan paid the allowed claims of unsecured creditors
in full, or (2) your plan paid 70 percent of such
claims, was proposed in good faith and was your "best"
effort." The new law puts other limitations on the
automatic stay in case of repeat filings and in other
situations.
Under the new law, your Chapter 7
case may be dismissed (or converted to a Chapter 13 if
you so choose) if your current income is sufficient to
repay a portion of your debts. That will be determined
by a process known as the "means test." The means test
is complex, and if you choose to file for a Chapter 7
bankruptcy, we will explain the means test and how it
applies to your personal situation. However, before
making a decision about bankruptcy, you should
understand the basics of the means test.
The
Automatic Stay
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The filing of a
bankruptcy petition creates an “Automatic
stay," which stops creditors from taking any
action to collect on debts or to enforce
such debts against your property. |
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There are exceptions to
the scope of the automatic stay. Filing a
bankruptcy petition does not stop, among
other things, criminal proceedings,
enforcement of a pre-bankruptcy order for
eviction from a residence, or efforts to
collect debts such as alimony, maintenance,
or child support. In addition, the automatic
stay does not stop a creditor from
collecting from other persons, such as a
co-signer on your loan, who have some
responsibility for your debts and who have
not also filed a bankruptcy petition. If a
friend or relative has co-signed a loan or
guaranteed your debts, they will remain
responsible for those debts even though you
have filed for Chapter 7 bankruptcy. |
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Creditors have the right
to file a motion for relief from the
automatic stay, which requests the court to
permit them to attempt to collect from you
or to enforce their claim. Typically, such
motions are filed in Chapter 7 cases by
creditors that hold a mortgage on a
residence or a security interest in an
automobile and wish to protect their
financial interest by selling the
collateral. |
Chapter 13 Bankruptcy
Filing a Chapter 13 Case
A Chapter 13 bankruptcy is commenced
when you file a Chapter 13 bankruptcy petition with the
Clerk of the United States Bankruptcy Court. Your
petition must be accompanied by a filing fee of $274.
Depending upon your financial circumstances, you may be
able to apply for and obtain a Court order that either
permits you to pay the filing fee in installments or
waives payment entirely.13
When you file a Chapter 13 petition
and the filing fee of $274, you will submit statements
making a full and accurate disclosure of your financial
circumstances, including a complete list of all your
assets and debts and a schedule of all your current
income and current expenditures. In addition, you must
file copies of all payment documents (such as payroll
vouchers or stubs) or other evidence of income you
received from any employer during the 60 days before you
filed your bankruptcy petition.
A Chapter 13 Plan is your proposal
for repayment of your creditors, in whole or in part.
The first payment under your Chapter 13 Plan must be
made to the Chapter 13 Trustee within 30 days of when
you file your case, and in some instances, within 10
days of the filing.
"Venue" rules determine in which
district of the Bankruptcy Court your petition may be
filed. Most individuals must file their Chapter 13
petition where they currently live, or where they lived
for the most number of days during the 180-day period
immediately before filing the petition.
Before filing a Chapter 13 bankruptcy
case, you must receive a briefing from an approved
nonprofit budget and credit counseling agency. Under
limited circumstances, you may be able to complete the
briefing requirement after filing your petition.
You must have regular income to be in
Chapter 13.
Although the "means test" is not
applicable directly to a 13, you will be required to
supply essentially the same budget information as in the
Chapter 7 means test in order to determine your "current
monthly income” and to calculate your "disposable
income," both of which relate to the amount you may be
required to pay under your Chapter 13 Plan.
The Chapter 13 Plan
A Chapter 13 Plan is a monthly
payment plan that you propose as a way to repay your
debts in whole or in part. If the Bankruptcy Court
approves the Plan, your creditors must accept it as full
settlement for your debts.
If you are in default on secured
loans, such as mortgages on your house, Chapter 13 gives
you the opportunity to put those loans back in order. As
a result, in a Chapter 13 case you may be able to
reinstate secured loans, resume making the regular
monthly payments, and retain your property.
You are required to submit all of
your "disposable income" to the Chapter 13 Trustee to
fund the plan while it is in effect. Your disposable
income will be calculated using criteria essentially the
same as those that apply for purposes of the Chapter 7
means test-that is, current monthly income minus certain
expenses allowed under Internal Revenue Service
standards.
The Plan will typically run for a
minimum of three years and a maximum of five years,
depending on your income. There are also two median
income tests applicable in Chapter 13 cases that may
affect the length of the Plan you are required to file.
First, if the combined, current
monthly income for you and your spouse is less than the
median family income in your state (adjusted for the
size of your household), your Chapter 13 Plan will
likely be in place for three years. The Court has the
option to extend the plan to a longer period of up to
five years for "cause.”
If the combined current monthly
income for you and your spouse is equal to or greater
than the median family income in your state (adjusted
for the size of your household), the Court is likely to
provide for a five-year payment plan.
The Trustee can request that you
provide, at the meeting of creditors, an original
document such as a driver's license or passport that
contains your photograph. In addition, the Trustee may
request to see your Social Security card as proof of
your Social Security number. You must be at the meeting.
If you believe you may not be able to attend the meeting
of creditors for any reason, it is important that you
notify us immediately to determine whether the meeting
can be rescheduled. This is extremely difficult to do.
Tax Returns
Prior to the meeting of creditors in
a Chapter 13 case, you must file any delinquent tax
returns due for the four-year period immediately
preceding the filing of your Chapter 13 petition. If you
have not filed the delinquent returns by the time of the
meeting of creditors, the Chapter 13 Trustee has the
discretion to permit up to 120 additional days for you
to file them. Ultimately, the Bankruptcy Court may
dismiss or convert your case if you fail to file the
delinquent returns as required.
You must provide a copy of your most
recent federal income tax return to the Chapter 13
Trustee before the meeting of creditors. If creditors
ask for a copy of the return, you must provide it to
them as well. If you fail to provide a copy of your most
recent federal income tax return, your case will be
dismissed unless you can demonstrate to the Court that
your failure to comply was due to circumstances beyond
your control.
Discharge
As in a Chapter 7 case, a discharge
in a Chapter 13 case is an Order entered by the
Bankruptcy Court that prohibits creditors from taking
action against you to collect your pre-bankruptcy debts.
Your discharge does not stop a creditor from
collecting from other persons, such as someone who has
co-signed on your loans or guaranteed payment of
your debts.
Grant or Denial of Discharge in a
Chapter 13 Case
In a Chapter 13 case, you are
entitled to receive a discharge if your Chapter 13 Plan
is approved by the Court and you complete all payments
under the Plan. You are not entitled to receive such a
discharge unless you certify to the Court that
you are then current on all alimony, maintenance, child
support and other "domestic support obligations."
As in a Chapter 7 case, you are not
entitled to receive a Chapter 13 discharge unless you
complete an approved course of instruction on personal
financial management provided by an approved agency and
file a certificate with the Court (see Chapter Nine of
this book).
Certain debts are "non-dischargeable"
in a Chapter 13 case, which means they are not affected
by a discharge and you remain legally obligated to pay
them.
Exempt Property
Exempt property is important in a
Chapter 13 case, but for different reasons than in a
Chapter 7 case.
If you file a Chapter 7 case, exempt
property is property that the Bankruptcy Code protects
from seizure by a Chapter 7 Trustee for liquidation. In
a Chapter 13 case, however, both your exempt and
non-exempt property remains in your possession and is
not surrendered to the Chapter 13 Trustee for sale.
As previously explained, the value of your non-exempt
property is merely one measure of the minimum total
amount you are required to pay under a Chapter 13 Plan.
As with a Chapter 7 case, one of the
Schedules that you must file with your Chapter 13
petition is a claim of exempt property. The Chapter 13
Trustee and creditors have the right to object to your
claim of exempt property. The deadline for filing an
objection to your claim of exempt property is generally
30 days after completion of the meeting of creditors in
your case.
The "341" Meeting of Creditors
You must appear at what is known as
the "meeting of creditors" conducted by the Chapter 13
Trustee.
The Chapter 13 Trustee and any of
your creditors who choose to attend may ask you
questions under oath about anything related to your
Chapter 13 Plan and your assets, liabilities, or
business and financial affairs. The meeting of creditors
is recorded. The meeting typically lasts a few minutes.
Once the amount and length of your payments have been
determined and the Chapter 13 Plan has been approved, the Bankruptcy Court
may enter an order that directs your employer to deduct
themonthly payment from your pay check and forward it to
the Chapter 13 Trustee.
The Automatic Stay
The filing of a Chapter 13 bankruptcy
petition (like a Chapter 7 petition) creates an
automatic stay which stops creditors from taking any
action to collect on debts or to enforce such debts
against your property. With one important exception known as
the "co-debtor stay," the automatic stay in a Chapter 13
case is essentially the same as the one in a
Chapter 7 case. There are exceptions to the scope of the
automatic stay. Filing a bankruptcy petition does not
stop, among other things, criminal proceedings,
enforcement of a pre-bankruptcy order for eviction from
a residence, or efforts to collect debts such as
alimony, maintenance, or child support.
Your creditors have the right to file
a motion for relief from the automatic stay, which asks
the Court to permit them to attempt to collect
from you or to enforce their claim. Typically, such
motions are filed in Chapter 13 cases by creditors that
have a mortgage on a residence or a security interest in
an automobile and wish to sell their collateral
because you have defaulted on payments that came due
after you filed the Chapter 13 case or because you
failed to cure pre-bankruptcy defaults under the Chapter
13 Plan. If you have previously filed for bankruptcy
within the past 12 months, the automatic stay may be
limited.
The Chapter 13 Co-Debtor Stay
Unlike a Chapter 7 case, a Chapter 13
case includes a "co-debtor stay" that stops creditors
from collecting from other persons, such as co-signers
on your loans, who have some responsibility for your
debts and who have not filed a bankruptcy petition.
Exceptions to Discharge
The Bankruptcy Code includes
exceptions to discharge for certain debts you might have
such as alimony, maintenance, child support, some taxes,
and criminal restitution, and for certain claims that
creditors can prove were incurred by fraud,
embezzlement, or larceny, or resulted from willful and
malicious injury.
Limits on Multiple Bankruptcy
Discharges
The Bankruptcy Code now prohibits you
from receiving a discharge in a Chapter 13 case filed
within four years of the filing of a prior Chapter 7
case in which you received a discharge.
If your prior case was a Chapter 13
case in which you received a discharge, you are not
permitted to receive another discharge in a Chapter 13
case filed within two years of the filing of the earlier
case.
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