What is a chapter 7 bankruptcy?

A chapter 7 bankruptcy is a proceeding under the federal law where a person is released (discharged) from paying his or her debts by filing bankruptcy, the person keeps those assets that are exempt, they continue to pay on secured items they want to keep (house, car) and turn over all of their non-exempt assets over to the trustee-in-bankruptcy. Some types of debts, however, are not affected by bankruptcy. See 11. USC Section 523.

What are the Debtor's Duties?

The Debtor may not submit any documents to the Bankruptcy Court until the Debtor is certain that the information is (1) well grounded in fact; and (2) warranted by existing law or a good faith argument for the modification of the existing law. Rule 9011 In other words, someone who is representing himself or herself in a bankruptcy is held to know both the bankruptcy and state laws that apply to their situation. Ignorance of the law is no excuse. The Debtor's attorney must make the same avow regarding the information provided by the Debtor. Sanctions can be awarded under §707(b)(4).

§521 describes the documents that must be filed, the 60 day deadline for filing the pay advices, the filing of the Mean's Test (Official Form B22A), deadline for filing statement of intention and performing same (§§111, 521(a)(2) & (a)(6), but see stay relief problem §362(h)), appear at the required creditor's meeting, complete the required credit briefing class (before filing the bankruptcy §109(h)) and budget class (after filing the bankruptcy §§111, 727(a)(11)). Seven days before the creditor's meeting deliver to the Trustee a copy of the last tax return filed or a transcript, provide the Trustee with proof of identity and other documents (bank statements, wage statements, tax returns, car titles, etc). Failure to comply with these deadlines will most likely result in the dismissal of the bankruptcy case. (§521(i)(1).

All creditors must receive notice of the bankruptcy (§521(a)(1)(A). This notice requirement includes all addresses on all mail received in the last 90 days prior to filing. §342(c) Failure to provide notice to the correct address may mean the creditor can continue legal actions outside the bankruptcy court, until they receive notice at the correct address. The §342 requirement is new law and may be open for interpretation for many years.

Some of these requirements listed above may not apply if the Debtor is a company, or debts are not primarily consumer debts and has nonexempt property above $150,000. §101(3)

What is the role of an attorney in a chapter 7 consumer bankruptcy case?

The debtor’s attorney will normally do the following things in a chapter 7 consumer case:

• Analyze the amount and character of the debts owed by the debtor to determine whether bankruptcy is the best remedy for the debtor’s financial problems.
• Assist the debtor in preparing his estate for bankruptcy, so that a minimum amount of property will later have to be turned over to the Trustee.
• Review the Debtor's history of payments and transfers to determine possible exposure to Debtor and others.
• Assemble the information and data necessary to prepare the bankruptcy schedules and statements for filing.
• Prepare the proper petitions, schedules, and statements for filing with the bankruptcy court.
• Determine whether the education classes are necessary. If so, file the required certificates with the court.
• File the bankruptcy petitions, schedules, and statements with the court and obtaining the necessary injunctions and restraining orders.
• Attend the Meeting of Creditors with the debtor.
• Preparing and filing amended schedules as required by the court.
• Address issues related to redemption, surrender or reaffirmation.
• Respond to inquiries from your creditors and/or the Bankruptcy Trustee.

How much does it costs to file a chapter 7 bankruptcy?

The Court's filing fee is $299.00 for a chapter 7 and $274 for a chapter 13, whether you are filing bankruptcy individually or jointly with your spouse. Congress is trying to increase these fees. In addition to the court filing fee there are also two classes each individual must take. The cost for the two classes is approximately $100.00. Our office will assist you in making arrangement for both classes. Call to discuss our attorney fee.

What classes are required before and after filing a bankruptcy?

Every consumer who files Chapter 7 or 13 bankruptcy is required take a credit counseling "briefing" within 180 days PRIOR to filing their bankruptcy and file a certificate of compliance. There is a provision for emergency situations, but they still must prove that they tried to obtain the class within the last 5 days of filing, but they must take the class and file a certificate of compliance within 30 days after filing their bankruptcy Petition. There is also a budget class that must be taken within 45 days after filing your bankruptcy. Failure to do so will result in additional fees and costs in order to get your discharge in your bankruptcy. There will be fees charged for those classes, unless you cannot afford to pay such fees.

Before filing bankruptcy you must take one class called credit counseling. After filing your bankruptcy you must take a class called Personal Financial Management.

What is the Mean's test?

The "Mean's Test" is a formula that determines whether the person filing for bankruptcy protection has enough income to pay the expenses that are allowed, plus extra money to pay to non-priority, unsecured creditors such as credit cards. The Debtor must calculate their "current monthly income", including all income from spouses, rents (minus expenses), bonuses, plus "help" Debtor has been receiving from family or friends. Allowed living expenses and payment of secured and priority debts are subtracted from the total income for a net income or monthly disposable income that could be used to pay unsecured non-priority debts. The chapter 7 can be challenged if the net income, multiplied by 60, is greater than (1) either 25% of the nonpriority unsecured claims or $6,000, or (2) greater than $10,000. The Debtor may be required to convert the case to a chapter 13 or lose the bankruptcy protection completely. §707(b).

To understand the Mean's Test you must first understand some of the terms. Current monthly income before taxes – it is not current, monthly or income. Instead, it is the total income received by your family for the last 6 full months, plus regular gifts and contributions by others toward household expenses. Income does not include social security, perhaps unemployment (to be determined by a court), and payments to war crimes/terrorism victims. §101(10A). Allowed expenses are then deducted from the total current monthly income. Allowed expenses are in §707(b)(2)(A)(ii) and the IRS standards. Refer to this final number as the Debtor's "monthly disposable income".

Once "monthly disposable income" is calculated, the Debtor must compare it with the median family income for the Debtor's state of residence. If the "monthly disposable income" is less than the median family income, then the Debtor may file a chapter 7. But, see the next paragraph.

Comparison of Schedule I and J: If the Debtor's real monthly income, minus the allowed monthly expenses, is greater than some unstated number (usually in the range of $200 to $300) the Debtor may still have a problem filing a chapter 7, even though the Debtor passed the net current monthly income test. This situation could occur when a Debtor has been unemployed for several months of the last 6 months, but now earns more than needed to pay the allowed expenses.

If the court determines that the Debtor should not be in a chapter 7, it is possible that the Court can sanction the Debtor, or their attorney, for reimbursement of the Trustee's reasonable attorney fees incurred in prosecuting the action. (§707(b)(4)(A) and Rule 9011).

What happens to the property that I turn over to the Trustee?

A public auction is held and your property is is converted into cash, which is then distributed to those of your creditors who file claims (Proof of Claim) against your bankruptcy estate. You, your family and friends have a right to bid at this auction. The expenses of administering your estate will also be paid from these funds. The Trustee assigned to your case will be responsible for paying his/her attorney or other professional.

What will happen if there is no money or property to turn over to the bankruptcy Trustee in my case?

If you have no money or property of a value in excess of the exemptions allowed by law, your case will be considered a “no-asset” case. Soon after the Meeting of Creditors, the Trustee/court will decide whether or not your case is a no-asset case. Normally, your discharge will be entered approximately 120 days after your case was originally filed with the bankruptcy court unless a creditor files an objection to your discharge, the Trustee requests an extension of time or you ask for more time in which to reaffirm debts.

What happens if I have assets?

If your case involves assets, the bankruptcy Trustee will immediately begin to collect all of your property to which he is entitled by law. You are obligated to protect those assets until the Trustee can make arrangements to pick them up. After the auction of the items, your creditors will be notified by the Trustee to file a proof of claim; usually within six months after the Meeting of Creditors. The Trustee will examine the proof of claims and object to those the Trustee deems to be improper. All claims not objected to by the Trustee, you, or another creditor will be approved by the court and the creditors will receive a pro-rata share of whatever the Trustee has collected. The fees for the auctioneer, trustee and their attorney are paid out of the funds they collected, not by the Debtor.

What is the Automatic Stay?

The filing of the petition creates an automatic stay under 11 U.S.C. §362 prohibiting all collection actions. 11 U.S.C. §§ 301, 302, 101(42) - unless the Debtor has filed a prior bankruptcy in the last 12 months. The automatic stay is good for only 30 days if that Debtor has filed one prior case in last 12 months. §362(c)(3)(A). If the Debtor wants to extend the automatic stay they must file a motion to extend the Stay immediately after filing the bankruptcy. There is no automatic stay if the Debtor has filed 2 or more cases in last 12 months. §362(c)(4)(A)(i) A dismissed case is a filed case. There is no excuse for a Debtor's failure to understand these limitations.

How will the court contact me and what should I do about Court orders or instructions?

The orders or instructions will be mailed to you, unless you sign up for e-mail notification. You should contact your attorney as soon as you receive the orders to obtain advice on how to properly follow the orders. It is very important, therefore, that you always keep the court and your attorney informed of your correct address.

What should I do if I move or change my address?

Contact your Richards Law Office, P.C. immediately about a change of address or phone number for a year after you receive your discharge.

How does filing bankruptcy affect my credit rating?

it may not take long after your discharge to substantially raise that rating. Several financial institutions openly solicit business from recent debtors, apparently because they know that the debtor cannot file another chapter 7 for at least eight years (six under the pre-10/2005 law). If there are compelling reasons for filing bankruptcy that were not within your control, such as an injury or illness, the creditor may take that into consideration in rating your credit after bankruptcy.

Do I lose any of my rights, such as the right to vote, by filing bankruptcy?

No. Bankruptcy is a civil, not a criminal proceeding. You do not forfeit any of your civil or constitutional rights by filing a bankruptcy. Also, neither a utility, a governmental unit, nor your employer may discriminate against you because you have filed bankruptcy. But, if you discharge a utility bill then you may find that you are charged a very large "deposit" when you apply for new utility service.

Must my employer be told I am filing bankruptcy?

The bankruptcy Trustee will request that you provide copies of several documents (tax returns, bank statements, etc). One of these items will be copies of some of your pay stubs before filing. If you refuse to provide this information then the Trustee may send a form to your employer seeking information about your wages. Therefore, your employer will usually not be contacted so long as you comply with the Trustee's request.

Are my out-of-state debts discharged in bankruptcy?

Yes. Bankruptcy is a federal proceeding and the bankruptcy court has the jurisdiction and power to discharge debts contracted anywhere in the Country even outside of your state.

Will I lose all of my property if I file bankruptcy?

You will only have to turn your non—exempt property over to the Trustee. Unless you owe back child support, or alimony/maintenance. Under the laws of the state where you live, and under the federal laws, certain properties are declared to be exempt, and out of the reach of your general creditors. Warning - all your property, including exempt property, can be sold to pay back child support or alimony/maintenance. Be aware that the 2005 Bankruptcy Reform Act dramatically changed law governing exemptions.

Is there a way that I can minimize the amount of non-exempt assets that I will have to turn over to the bankruptcy trustee?

This is a very difficult situation, especially if you paid money or transfered assets within 3 - 24 months before bankruptcy. Discuss this with your bankruptcy attorney before you pay money or transfer any assets since not all such transactions are permitted under the Bankruptcy law, but may be permitted under state law. The 2005 Bankruptcy Reform Act has added several very complicated hoops to planning for a bankruptcy. Paying down mortgages within the last 10 years, buying or transferring assets in the last 2 years or more, paying friends or relatives money in the past 12 months may all be doorways for the Trustee and your creditors to attach your assets.

What is a Reaffirmation Agreement?

To reaffirm a debt is to sign a new contract with the lender, thereby reaffirming the Debtor's personal liability for the obligation. This is typically done with vehicles. The Debtor should always talk to their attorney before reaffirming any personal liability for a debt. There may be other options to reaffirming, such as surrender, redeem, or avoidance of the lien. If, after considering the options a debtor voluntarily decides to reaffirm and re-establish their personal liability to a creditor, and enters into a written agreement to that effect signed by the debtor and the creditor, the Debtor must then submit the agreement to be approved by the Court. Even once the reaffirmation agreement is signed, the Debtor has 60 days to revoke it. The consequence of a debtor’s failure to take advantage of other options, other than reaffirming the debt, is that the debtor is bound by the terms of the new agreement and can be sued if there is a default.

The danger for the Debtor is that they can be sued on any new contract signed after filing their bankruptcy. If the Debtor does not sign a new contract, then the lender cannot sue, but they can take the vehicle in some cases. Here is where it gets complicated. Under the old bankruptcy law the Debtor could keep their vehicle so long as they made the regular monthly payments and kept insurance current. They were not required to sign a reaffirmation agreement. That way, if later on the car became a lemon, the Debtor could surrender the car to the lender and was not subject to any deficiency action (lawsuit).

Under the 2005 Reform act: a reaffirmation agreement is binding only if it is entered into before the discharge is filed, the debtor receives the numerous disclosures required from the creditor, except credit unions (§524(k), the Debtor does not rescind the agreement and the court approves the reaffirmation agreement - that may include having a hearing (§524(c)). The Court may refuse to sign the reaffirmation agreement if it appears that the Debtor cannot afford the contractual payments.

So what is the problem? Some creditors are taking the position that the new Bankruptcy law requires the Debtors to sign a reaffirmation agreement, if they want to keep the car. But, §524(c) states that an obligation must be "enforceable under applicable non-bankruptcy law, whether or not discharge of such debt is waived". So, if the Debtor is keeping the vehicle payments current, has insurance, but refused to sign the reaffirmation agreement - there does not appear to be a default which is "enforceable under applicable non-bankruptcy law". After all, the creditor is receiving their monthly payment.

Lastly, the new Bankruptcy reaffirmation forms require the attorney for the Debtor to sign a statement, that in the attorney's opinion, the Debtor is able to make the payments. There is no expiration on that opinion.

So why would you gladly sign a reaffirmation agreement? Perhaps, in the situation where the creditor is offering better terms on a new contract; such as a reduction in the principal equal to the current fair market value of the vehicle and reduction of the interest rate. Nothing stops the Debtor from negotiating these new terms as part of any reaffirmation agreement.

What is a Discharge in Bankruptcy?

A discharge is the court's order stating that you do not have to pay your debts to the creditors that were listed in your bankruptcy documents, so long as the court did not entered a non-dischargeability order. Other debts that are not discharged under the current laws include student loans, child support, alimony/maintenance, government fines or penalties, most taxes and a few others.

The effect of a discharge is that debtors are released from personal liability for all dischargeable debts, and all creditors, whose debts are discharged, are prohibited from performing any act to collect such debts from the debtors. This is known as a permanent, federal injunction. Only people received discharges, companies do not.

Creditors and the trustee have a 60 day period after the creditor's meeting to file a complaint indicating that they believe there is good reason why their debt should not be discharged (forgiven) or a good reason why this chapter 7 case should not be continued (Bankruptcy Code §523(a)(2), (4), (6, and (15)). This action is called non-dischargeability complaint. The Trustee can request that the court deny a chapter 7 discharge in some cases.

The granting of a discharge does not stop the Debtor's involvement in their case. The Debtor is not relieved from performing the duties required under the Bankruptcy law. One example of a continuing duty is the Debtor's obligation to surrender assets or tax refunds to the Trustee after the discharge is entered. In the event the Debtor fails to perform those duties an action may be brought to revoke the discharge. This will mean that the Debtor went through all this hassle and ends up with no protection from their creditors garnishing wages, suing or seizing bank accounts.

Even after a discharge, generally a creditor that has a valid lien on property belonging to a debtor (such as: house, car, furniture, jewelry) may recover the property or its value. However, if the debtor possesses certain property that is encumbered by a judicial lien or a non-purchase—money security interest, the Debtor will have to bring this issue to the Court for an order which will remove the effect of the lien. This action is called a Motion to Avoid a Lien.

If the debtor wants to keep assets that have secured liens (such as a house or car) the debtor can either continue making the same payments as before the bankruptcy, or pay the lender one lump-sum payment equal to the fair market value of the item (redemption). See more on reaffirmation agreements below.

What debts are not discharged in bankruptcy?

If your discharge in bankruptcy is granted, in most circumstances all of your debts will be discharged except the following list, which is intended to be only an outline of most debts that are not discharged.

• Taxes due within the last three years or taxes not assessed because of fraud.
• If the bankruptcy court so rules, debts for obtaining money, property, services, or an extension, renewal, or refinancing of credit by means of false pretenses, fraud, or a false financial statement used with intent to deceive.
• Debts not listed on your bankruptcy papers, unless the creditor had knowledge of the case in time to file a claim.
• If the bankruptcy court so rules, debts for fraud, embezzlement or larceny.
• Debts for domestic support obligations (alimony, maintenance or support).
• If the bankruptcy court so rules, debts for intentional injury.
• Debts for certain fines and penalties payable to governmental units.
• Debts for student loans that were insured by a governmental agency, unless not discharging the debt would impose an severe undue hardship. This undue hardship must be properly plead to the Court and the judge will decide based on your unique situation.
• Debts that were or could have been listed in a prior bankruptcy case in which you either waived your discharge or your discharge was denied.
• Debts that are owed to a single creditor for a total of more than $500 for the purchase of "luxury goods" incurred by you in the 90 days before you filed the petition for bankruptcy. The 90 day period may be long, depending on your history of paying, what the money was used for and your "intent" at the time of incurring the debt.
• Cash advances that total more than $750 that arose from the extensions of consumer credit under an open—end credit account incurred by you an the 70 days before the bankruptcy was filed, regardless of the number of creditors involved.
• Debt for personal injury judgments against you resulting from car accidents in which you were a drunk driver.
• Post-petition HOA fees.
• Monies owed to a pension, profit-sharing, stock bonus or such other plan.

Can my utility company refuse to serve me if I discharge their bill?

If, immediately after filing the bankruptcy the Debtor provides their utility company with a deposit or other security to insure the payment of future services, the utility may not stop service, refuse to serve, or discriminate against the Debtor for discharging their bill. But, if the Debtor discharges a utility bill do not be surprised that there is a very large deposit required whenever a new service is requested.

Can I continue to pay some of my debts after I file bankruptcy?

You can pay as many of your debts as you want after you file bankruptcy. Certainly, if you want to keep your house and car you must continue paying the lender. You are also obligated to pay the debts that for which you enter into a Reaffirmation Agreement. I recommend that you not make any payments that are not absolutely necessary

What should I do if I am sued after bankruptcy on a debt that was discharged?

First make sure the debt was listed in your bankruptcy. If it was not you may still have the time to add it. As to the lawsuit - do not ignore it, otherwise a default judgment will be entered against you. Respond to the law suit by filing an answer in the court where you have been sued, stating that the debt has been discharged in bankruptcy. In most instances the case will be dismissed once the judge learns the debt was listed in the bankruptcy and subsequently discharged. If the judge does not dismiss the case, then you can apply to the bankruptcy court for an injunction ordering the creditor to stop the suit against you. A discharge in bankruptcy is a valid legal defense against any debt that has been properly discharged, but it is a defense that you must raise.

What about my tax refund check?

Any right that you had to a tax refund at the time of filing the bankruptcy is an asset of your bankruptcy estate and belongs to your trustee. At the time that you get your tax refund check, you must turn that check over to the trustee. If the amount is small it is possible that you may get back the check back. However, you should anticipate that the trustee will take a portion of the refund equal to the amount due to you on the date of filing.

How often can I file a chapter 7?

Only individuals, who have complied with the Bankruptcy laws, can receive a chapter 7 discharge. That individual cannot receive another chapter 7 or chapter 11 discharge for eight years after the filing of the first bankruptcy. 727(a)(8). If the debtor commits fraud, or fails to perform as required by law, the discharge can be revoked. Even if a chapter 7 discharge is not available the Debtor may be able to file a chapter 13.