Q: Do I qualify for bankruptcy?
A: There is no minimum amount of debt required before a person is eligible to file bankruptcy. The more relevant question is whether it is prudent to file bankruptcy given the amount and type of debt involved. Generally speaking, anyone is eligible to obtain relief under the Bankruptcy Code so long as they have taken the required credit counseling course. Under the Bankruptcy Reform Act of 2005, a debtor who previously received a Chapter 7 discharge is not eligible to receive another Chapter 7 discharge until eight years have passed from the date of filing the previous case.
Q: What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?
Chapter 7 is what people typically imagine when they think of filing for bankruptcy. It is designed for debtors who do not have the ability to pay their existing debts and want a fresh start financially. A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay creditors in accordance with the provisions of the Bankruptcy Code. Your creditors will typically receive pennies on the dollar and the remaining balance owed will be discharged. Under the Bankruptcy Code, the debtor is allowed to keep their “exempt” assets. In most cases a chapter 7 is completed within 3 to 6 months from the date of filing.
A chapter 13 bankruptcy is also called a wager earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debt via installments over three to five years. Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, they must still make all mortgage payments that come due during the chapter 13 plan on time. Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on “consumer debts.” This provision may protect co-signers. Finally, chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection.
Q: What is a the role of a trustee in a chapter 7 or chapter 13 bankruptcy?
Under Chapter 7, an impartial trustee is appointed to review your bankruptcy petition and administer the case by collecting and liquidating the Debtor’s non-exempt assets in a manner that maximizes the return to the Debtor’s unsecured creditors. After the trustee’s expenses have been paid, any remaining funds are distributed to the creditors.
Under Chapter 13, an impartial trustee is also appointed to administer the case. The primary roles of the chapter 13 trustee are to determine the feasibility of a Debtor’s repayment plan for the court and to serve as a disbursing agent, collecting payments from Debtors and making distributions to creditors.
Q: Which chapter bankruptcy is right for me?
The first question is whether you should file bankruptcy. After analyzing your financial situation it may be possible to obtain relief from your debts without having to file bankruptcy. In other cases, bankruptcy is the only viable option. Our experience is that most individuals do all that they can to avoid bankruptcy and only consider bankruptcy when other alternatives have failed.
Whether you file bankruptcy and under which chapter depends on your particular circumstances. Chapter 7 is generally appropriate if you insufficient income to pay a portion of his/her debts, and you do not intend to keep non-exempt property. If you have some sufficient income or wishes to retain certain non-exempt property, a chapter 11, 12, or 13 may be appropriate depending on whether the debtor is an individual, corporation, or family farmer. The decision to file a bankruptcy case and under which chapter is an extremely important decision with significant consequences that we recommend you only make after consulting with a bankruptcy attorney.
Q: What is the “means test”?
A: The Bankruptcy Reform Act of 2005 established a “means test” for filing chapter 7 cases. The means test is designed to determine whether you are eligible for chapter 7 bankruptcy or whether you will be required to file a chapter 13 bankruptcy. If the means test indicates you will have disposable income to pay your unsecured debts, you will be required to pay back your unsecured debts in a repayment plan through chapter 13. The means test evaluates your current monthly income against certain median income figures as determined by the U.S. Census. In our experience counseling clients in the North Florida area, the “means test” affects very few bankruptcy debtors.
Q: Do I have to have credit counseling before I file for bankruptcy?
As part of the requirements of the Bankruptcy Reform Act of 2005, you must complete and obtain a certificate from a approved non-profit budge and credit counseling agency during the 180-day period proceeding the date of filing. The course costs $50.00 and can usually be completed online
. If you file a bankruptcy case without filing the certificate, your case will be dismissed.
Q: What is exempt property?
A: The law provides that certain property is “exempt” and does not have to be turned over to the bankruptcy trustee. This means the debtor can protect his/her exempt property from the reach of creditors and the Chapter 7 trustee. The exemption will not apply to a mortgage or lien voluntarily placed on the asset by the debtor. Florida is a “debtor-friendly” jurisdiction in that state law provides Florida residents with many favorable exemptions other states do not have. For example, Florida’s homestead law protects the debtor’s residence from the claims of most creditors. Funds held in 401Ks, IRAs, annuities, and pension plans are also generally exempt from the claims of creditors and the bankruptcy trustee. The availability of exemptions and how to properly and effectively claim them should be discussed with your attorney.
Q: What is a discharge?
A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts. Although a debtor is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.
A chapter 7 discharge is an order signed by the bankruptcy judge declaring all of your eligible debt to be discharged. The Court will normally grant a debtor in a chapter 7 case a discharge approximately 90 days after the chapter 7 case is filed.
In a chapter 13 case, the Court will normally grant the debtor a discharge after the debtor has completed all of his/her payments required under the bankruptcy plan. Many chapter 13 bankruptcy plans call for monthly payments over five years.
Q: Do I have to complete a course to obtain a discharge?
A: The Bankruptcy Reform Act of 2005 requires individuals filing Chapter 7 or 13 bankruptcy to complete an instructional course in personal financial management after they have filed for bankruptcy before they can receive a discharge.
Q: Are all debts dischargeable? Are there certain types of debt that are nondischargeable?
A: Not all debts are discharged. If a debt is non-dischargeable, the debtor must repay the debt even after bankruptcy. The most common types of nondischargeable debts are certain types of tax claims, debts not set forth by the debtor on the lists and schedules the debtor must file with the court, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to governmental units for fines and penalties, debts for most government funded or guaranteed educational loans or benefit overpayments, debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated, and debts arising from fraud, embezzlement, or theft.
Q: What can a debtor do if a creditor attempts to collect a discharged debt after the bankruptcy case has concluded?
A: If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion with the court, reporting the action and asking that the case be reopened to address the matter. The bankruptcy court will often do so to ensure that the discharge is not violated. The discharge constitutes a permanent statutory injunction prohibiting creditors from taking any action, including the filing of a lawsuit, designed to collect a discharged debt. A creditor can be sanctioned by the court for violating the discharge injunction. The normal sanction for violating the discharge injunction is civil contempt, which is often punishable by a fine.
Q: Can an employer terminate a debtor’s employment because of the bankruptcy?
A: In our experience, employers have not discharged an employee for filing for bankruptcy relief. In today’s economy, if fact, many employers are seeking bankruptcy protection to save their businesses. The law provides express prohibitions against discriminatory treatment of debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. The law prohibits the following forms of governmental discrimination: terminating an employee; discriminating with respect to hiring; or denying, revoking, suspending, or declining to renew a license, franchise, or similar privilege. A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.
Q: How long does bankruptcy remain on my credit bureau report and can I obtain credit before that time period runs?
If you are contemplating bankruptcy, it is likely that your credit score has already been negatively impacted. A bankruptcy can be kept in the public records section of your credit bureau report for 10 years. Many people incorrectly assume that they will be unable to get credit after they have filed for bankruptcy. While it can take many years to fully rebuild your credit following bankruptcy, many individuals receive credit offers immediately after their discharge. Ironically, once you have received a discharge, many creditors will view you as a better credit risk because you
- have less debt and
- cannot receive a discharge for another 8 years.
Q: Who will know that I filed for bankruptcy?
A: Creditors, co-debtors, and the credit bureaus will be notified of your bankruptcy filing. Bankruptcy filings are public records and bankruptcy hearings and meetings of creditors are open to the public. Most people, however, do not have access to the information unless they actually go to the bankruptcy court and look at your file. In today’s economic climate, more of your neighbors, friends, and co-workers are filing bankruptcy than you might think. In most cases, your friends and family will not find out about your bankruptcy unless you tell them.
Q: What is a 341 meeting?
A: This meeting is referred to as the “meeting of creditors.” All creditors are notified so that they may attend, but their attendance is not required and s a practical matter creditors rarely attend. An attorney from our firm will attend the meeting of creditors with you and guide you through the process. A meeting of creditors is typically brief – lasting no longer than three to five minutes. Debtors have a duty to appear and testify under oath and answer questions by creditors. This meeting is presided over by the trustee assigned to the case and is held approximately 40 days after the petition is filed. Debtors are required to provide photo identification and proof of social security number to the assigned trustee. A Debtor’s failure to appear may result in dismissal of the case.
Q: If someone else cosigned one of my debts, how will the bankruptcy affect the cosigner?
This will depend on which chapter bankruptcy you have filed. In chapter 7, the debtor receives a discharge and is protected from creditors after the bankruptcy filing. Cosigners, however, have little recourse as they are not protected by the debtor’s bankruptcy. Your cosigner is still responsible for making payment and creditors can look to your cosigner to satisfy a debt.
In a chapter 13 bankruptcy filing, debtors arrange for a reorganization of debt under a structured repayment plan. In chapter 13, cosigners are protected as long as the Chapter 13 filing is active. If for example, the debtor defaults on these agreed repayment plans, the cosigner will again be held responsible for the remaining debts. If your chapter 13 plan provides for the debt to be paid in full during the plan, then the cosigner will not be liable for the debt once the discharged is entered. However, if the debt is not paid for in full, then the creditor can still attempt to collect the debt from your cosigner if the remaining balance on the debt is not paid following the Chapter 13 discharge. The creditor may also proceed against the cosigner if your Chapter 13 case is dismissed or converted to Chapter 7.
Q: I have some creditors that are friends of mine. Do I have to list all of my creditors?
A: Yes. The United States Bankruptcy Law requires a full and complete disclosure of all debts owed. Bankruptcy schedules are signed under the penalty of perjury and you will be asked under oath at the meeting of creditors if all debts were disclosed.
Q: have assets that I want to save from my creditors. Can I transfer ownership of my home, car, boat, collectibles, tools, etc. to someone else to keep those items out of bankruptcy?
A: No. Such transfers will almost certainly violate Florida’s fraudulent transfer statute and 11 U.S.C. §548 of the federal Bankruptcy Code. A Chapter 7 debtor who has been found guilty of such transfers may lose his entire discharge. In addition, you may be subjected to criminal prosecution. A trustee has the power to set these transfers aside. The trustee can also ask for the case to be dismissed for a bad faith filing.
Q: Can a Christian file a bankruptcy and not violate scriptural principles?
A: Of course, we are to do everything in our power to meet our obligations and fulfill our promises to pay, so bankruptcy should never be the first option. However, if you have struggled with burdensome debt and despite your best efforts need help to save your home or get a fresh start, you should know that the policy of debt forgiveness is scripturally based both in the Lord’s Prayer and in the Old Testament laws the Lord gave his servant, Moses. Please prayerfully read Deuteronomy 15:1 and Matthew 6:12.
Q: What is a Reaffirmation Agreement?
To avoid debt discharge in a bankruptcy action, mortgage companies and car, furniture, and appliance financers typically want the debtor to sign a document known as a Reaffirmation Agreement. Signing this agreement results in the debtor waiving his Chapter 7 discharge and agreeing to continue to make payments as called for by the original loan documents.
This allows the debtor to keep his home, car or furniture. The decision whether or not to reaffirm a debt is a serious one and needs to be considered on a case-by-case basis so that all options are understood. If the debtor stops paying on the asset after a Reaffirmation Agreement is signed, then the asset can be foreclosed or repossessed and a deficiency judgment obtained for the difference. If a debtor changes his mind and wishes to terminate or rescind a Reaffirmation Agreement, then the debtor has 60 days to file a rescission agreement after a Chapter 7 reaffirmation is fully executed and filed with the bankruptcy clerk’s office.
Q: What is a redemption?
A: In Chapter 7, if an asset is exempt, it can be purchased or redeemed from the creditor by paying its present market value in a lump sum. The balance of the debt will be discharged. An example would be furniture that has a depreciated value at the time of bankruptcy of $700 and the balance of the debt on the furniture is $2,000. The furniture can be redeemed for $700 and the $1,300 difference is discharged. The process of redeeming assets should be discussed with your attorney.
Q: Can creditors ask to have their debt held non-dischargeable?
A: Yes. Creditors have approximately 100 days after the filing of the Chapter 7 bankruptcy case to file a lawsuit asking that the debt be held non-dischargeable. Certain debt has no such time limitation.
Q: Can the trustee or a creditor object to my Chapter 7 discharge?
A: Yes. Objection to discharge is controlled by federal law. If an objection is made and the court sustains the objection, all of the debts owed by the debtor can never be discharged in bankruptcy. This issue generally comes into play where the debtor has transferred an asset within two years (and in some cases four or ten years) of filing bankruptcy with the intent to hinder, delay or defraud creditors or the Chapter 7 trustee. This can also happen if the debtor is unable to give a reasonable explanation for the reduction in assets occurring shortly prior to bankruptcy. Not having sufficient records to satisfactorily explain the debtor’s financial position or change in position can also serve as a basis to object to discharge.
Q: What is involved in a buy-back from the Chapter 7 trustee?
A: In about 10% of the cases involving available assets for liquidation, the trustee will hire an appraiser to appraise the debtor’s assets. A copy of the appraisal will be provided to the debtor and the debtor’s counsel. Negotiations will follow concerning whether the value of the assets have exceeded the exemptions allowed by state and federal law. Depending on which trustee is assigned to your case, the approach on the buy-back may differ somewhat. Other differences may involve the length of time for the buy-back to be paid and how the buy-back amount is calculated.
Q: What happens if I inherit something after filing for a Chapter 7 bankruptcy?
A: If there is a death within 180 days of you filing a Chapter 7 bankruptcy, any inheritance or life insurance that you receive will come under the control of the Chapter 7 trustee and will be used to pay your creditors. If you anticipate a death in within this period, you should discuss the situation with your attorney.
Q: What role does the Chapter 13 trustee play in the case?
A: The Chapter 13 trustee performs many roles. The trustee serves as a disbursing agent for payments under the plan. The trustee examines the debtor at the meeting of creditors. The trustee can also object to confirmation of the plan and makes a determination in each case whether the debtor has satisfied the disposable income test, the means test, and the best interest of creditors test. If one or more of these tests are not satisfactory, it is the trustee’s duty to object to confirmation. The trustee can also file a motion to dismiss the Chapter 13 case for a bad faith filing or for failure to make payments called for by the plan.
Q: What is the disposable income test in Chapter 13?
A: In some cases the debtor must commit all of his net take-home pay to the plan for the life of the plan. In practice, this means that the plan payment plus reasonable and necessary living expenses must account for all the net take-home pay. If there is any net take-home pay leftover the extra income is dedicated to the unsecured creditors. We will assist in calculating your disposable income prior to filing your plan.
Q: What is the best interest of creditors test in Chapter 13?
A: This test requires the debtor to make sure that under the Chapter 13 plan, the unsecured creditors receive at least as much under Chapter 13 as they would receive if the case were handled under Chapter 7. This involves completing a liquidation analysis on paper in order to determine what the unsecured creditors would receive under Chapter 7. The Chapter 13 Plan must provide at least that much to the unsecured creditors. We will assist in you in performing this analysis.
Q: When is the first plan payment due, who gets paid, and how are the payments made?
A: The first payment is due 30 days after the plan is filed. The payment is made by cashiers check or money order payable to the Chapter 13 trustee. The debtor’s name and case number must appear on the face of the check or money order. The payments are sent to a lock box in Memphis, TN as instructed in a letter sent to the debtor by the Chapter 13 trustee at the beginning of the case. The trustee will send a coupon book to be used with each payment.
Q: Can I obtain credit while I am making payments on my Chapter 13 plan?
A: You must obtain permission from the Chapter 13 trustee or the court to incur new debt while you are in a Chapter 13 bankruptcy. It is difficult to get the trustee or the court to approve new credit until the plan is confirmed, which normally occurs two to three months after the case is filed. Even after confirmation, the procedure requesting the trustee or court approval is quite cumbersome: the trustee has a form that must be filled out and a current income and living expense analysis must be provided along with a copy of the financing arrangement for which approval is being sought. This also assumes that a lender has been found who is willing to loan money to an individual in a Chapter 13 bankruptcy.
Q: Can the trustee or a creditor object to confirmation of a Chapter 13 Plan?
A: Yes. It is the trustee’s responsibility to object to Chapter 13 plans that are deficient. A creditor may also object, but generally most objections will come from the Chapter 13 trustee. Most objections are worked out or resolved prior to the confirmation hearing but occasionally the court has to take evidence and rule.
Q: Can only one spouse file a Chapter 13 and stop foreclosure on a house owned by both spouses?
A: Yes. This occurs quite frequently. If one spouse does not need to be in bankruptcy other than for the foreclosure, then that particular spouse can be left out of the bankruptcy. Sometimes, we file Chapter 7 for one spouse and Chapter 13 for the other spouse. This permits the Chapter 7 spouse to get an automobile financed sooner. An attorney should be consulted concerning this type of situation.
Q: What happens if I inherit something during the three to five years that I am paying creditors under my Chapter 13 plan?
A: The inheritance must be turned over to the Chapter 13 trustee to be distributed to the unsecured creditors up to the extent of the allowed unsecured claims. If the potential exists for this to occur, you need to discuss the matter with an attorney to look at some options.
Q: If my Chapter 13 does not work, can I convert the case to Chapter 7?
A: Yes. If the Chapter 13 plan cannot be amended to handle changes in your financial affairs, you may find it advisable to convert to Chapter 7. You should consult your attorney before taking any such action.
Q: What if I previously filed a Chapter 13 but my case was dismissed – can I file another Chapter 13?
A: Under the new Bankruptcy laws that went into effect in October 2005, if you have had a case pending within the 12 months of filing a new case, the automatic stay, which stops your creditors from taking actions to collect on your debts (i.e. foreclosure, repossession), is only in effect for 30 days. Within 30 days you must attend a hearing in front of a bankruptcy judge to explain why your previous case was dismissed and why your new case will be successfully completed. The court will determine whether or not to extend the automatic stay. However, if there are special circumstances which the court should be made aware of, we may be able to file an adversary proceeding in which we will be given the opportunity to explain your circumstances to the court and the court will decide whether or not to impose the stay.
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