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Frequently Asked Questions
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| General Frequently Asked Questions 1. Bankruptcy, Chapter 7 or 13? Bankruptcy is a Federal Law Provided to you designed to get you a fresh start free from harassing creditor phone calls, lawsuits, repossessions and garnishments. It is a privilege granted to you under the United States Constitution. It is a very powerful law because it forces your creditors to permanently wipe out your debts (chapter 7) or to accept a repayment plan which you have proposed (chapter 13). 2. Should I file for Bankruptcy? Financial problems lead to great stress and can disrupt one's personal and family relationships, yet many people are scared at the thought of having to file for bankruptcy relief. This is exactly what your creditors want you to think. They do not want you to use your right under the law. They would much rather you pay the minimum monthly payment for the rest of your life at 20 to 25% interest!!!!! 3. Will I lose my Property? No, as long as you tell the court what you own and what you think it's worth, the law will allow you to keep your property as the basis for your "fresh start" subject to certain limitations. The law is very generous in allowing you to exempt your home equity, automobiles, household goods and furnishings, clothing, jewelry, bank accounts, stocks and bonds, pension and 401k plans, etc. The most important thing to do is make an accurate list of what you own and what you think it is worth (at a garage sale or auction.) 4. Can I keep my house and car? Yes, you an file a bankruptcy and keep your house and car provided you continue to make payments to the finance or mortgage company. 5. Where are you located? My office is located downtown Nashville, at 1230 Second Avenue South 6. I'm married, can I file alone or must my spouse file jointly? If your married the law recognizes you as one entity and can file either together as a couple (jointly) or either spouse (husband or wife) can file on their own. The law does not require that both file. 7. Will filing Bankruptcy mean I can't get credit for 7 years? I have heard this wives' tale so many times and cannot figure out where it came from. Straight bankruptcy is called Chapter 7, maybe that is where the seven years came from, but the truth is that many people have a better chance of getting credit after they file Bankruptcy. Bankruptcy is definitely a negative mark on a credit report and can be reported for 10 years after filing after which is must be removed. Most people who are considering filing Bankruptcy however already have a negative credit report due to non or late payments, repossessions, charge offs or judgments. A bankruptcy which wipes the slate clean will be an improvement. Keep in mind that credit is not your friend, its what got you here in the first place. Credit is the reason people end up filing for bankruptcy. Credit equals Debt. 8. I can't live without my MasterCard, what will I do? Believe it or not, most retail establishments still accept cash! (Yes, even hotel rooms and car rental agencies). For most people credit cards cause more harm than good. They lead to impulse buying and mask the real pain of paying with cold hard cash or even writing a check. Most of my past clients report to me that they continue to be bombarded with new credit card offers after filing bankruptcy. This is because the credit card companies want to get you back into the game. RESIST at all cost! Consider getting a debit card or a secured credit card. 9. I'm current on all my payments. I've never been late. Can I still file Bankruptcy? I have many clients who look good on paper and appear to be "making it" but realize that the house of cards is about to come crashing down because they have depleted their savings and the ability to transfer balances or "Robbing Peter to pay Paul" just doesn't work anymore. If after you pay your normal monthly living expenses like rent or house payment, utilities, food, clothing, transportation, recreation, insurance and medical care, you don't have enough income left over to make even the minimum monthly payment on your credit card or loan debt, then you are already bankrupt! If you have used one credit card to obtain a cash advance to pay another, the writing is on the wall. Seek relief before you drown in debt. 10. I'm an honest person and want to pay my debts, I don't want to cheat my creditors? First understand that bankruptcy is not about cheating your creditors. Bankruptcy laws are designed to provide a person facing financial difficulty with relief from the stress and burden of debt to allow that person (or family) a "fresh start" while at the same time being fair to the creditors. Chapter 7 Bankruptcy will discharge your "legal" obligation to pay your debts, it will wipe them out. This means that the creditor can't call you at home or at work to try to collect the debt, they can't garnish your wages or seize money out of your bank account. They must leave you alone permanently. After the bankruptcy, if you win the lottery or come into some money and wish to repay those creditors, you may do so of your own free will. If you can afford to pay some amount to your creditors right now, but just not as much as they want, the law encourages you to file a Chapter 13 Bankruptcy in which you make payments to your creditors through the Court for 3 to 5 years. Chapter 7 Frequently Asked Questions 1. What is chapter 7 and how does it work? Chapter 7 is that part (or chapter) of the Bankruptcy Code that deals with liquidation. The Bankruptcy Code is that part of the federal laws that deal with bankruptcy. A person who files under chapter 7 is called a debtor. In a chapter 7 case, the debtor must turn his or her nonexempt property, if any exists, over to a trustee, who then converts the property to cash and pays the debtor's creditors. In return, the debtor receives a chapter 7 discharge, if he or she pays the filing fee, is eligible for such a discharge, and obeys the orders and rules of the court. 2. What is a chapter 7 discharge? It is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. Some debts, however, are not dischargeable under chapter 7, and some persons are not eligible for a chapter 7 discharge. 3. What debts are not dischargeable under chapter 7? All debts of any kind or amount, including out-of-state debts, are dischargeable under chapter 7 except the debts listed below. The following is a list of the most common debts that are not dischargeable under chapter 7: 1. Most tax debts and debts that were incurred to pay federal tax debts. 2. Debts for obtaining money, property, services, or credit by means of false pretenses, fraud, or a false financial statement if the creditor files a complaint in the case (included here are debts for luxury goods or services and debts for cash advances made within 60 days before the case is filed). 3. Debts not listed on the debtor's chapter 7 forms, unless the creditor knew of the case in time to file a claim. 4. Debts for fraud, embezzlement, or larceny, if the creditor files a complaint in the case. 5. Debts for alimony, maintenance, or support and, if the creditor files a complaint in the case, certain other divorce-related debts including property settlement debts. 6. Debts for intentional or malicious injury to the person or property of another, if the creditor files a complaint in the lease. 7. Debts for certain fines or penalties. 8. Debts for educational benefits and student loans are not dischargable unless a court finds that not discharging the debt would impose an undue hardship on the debtor and his or her dependents. 9. Debts for personal injury or death caused by the debtor's operation of a motor vehicle while intoxicated. 10. Debts that were or could have been listed in a previous bankruptcy case of the debtor in which the debtor did not receive a discharge. 4. What persons are not eligible for a chapter 7 discharge? The following persons are not eligible for a chapter 7 discharge: 1. A person who has been granted a discharge in a chapter 7 case filed within the last six years. 2. A person who has been granted a discharge in a chapter 13 case filed within the last six years, unless 70 percent or more of the unsecured claims were paid off in the chapter 13 case. 3. A person who files a waiver of discharge that is approved by the court in the chapter 7 case. 4. A person who conceals, transfers, or destroys his or her property with the intent to defraud his or her creditors or the trustee in the chapter 7 case. 5. A person who conceals, destroys, or falsifies records of his or her financial condition or business transactions. 6. A person who makes false statements or claims in the chapter 7 case, or who withholds recorded information from the trustee. 7. A person who fails to satisfactorily explain any loss or deficiency of his or her assets. 8. A person who refuses to answer questions or obey orders of the bankruptcy court, either in his or her bankruptcy case or in the bankruptcy case of a relative, business associate, or corporation with which he or she is associated. 5. What persons are eligible to file under chapter 7? Any person who resides in, does business in, or has property in the United States may file under chapter 7, except a person who has been involved in another bankruptcy case that was dismissed within the last 180 days on certain grounds. 6. What persons should not file under Chapter 7? A person who is not eligible for a chapter 7 discharge should not file under chapter 7. Also, a person who has substantial debts that are not dischargeable under chapter 7 should not file under chapter 7. In addition, it may not be wise for a person with current income sufficient to repay a substantial portion of his or her debts within a reasonable period to file under chapter 7, because the court may dismiss the case as constituting an abuse of chapter 7. Although it is not a legal requirement, some experts say that a chapter 7 case should not be filed unless a person's dischargeable debts exceed the value of his or her nonexempt assets by at least two thousand dollars. 7. How much is the chapter 7 filing fee and when must it be paid? The filing fee is $299 for either a single or a joint case. If a debtor is unable to pay the filing fee when the case is filed, it may be paid in installments, with the final installment due within 120 days. The period for payment may later be extended to 180 days by the court, if there is a valid reason for doing so. The entire filing fee must ultimately be paid, however, or the case will be dismissed and the debtor will not receive a discharge. The fee charged by the debtor's attorney for handling the chapter 7 case is in addition to the filing fee. 8. Where is a chapter 7 case filed? In the office of the clerk of the bankruptcy court in the district where the debtor has resided or maintained a principal place of business for the greatest portion of the last 180 days. The bankruptcy court is a federal court and is a unit of the United States district court. 9. May a husband and wife file jointly under chapter 7? Yes. A husband and wife may file a joint petition under chapter 7. if a joint petition is filed, only one set of bankruptcy forms is needed and only one filing fee is charged. 10. Under what conditions should both spouses file under chapter 7? Both husband and wife should file if one or more substantial dischargeable debts are owed by both spouses. If both spouses are liable for a substantial debt and only one spouse files under chapter 7, the creditor may later attempt to collect the debt from the nonfiling spouse, even if he or she has no income or assets. In community property states it may not be necessary for both spouses to file if all substantial dischargeable debts are community debts. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington. 11. When should a chapter 7 case be filed? The answer depends on the status of the debtor's dischargeable debts, the nature and status of the debtor's nonexempt assets, and the actions taken or threatened to be taken by the debtor's creditors. The following rules should be followed: 1. Don't file under chapter 7 until all anticipated debts have been incurred, because it will be another six years before the debtor is again eligible for a chapter 7 discharge. For example, a debtor who has incurred substantial medical expenses should not file under chapter 7 until the illness or injury has either been cured or covered by insurance, as it will do little good to discharge, say, $50,000 of medical debts now and then incur another $50,000 in medical debts in the next few months. 2. Don't file under chapter 7 until the debtor has received all nonexempt assets to which he or she may be entitled. If the debtor is entitled to receive an income tax refund or a similar nonexempt asset in the near future, he or she should not file under chapter 7 until after the refund or asset has been received and disposed of. Otherwise, the refund or asset will become the property of the trustee. 3. Don't file under chapter 7 if the debtor expects to acquire property through inheritance, life insurance or divorce in the next 180 days, because the property will have to be turned over to the trustee unless it is exempt. If a hostile creditor action threatens a debtor's exempt assets or future income, the case should be filed immediately to take advantage of the automatic stay that accompanies the filing of a chapter 7 case (see Question 12, below), if a creditor has threatened to attach or garnishee the debtor's wages or if a foreclosure action has been instituted against the debtor's residence, it may be necessary to file a chapter 7 case immediately in order to protect the debtor's interest in the property. 12. How does the filing of a chapter 7 case affect collection and other legal proceedings that have been filed against the debtor in other courts? The filing of a chapter 7 case automatically stays (or stops) virtually all collection and other legal proceedings pending against the debtor. A few days after a chapter 7 case is filed, the court mails a notice to all creditors ordering them to refrain from any further action against the debtor. If necessary, this notice may be served earlier by the debtor or the debtor's attorney. Any creditor who intentionally violates the automatic stay may be held in contempt of court and may be liable to the debtor in damages. Criminal proceedings and actions to collect alimony, maintenance, or support from exempt property or property acquired by the debtor after the chapter 7 case was filed are not affected by the automatic stay. The automatic stay also does not protect cosigners and guarantors of the debtor, and a creditor may continue to collect debts of the debtor from those persons after the debtor files a chapter 7 case. 13. May a person file under chapter 7 if his or her debts are being administered by a financial counselor? Yes. A financial counselor has no legal right to prevent anyone from filing under chapter 7. 14. How does filing under chapter 7 affect a person's credit rating? It will usually worsen it, if that is possible. However, some financial institutions openly solicit business from persons who have recently filed under chapter 7, apparently because it will be at least six years before they can again file under chapter 7. If there are compelling reasons for filing under chapter 7 that are not within the debtor's control (such as an illness or an injury), some credit rating agencies may take that into account in rating the debtor's credit after filing. 15. Are the names of persons who file under chapter 7 published? When a chapter 7 case is filed, it becomes a public record and the name of the debtor may be published by some credit-reporting agencies. However, newspapers do not usually report or publish the names of consumers who file under chapter 7. 16. Are employers notified of chapter 7 cases? Employers are not usually notified when a chapter 7 case is filed. However, the trustee in a chapter 7 case often contacts an employer seeking information as to the status of the debtor's wages or salary at the time the case was filed. If there are compelling reasons for not informing an employer in a particular case, the trustee should be so informed and he or she may be willing to make other arrangements to obtain the necessary information. 17. Does a person lose any legal or civil rights by filing under chapter 7? No. Filing under chapter 7 is not a criminal proceeding, and a person does not lose any civil or constitutional rights by filing. 18. May employers or governmental agencies discriminate against persons who file under chapter 7? No. It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed under chapter 7. It is also illegal for local, state, or federal governmental units to discriminate against a person as to the granting of licenses (including a driver's license), permits, student loans, and similar grants because that person has filed under chapter 7. 19. Does a person lose all of his or her property by filing under chapter 7? Usually not. Certain property is exempt and cannot be taken by creditors, unless it is encumbered by a valid mortgage or lien. A debtor is usually allowed to retain his or her unencumbered (or unsecured) exempt property in a chapter 7 case. A debtor may also be allowed to retain certain encumbered (or secured) exempt property (see Question 28, below). Depending on the law of the local state, property that is exempt in a chapter 7 case may be either property that is exempt under state law or property that is exempt under the Bankruptcy Code. 20. When must a debtor appear in court in a chapter 7 case and what happens there? The first court appearance is for a hearing called the "meeting of creditor." This hearing usually takes place about a month after the case is filed. At this hearing the debtor is put under oath and questioned about his or her debts and assets by the hearing officer or trustee. In most chapter 7 consumer cases no creditors appear in court; but any creditor that does appear is usually allowed to question the debtor. If the bankruptcy court decides not to grant the debtor a discharge or if the debtor wishes to reaffirm a debt and is not represented by an attorney, there will be another hearing about three months later which the debtor will have to attend. 21. What happens after the meeting of creditors? After the meeting of creditors, the trustee may contact the debtor regarding the debtor's property, and the court may issue certain orders to the debtor. These orders are sent by mail and may require the debtor to mm certain property over to the trustee, or provide the trustee with certain information. If the debtor fails to comply with these orders, the case may be dismissed and the debtor may be denied a discharge. 22. What is a trustee in a chapter 7 case, and what does he or she do? The trustee is an officer of the court, appointed to examine the debtor, collect the debtor's nonexempt property, and pay the expenses of the estate and the claims of creditors. In addition, the trustee has certain administrative duties in a chapter 7 case and is the officer in charge of seeing to it that the debtor performs the required duties in the case. A trustee is appointed in a chapter 7 case, even if the debtor has no nonexempt property. 23. What are the debtor's responsibilities to the trustee? The law requires the debtor to cooperate with the trustee in the administration of a chapter 7 case, including the collection by the trustee of the debtor's nonexempt property. If the debtor does not cooperate with the trustee, the chapter 7 case may be dismissed and the debtor may be denied a discharge. 24. What happens to the property that the debtor turns over to the trustee? It is usually converted to cash, which is used to pay the fees and expenses of the trustee and to pay the claims of unsecured creditors. The trustee's fee is usually $45 plus a percentage of the amount collected from the debtor. 25. What if the debtor has no nonexempt property for the trustee to collect? If, from the debtor's chapter 7 forms, it appears that the debtor has no nonexempt property, a notice will be sent to the creditors advising them that there appears to be no assets from which to pay creditors, that it is unnecessary for them to file claims, and that if assets are later discovered they will then be given an opportunity to file claims. This type of case is referred to as a no-asset case. Approximately one-half of all chapter 7 cases that are filed are no-asset cases. 26. How are secured creditors dealt with in a chapter 7 case? Secured creditors are creditors with valid mortgages or liens against property of the debtor. Property of the debtor that is encumbered by a valid mortgage or lien is called secured property. A secured creditor is usually per-mired to repossess or foreclose its secured property, unless the value of the secured property greatly exceeds the amount owed to the creditor. The claim of a secured creditor is called a secured claim and secured claims must be collected from or enforced against secured property. Secured claims are not paid by the trustee. A secured creditor must prove the validity of its mortgage or lien and obtain a court order before repossessing or foreclosing on secured property. The debtor should not turn any property over to a secured creditor until a court order has been obtained. The debtor may be permitted to retain or redeem certain types of secured personal property (see Question 28, below). 27. How are unsecured creditors dealt with in a chapter 7 case? An unsecured creditor is a creditor without a valid lien or mortgage against property of the debtor. If the debtor has nonexempt assets, unsecured creditors may file claims with the court within 90 days after the first date set for the meeting of creditors. The trustee will examine these claims and file objections to those deemed improper. When the trustee has collected all of the debtor's nonexempt property and converted it to cash, and when the court has ruled on the trustee's objections to improper claims, the trustee will distribute the funds in the form of dividends to the unsecured creditors according to the priorities set forth in the Bankruptcy Code. Administrative expenses, claims for wages, salaries, and contributions to employee benefit plans, claims for the refund of certain deposits, claims for alimony, maintenance support, and tax claims, are given priority, in that order, in the payment of dividends by the trustee. If there are funds remaining after the payment of these priority claims, they are distributed pro rata to the remaining unsecured creditors. 28. What secured property may a debtor retain or redeem in a chapter 7 case? A debtor may retain and redeem certain secured personal and household property, such as household furniture, appliances and goods, wearing apparel, and tools of trade, without payment to the secured creditor, if the property is exempt and if the mortgage or lien against the property was not incurred for the purpose of financing the purchase of the property. A debtor may also retain and redeem without payment to the secured creditor any secured property that is both exempt and subject only to a judgment lien. Finally, a debtor may redeem certain exempt personal, family, or household property by paying to the secured creditor an amount equal to the value of the property, regardless of how much is owed to the creditor. Deadlines are imposed on the enforcement of these rights by the debtor during the bankruptcy case. 29. How can a debtor minimize the amount of money or property that must be turned over to the trustee in a chapter 7 case? In a chapter 7 case the debtor is required to mm over to the trustee only the nonexempt money or property that he or she possessed at the time the case was filed. Many nonexempt assets of consumer debtors are liquid in nature and tend to vary in size or amount from day to day. It is wise, therefore, for the debtor to engage in some negative estate planning so as to minimize the value or amount of these liquid assets on the day and hour that the chapter 7 case is filed. The most common nonexempt liquid assets, and the assets that the trustee will be most likely to look for, include the following: 1. cash, 2. bank accounts, 3. prepaid rent, 4. landlord and utility deposits, 5. accrued earnings and benefits, 6. tax refunds, and 7. sporting goods. It is usually advantageous for the debtor to take steps to insure that the value of each of these assets is as low as possible on the day and hour that the chapter 7 case is filed. By doing this the debtor will not be cheating or acting illegally; the debtor will simply be using the law to his or her advantage, much the same as a person who takes advantage of loopholes in the tax laws. Cash. If possible, the debtor should have no cash on hand when the chapter 7 case is filed. Further, if the debtor has received cash or the equivalent of cash in the form of a paycheck or the closing of a bank account shortly before the filing of the case, the debtor should obtain receipts when disposing of the funds in order to prove to the trustee and the court that the funds were disposed of prior to the filing of the case. Money possessed by the debtor shortly before the filing of a chapter 7 case may be spent on such items as food and groceries, the chapter 7 filing fee, the attorney's fee in the chapter 7 case, and the payment of up to $600 to creditors whom the debtor intends to continue paying after the filing of the chapter 7 case. Payments should not be made to friends or relatives, however, as the trustee may later recover these payments. Bank Accounts. The best practice is to close out all bank accounts before filing under chapter 7. If a bank account is not closed, the balance of the account should be as close to zero as the bank will allow and all outstanding checks must clear the account before the case is filed. If the debtor has written a check to someone for, say, $50 and if the check has not cleared the account when the case is filed, the $50 in the account to cover the outstanding check will be deemed an asset of the debtor and will have to be paid to the trustee. Prepaid Rent. If the debtor's rent is paid on the first day of the month and if the debtor's chapter 7 case is filed on the tenth day of the month, the portion of the rent covering the last 20 days of the month, if not exempt, will be deemed an asset of the debtor and will later have to be paid to the trustee. If possible, the debtor should make arrangements with the landlord to pay rent only through the date that the case is to be filed and to pay the balance of the rent from funds acquired after the case is filed. If this is not possible, the case should be filed near the end of the rent period. Landlord and Utility Deposits. Unless they are exempt, the debtor should attempt to obtain the refund of all landlord and utility deposits before filing a chapter 7 case. Otherwise, the deposits, or their cash equivalents, will have to be paid to the trustee. Accrued Earnings and Benefits. In most states, and under the federal law, only a certain percentage (usually 75%) of a debtor's earnings are exempt. Therefore, the trustee may be allowed to take the nonexempt portion (usually 25%) of any accrued and unpaid wages, salary, commissions, vacation pay, sick leave pay, and other accrued and nonexempt employee benefits. Normally, then, the best time to file a chapter 7 case is the morning after payday. Even then, if the pay period does not end on payday, the debtor may have accrued earnings unless special arrangements are made with the employer. If annual leave or vacation pay is convertible to cash, it should be collected by the debtor before the chapter 7 case is filed, as should any other nonexempt employee benefits that are convertible to cash. Tax Refunds. In most states, a tax refund is not exempt and becomes the property of the trustee if it has not been received by the debtor prior to the filing of a chapter 7 case. Therefore, if the debtor is scheduled to receive a tax refund, a chapter 7 case should not be filed until after the refund has been received and disposed of. Even if the case is filed before the end of the tax year, if the debtor later receives a refund, the trustee may be entitled to the portion of the refund earned prior to the filing of the case. The best practice, then, is to either file the chapter 7 case early in the tax year (but after the refund from the previous year has been received) or make arrangements to insure that there will be no tax refund for that year. Sporting Goods. If the debtor owns guns, fishing gear, skis, cameras, or similar items of value that are not exempt, he or she will later have to mm them, or their cash equivalent, over to the trustee. Such items should be disposed of prior to the filing of the case, especially if they are of considerable value. 30. May a utility company refuse to provide service to a debtor if the company's utility bill is discharged under chapter 7? If, within 20 days after a chapter 7 case is filed, the debtor furnishes a utility company with a deposit or other security to insure the payment of future utility services, it is illegal for a utility company to refuse to provide future utility service to the debtor, or to otherwise discriminate against the debtor, if its bill for past utility services is discharged in the chapter 7 case. 31. What should the debtor do if he or she moves before the chapter 7 case is closed? The debtor should immediately notify the bankruptcy court in writing of the new address. Because most communications between a debtor and the bankruptcy court are by mail, it is important that the bankruptcy court always have the debtor's current address. Otherwise, the debtor may fail to receive important notices and the chapter 7 case may be dismissed. Many courts have change-of-address forms for debtors to use when they move, and the debtor should obtain one if a move is planned. 32. How is a debtor notified when his or her discharge has been granted? Usually by mail. Most courts send a form eared "Discharge of Debtor" to the debtor and to all creditors. This form is a copy of the court order discharging the debtor from his or her dischargeable debts, and it serves as notice that the debtor's discharge has been granted. It is usually mailed about four months after a chapter 7 ease is filed. 33. What if a debtor wishes to repay a dischargeable debt? A debtor may repay as many dischargeable debts as desired after filing under chapter 7. By repaying one creditor, a debtor does not become legally obligated to repay any other creditor. The only dischargeable debt that a debtor is legally obligated to repay is one for which the debtor and the creditor have signed what is called a "reaffirmation agreement." if the debtor was not represented by an attorney in negotiating the reaffirmation agreement with the creditor, the reaffirmation agreement must be approved by the court to be valid, if the debtor was represented by an attorney in negotiating the reaffirmation agreement, the attorney must file the agreement and the attorney's statement with the court in order for the agreement to be valid, if a dischargeable debt is not covered by a reaffirmation agreement, a debtor is not legally obligated to repay the debt, even if the debtor has made a payment on the debt since filing under chapter 7, has agreed in writing to repay the debt, or has waived the discharge of the debt. 34. How long does a chapter 7 case last? A chapter 7 case begins with the filing of the case and ends with the dosing of the case by the court. If the debtor has no nonexempt assets for the trustee to collect, the case will most likely be dosed shortly after the debtor receives his or her discharge, which is usually about four months after the case is filed. If the debtor has nonexempt assets for the trustee to collect, the length of the case will depend on how long it takes the trustee to collect the assets and perform his or her other duties in the case. Most consumer cases with assets last about six months, but some last considerably longer. 35. What should a person do if a creditor later attempts to collect a debt that was discharged under chapter 7? When a chapter 7 discharge is granted, the court enters an order prohibiting the debtor's creditors from later attempting to collect any discharged debt from the debtor. Any creditor who violates this court order may be held in contempt of court and may be liable to the debtor in damages. If a creditor later attempts to collect a discharged debt from the debtor, the debtor should give the creditor a copy of the order of discharge and inform the creditor in writing that the debt has been discharged under chapter 7. If the creditor persists, the debtor should contact an attorney. If a creditor files a lawsuit against the debtor on a discharged debt, it is important not to ignore the matter, because even though a judgment entered against the debtor on a discharged debt can later be voided, voiding the judgment may require the services of an attorney, which could be costly to the debtor. 36. How does a chapter 7 discharge affect the liability of cosigners and other parties who may be liable to a creditor on a discharged debt? A chapter 7 discharge releases only the debtor. The liability of any other party on a debt is not affected by a chapter 7 discharge. Therefore, a person who has cosigned or guaranteed a debt for the debtor is still liable for the debt regardless of the debtor's chapter 7 discharge. The only exception to this rule is in community property states where the spouse of a debtor is released from certain community debts by the debtor's chapter 7 discharge. 37. What is the role of the attorney for a consumer debtor in a chapter 7 case? The debtor's attorney performs the following functions in the chapter 7 case of a typical consumer debtor.. 1. Analyze the amount and nature of the debts owed by the debtor and determine the best remedy for the debtor's financial problems. 2. Advise the debtor of the relief available under both chapter 7 and chapter 13 of the Bankruptcy Code, and of the advisability of proceeding under each chapter 3. Assemble the information and data necessary to prepare the chapter 7 forms for filing. 4. Prepare the petitions, schedules, statements and other chapter 7 forms for filing with the bankruptcy court. 5. Assist the debtor in arranging his or her assets so as to enable the debtor to retain as many of the assets as possible after the chapter 7 case. 6. Filing the chapter 7 petitions, schedules, statements and other forms with the bankruptcy court, and, if necessary, notifying certain creditors of the commencement of the case. 7. If necessary, assisting the debtor in reaffirming certain debts, redeeming personal property, setting aside mortgages or liens against exempt property, and otherwise carrying out the matters set forth in the debtor's statement of intention. 8. Attending the meeting of creditors with the debtor and appearing with the debtor at any other hearings that may be held in the case. 9. If necessary, preparing and filing amended schedules, statements, and other documents with the bankruptcy court in order to protect the rights of the debtor. 10. If necessary, assisting the debtor in overcoming obstacles that may arise to the granting of a chapter 7 discharge. The fee paid, or agreed to be paid, to an attorney representing a debtor in a chapter 7 case must be disclosed to and approved by the bankruptcy court. The court will allow the attorney to charge and collect only a reasonable fee. Many attorneys collect all or most of their fee before the case is fried. 38. What if a debtor's bankruptcy forms are not prepared by an attorney? It is not legally required that a debtor's bankruptcy forms be prepared by or under the direction of an attorney. However, it is difficult to properly prepare bankruptcy forms without giving legal advice to the debtor. Because many non-attorney bankruptcy preparers attempt to give legal advice to debtors without having the legal training and knowledge necessary to give such advice, Congress has passed an amendment to the Bankruptcy Code that deals with non-attorney bankruptcy preparers. This law requires all non-attorney bankruptcy preparers to sign and print their names on the documents that they prepare and to give copies of all filed documents to the debtor. This law also provides that if a bankruptcy case is later dismissed because of the fraud or incompetence of the preparer, or if the preparer commits an inappropriate or deceptive act, the debtor may recover actual damages from the preparer, plus statutory damages of $2,000 or twice the amount paid to the preparer (whichever is greater), plus attorney fees and costs. A bankruptcy preparer may also be enjoined from further work in the bankruptcy preparation business and may be criminally prosecuted if a bankruptcy case is dismissed because the preparer disregarded the requirements of the bankruptcy laws or roles. Chapter 13 Frequently Asked Questions 1. What is chapter 13 and how does it work? Chapter 13 is that part (or chapter) of the Bankruptcy code under which a person may repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. The Bankruptcy Code is that portion of the federal laws that deal with bankruptcy. A person who files under chapter 13 is called a debtor. In a chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the court to become effective. If the court approves the debtor's plan, most creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to a person called the chapter 13 trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts. 2. How does chapter 13 differ from chapter 7 for a debtor? The basic difference between chapter 7 and chapter 13 is that under chapter 7 the debtor's nonexempt property (if any exists) is liquidated to pay as much as possible of the debtor's debts, while in most chapter 13 cases a portion of the debtor's future income is used to pay as much of the debtor's debts as is feasible considering the debtor's circumstances. As a practical matter, under chapter 7 the debtor loses all or most of his or her nonexempt property and receives a chapter 7 discharge, which releases the debtor from liability for most debts. Under chapter 7, the debtor usually retains his or her nonexempt property, must pay off as much of his or her debts as the court deems feasible, and receives a chapter 13 discharge, which is broader than a chapter 7 discharge and releases the debtor from liability for several types of debts that are not dischargeable under chapter 7. However, a chapter 13 cue normally lasts much longer than a chapter 7 case and is usually more expensive for the debtor. 3. When is chapter 13 preferable to chapter 7 for a debtor? Chapter 13 is usually preferable for a person who: 1. wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time, 2. has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a chapter 7 case, 3. is not eligible for a discharge under chapter 7, 4. has one or more substantial debts that are dischargeable under chapter 13 but not under chapter 7, or 5. has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so. 4. How does chapter 13 differ from a private debt consolidation service? In a chapter 13 case, the bankruptcy court can provide aid to the debtor that private debt consolidation services provide. For example, the court has the authority to prohibit creditors from attaching or foreclosing on the debtor's property, to force unsecured creditors to accept a chapter 13 plan that pays only a portion of their claims, and to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers. 5. What is a chapter 13 discharge? It is a court order releasing a debtor from all dischargeable debts and ordering creditors not to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. There are two types of chapter 13 discharges: a full or successful plan discharge, which is granted to a debtor who completes all payments called for in the plan, and a partial or unsuccessful plan discharge, which is granted to a debtor who is unable to complete the payments called for in the plan due to circumstances for which the debtor should not be held accountable. A full chapter 13 discharge is broader and discharges more debts dm a chapter 7 discharge, while a partial chapter 13 discharge is similar to a chapter 7 discharge. 6. What types of debts are dischargeable under chapter 13? A full chapter 13 discharge must be granted upon the completion of all payments required in the plan discharges a debtor from all debts except: 1. debts that were paid outside of the plan and not covered in the plan, 2. debts for alimony, maintenance, or support 3. debts for death or personal injury caused by the debtor's operation of a motor vehicle while unlawfully intoxicated, 4. debts for restitution or criminal fines included in a criminal sentence imposed on the debtor, 5. debts for most student loans or educational obligations that first became less than 7 years before the case was filed, 6. installment debts whose last payment is due after the completion of the plan, and 7. debts incurred while the plan was in effect that were not paid under the plan. A partial chapter 13 discharge granted when a debtor is unable to complete the payments under a plan due to circumstances for which the debtor should not be held accountable, discharges the debtor from all debts except: 1. secured debts (i.e., debts secured by mortgages or liens), 2. debts that were paid outside of the plan and not covered in the plan, 3. installment debts whose last payment is due after the completion of the plan, 4. debts incurred while the plan was in effect that were not paid under the plan, and 5. debts that are not dischargeable under chapter 7. 7. What is a chapter 13 plan? It is a written plan presented to the bankruptcy court by a debtor that states how much money or other property the debtor will pay to the chapter 13 trustee, how long the debtor's payments to the chapter 13 trustee continue, how much will be paid to each of the debtor's creditors, which creditors will be paid outside of the and certain other technical matters. 8. What is a chapter 13 trustee? A chapter 13 trustee is a person appointed by the United States trustee to collect payments from the debtor, make payments to creditors in the manner set forth in the debtor's plan, and administer the debtor's chapter case until it is closed. In some cases the chapter 13 trustee is required to perform certain other duties, and the debtor is always required to cooperate with the chapter 13 trustee. 9. What debts may be paid under a chapter 13 plan? Any debts whatsoever, whether they are secured or unsecured. Even debts that are nondischargeable, such as debts for student loans, alimony or child support may be paid under a chapter 13 plan. 10. Must all debts be paid in full under a chapter 13 plan No. While priority debts, such as debts for alimony, maintenance and support and debts for taxes, and fully secured debts must be paid in full under a chapter 13 plan, only an amount that the debtor can reasonably afford Fast be paid on most debts. The unpaid balances of most debts that are not paid in full under a chapter 13 plan are discharged upon completion of the plan. 11. Must an unsecured creditor's be treated alike under a chapter 13 plan? No. If there is a reasonable basis for doing so, unsecured debts can be divided into separate classes and treated differently. It may be possible, therefore, to pay certain unsecured creditors in full while prying little or nothing to others. 12. How much of a debtor's income must be paid to the chapter 13 trustee under a chapter 13 plan? Usually all of the disposable income of the debtor and the debtor's spouse for a three-year period must be paid to the chapter 13 trustee. Disposable income is income received by the debtor and his or her spouse that is not reasonably necessary for the support of the debtor and the debtor's dependents. 13. When must the debtor begin making payments to the chapter 13 trustee and how must they be made? The debtor must begin making payments to the chapter 13 trustee within 30 days after the debtor's plan is filed in the court, and the plan must be filed with the court within 15 days after the case is filed. The payments must be made regularly, usually on a weekly, biweekly, or monthly basis. If the debtor is employed, some courts require the payments to be made by the debtor's employer, otherwise, the payments cm be made by either the debtor or the debtor's employer. 14. How long does a chapter 13 plan last? A chapter 13 plan must last for three years, unless all debts can be paid off in full in less time. However, a chapter 13 plan can last for as long as five years, if necessary. 15. Is it necessary for all creditors to approve a chapter 13 plan? NO. To become effective, a chapter 13 plan must be approved by the court, not by the creditors. The court cannot approve a plan unless secured creditors are dealt with in the manner described in the answer to Question 16. Also, unsecured creditors are permitted to file objections to the debtor's plan, and these objections must be ruled on by the court before it can approve the debtor's chapter 13 plan. 16. How are secured creditors dealt with under chapter 13? There are four methods of dealing with secured creditors under chapter 13: 1. The creditor may accept the debtor's proposed plan, 2. The creditor may retain its lien and be paid the full amount of its secured claim under the plan, 3. Debtor may surrender the collateral to the creditor, or 4. The creditor may be paid or dealt with outside of the plan. It is important to understand that a creditor has a secured claim only to the extent of the value of its security, which cannot exceed the value of the property securing the claim. Thus, a creditor with a mortgage on, say, a $1500 automobile, cannot have a secured claim for more than $1500 regardless of how much is owed to the creditor. If the debtor is in default to a secured creditor, the default must be cured (made current) within a reasonable time. Also, interest must be paid on secured claims. 17. How are cosigned or guaranteed debts handled under chapter 13? If a cosigned or guaranteed consumer debt is being paid in full under a chapter 13 plan, the creditor may not collect the debt from the cosigner or guarantors. However, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the cosigner or guarantors A consumer debt is a nonbusiness debt. Creditors may collect business debts from cosigners or guarantors even if the debts are to be paid in full under the debtor's plan. 18. Who is eligible to file under chapter 13? Any natural person may file under chapter 13 if the person: 1. resides in, does business in, or owns property in the United States, 2. has regular income, 3. has unsecured debts of less than $250,000, 4. has secured debts of less than $750,000, 5. is not a stockbroker or a commodity broker, and 6. has not been a debtor in another bankruptcy case that was dismissed within the last 180 days on certain technical grounds. A person meeting the above requirements may file under chapter 13 regardless of when he or she last filed a bankruptcy case or received a bankruptcy discharge. Corporations, partnerships and limited liability companies may not file under chapter 13. 19. May a husband and wife file jointly under chapter 13? A husband and wife may file jointly under chapter 13 if each of them meets the requirements listed in the answer to Question 18 above, except that only one of them need have regular income and their combined debts must meet the debt limitations described in the answer to Question 18 above. 20. When should a husband and wife file jointly under chapter 13? If both spouses are liable for any significant debts, they should file jointly under chapter 13, even if only one of them has income. Also, if both of them have regular income, they should file jointly. 21. May a self-employed person file under chapter 13? Yes. A self-employed person meeting the eligibility requirements listed in the answer to Question 18 above may file under chapter 13. A debtor engaged in business may continue to operate the business during the chapter 13 case. 22. May a chapter 7 case be converted to chapter 13? A pending chapter 7 case may be converted to chapter 13 at any time at the request of the debtor, if the debtor has not been previously converted to chapter 7 from chapter 13. 23. Where is a chapter 13 case filed? A chapter 13 case is filed in the bankruptcy court in the district where the debtor has lived or maintained a principal place of business for the greatest portion of the last 180 days. The bankruptcy court is a unit of the federal district court. 24. What fees are charged in a chapter 13 case? There is a $274 filing fee charged when the case is filed, which may be paid in installments if necessary. In addition, the chapter 13 trustee assesses a fee of 5 percent on all payments made under the plan. Thus, if a debtor pays a total of $5,000 under a chapter 13 plan, the total amount of fees charged in the case will be $524 (a $250 trustee's fee, plus the $274 filing fee). These fees are in addition to the fee charged by the debtor's attorney. 25. Will a person lose any property if he or she files under chapter 13? Usually not under chapter 13. Creditors are usually paid out of the debtor's income and not from the debtor's property. However, if a debtor has valuable nonexempt property and has insufficient income to pay enough to creditors to satisfy the court, some of the debtor's property may have to be used to pay creditors. 26. How does filing under chapter 13 affect collection proceedings and foreclosures previously filed against the debtor? The filing of a chapter 13 case automatically stays (stops) an lawsuits, attachments, garnishments, foreclosures, and other actions by creditors against the debtor or the debtor's property. A few days after the case is filed, the court will mail a notice to all creditors advising them of the automatic stay. Certain creditors may be notified sooner, if necessary. Most creditors are prohibited from proceeding against the debtor during the entire course of the chapter 13 case. If the debtor is later granted a chapter 13 discharge, the creditors will then be prohibited from collecting the discharged debts from the debtor after the case is dosed. 27. May a person whose debts are being administered by a financial counselor file under chapter 13? Yes. A financial counselor has no legal right to prevent a person from filing any type of bankruptcy case, including a chapter 13 case. 28. How does filing under chapter 13 affect a person's credit rating? It may worsen it, at least temporarily. However, if most of a person's debts are ultimately paid off under a chapter 13 plan, that fact may be taken into account by credit reporting agencies. If very little is paid on most debts, the credit-rating effect of a chapter 13 case may be similar to that of a chapter 7 case. 29. Are the names of persons who file under chapter 13 published? When a chapter 13 case is filed, it becomes a public record and the name of the debtor may be published by some credit reporting agencies. However, newspapers do not usually publish the names of persons who file under chapter 13. 30. Is a person's employer notified when he or she files under chapter 13? In most cases, yes. Many courts require a debtor's employer to make payments to the chapter 13 trustee on the debtor's behalf. Also, the chapter 13 trustee may contact an employer to verify the debtor's income. However, if there are compelling reasons for not informing an employer in a particular case, it may be possible to make other arrangements for the required information and payments. 31. Does a person lose any legal rights by filing under chapter 13? No. Filing under chapter 13 is a civil proceeding and not a criminal proceeding. Therefore, a person does not lose any legal or constitutional rights by filing a chapter 13 case. 32. May employers or government agencies discriminate against persons who file under chapter 13? No. It is illegal for either private or governmental employers to discriminate against a person because that person has filed under chapter 13. It is also illegal for local, state, or federal governmental agencies to discriminate against a person as to the granting of licenses, permits, student loans, and similar grants because that person has filed under chapter 13. 33. What is required for court approval of the chapter 13 plan? The court may confirm a chapter 13 plan if: 1. the plan complies with the legal requirements of chapter 13, 2. all required fees, charges, and deposits have been paid, 3. all priority claims will be paid in full under the plan, 4. the plan was proposed in good faith, 5. each unsecured creditor will receive under the plan at least as much as it would have received had the debtor filed under chapter 7, 6. it appears that the debtor will be able to make the required payments and comply with the plan, and 7. each secured creditor has been dealt with in the manner described in the answer to Question 16 above. 34. When does a debtor have to appear in court in a chapter 13 case? Most debtors have to appear in court at least twice: once for a hearing called the meeting of creditors, and once for a hearing on the confirmation of the debtor's chapter 13 plan. The meeting of creditors is usually held about a month after the case is filed. The confirmation hearing may be held on the same day as the meeting of creditors or at a later date The debtor's testimony should not be lengthy at either hearing, however. If difficulties or unusual circumstances arise during the course of a case, additional court appearances may be necessary. 35. What if the court does not approve a filed chapter 13 plan? If the court will not approve the plan proposed by a debtor, the debtor may modify the plan and seek court approval of the modified plan. If the court does not approve a plan, it will usually give its reasons for refusing to do so, and the plan may then be appropriately modified so as become acceptable to the court. A debtor who does not wish to modify a proposed plan may either convert the plan to chapter 7 or dismiss the case. 36. How are the claims of unfiled creditors handled under chapter 13? Unsecured creditors must file their claims with the bankruptcy court within 90 days after the first date set for the meeting of creditors in order for their claims to be allowed. Unsecured creditors who fail to file claims within that period are barred from doing so, and upon completion of the plan their claims will be discharged. The debtor may file a claim on behalf of a creditor, if desired. After the claims have been filed, the debtor may file objections to any claims that he or she disputes. When the claims have been approved by the court, the chapter 13 trustee begins paying unsecured creditors as provided for in the chapter 13 plan. Payments to secured creditors, priority creditors, and special classes of unsecured creditors may begin earlier, if desired. 37. What if the debtor is temporarily unable to make the chapter 13 payments? If the debtor is temporarily out of work, injured, or otherwise unable to make the payments required under a chapter 13 plan, the plan can usually be modified so as to enable the debtor to resume the payments when he or she is able to do so. If it appears that the debtor's inability to make the required payments continue indefinitely or for an extended period, the case may be dismissed or converted to chapter 7. 38. What if the debtor incurs new debts or needs credit during a chapter 13 case? Only two types of credit obligations or debts incurred after the filing of the case may be included in a chapter 13 plan. These are: 1. debts for taxes that become payable while the case is pending, and 2. consumer debts arising after the filing of the case that are for property or services necessary for the debtor's performance under the plan and that are approved in advance by the chapter 13 trustee. All other debts or credit obligations incurred after the case is filed must be paid by the debtor outside the plan. Some courts issue an order prohibiting the debtor from incurring new debts during the case unless they are approved in advance by the chapter 13 trustee. Therefore, the approval of the chapter 13 trustee should be obtained before incurring credit or new debts after the case has been filed. The incurrence of regular debts, such as debts for telephone service and utilities, do not require the trustee's approval. 39. What should the debtor do if he or she moves while the case is pending? The debtor should immediately notify the bankruptcy court and the chapter 13 trustee in writing of the new address. Most communications in a chapter 13 case are by mail, and if the debtor fails to receive an order of the court or a notice from the chapter 13 trustee because of an incorrect address, the case may be dismissed. Many courts have change-of-address forms that may be used if the debtor moves. 40. What if the debtor later decides to discontinue the chapter 13 case? The debtor has the right to either dismiss a chapter 13 case or convert it to chapter 7 at any time for any reason. However, if the debtor simply stops making the required chapter 13 payments, the court may compel the debtor or the filed employer to make the payments and to comply with the orders of the court. Therefore, the debtor who wishes to discontinue a chapter 13 case should do so through his or her attorney. 41. What happens if a debtor is unable to complete the chapter 13 payments? A debtor who is unable to complete the chapter 13 payments has three options: 1. dismiss the chapter 13 case, 2. convert the chapter 13 case to chapter 7, or 3. if the debtor is unable to complete the payments due to circumstances for which he or she should not be held accountable, close the case and obtain a partial chapter 13 discharge as described in the answer to Question 6 above. 42. What is the role of the filed attorney in a chapter 13 case? The filed attorney performs the following functions in a typical chapter 13 case: 1. Examining the filed financial situation and determining whether chapter 13 is a feasible alternative for the debtor, and if so, whether a single or a joint case should be filed. 2. Assisting the debtor in the preparation of a budget 3. Examining the liens or security interests of secured creditors to ascertain their validity or avoidability, and taking the legal steps necessary to protect the filed interest in such matters. 4. Devising and implementing methods of dealing with secured creditors. 5. Assisting the debtor in devising a chapter 13 plan that meets the needs of the debtor and is acceptable to the court. 6. Preparing the necessary pleadings and chapter 13 forms. 7. Filing the chapter 13 forms and pleadings with the court and paying, or providing for the payment of, the filing fee. 8. Attending the meeting of creditors, the confirmation hearing, and any other court hearings required in the case. 9. Assisting the debtor in obtaining court approval of a chapter 13 plan. 10. Checking the claims filed in the case, filing objections to improper claims, and attending court hearings thereon. 11. Assisting the debtor in overcoming any legal obstacles that may arise during the course of the case. 12. Assisting the debtor in obtaining a discharge upon the completion or termination of the plan. The fee charged by an attorney for representing a debtor in a chapter 13 case must be reviewed and approved by the bankruptcy court. This rule is followed whether the fee is paid to the attorney prior to or after the filing of the case, and whether it is paid to the attorney directly by the debtor or by the chapter 13 trustee. The court will approve only a fee that it finds to be reasonable. |
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