Overview
A decision to file a chapter 7 or 13 should be made after determining that bankruptcy is the best way to deal with your financial problems.
Bankruptcy is a choice that may help if you are facing serious financial problems. You may be able to cancel your debts, stop collection calls, and get a fresh financial start. Bankruptcy can help with some financial problems, but does not guarantee you will avoid financial problems in the future. If you choose bankruptcy, you should take advantage of the fresh start it offers and then make careful decisions about future borrowing and credit, so you won't ever need to file bankruptcy again.
There is no shame in filing for bankruptcy. It is a legal procedure in place to help individuals and families in dire financial circumstances. It is a myth that only irresponsible spenders need to turn to bankruptcy. The need to file for bankruptcy is usually out of an individual's or family's direct control. Most people who file for bankruptcy do so because of job loss, divorce or illness. In fact, one study found that half of personal bankruptcies were filed because of medical bills. And surprisingly, 75% of those who went into so much debt because of medical bills had health insurance at the onset of their illness. Click here for a partial list of famous people who have filed bankruptcy.
Bankruptcy filings are expected to be around 1.4 million cases in 2009. You are certainly not alone in this situation.
Introduction to Chapter 7
A chapter 7 case begins when you ( husband and wife may file a joint case) files a Petition with the bankruptcy court. In addition to the Petition, there must also be filed a number of other documents which basically set out your debts, assets and financial information about you.
In order for me to help in the preparation of those documents it is helpful if you fill out the Questionnaires. By answering these questions online before we allows me to spend more time focused on your issues. If you don't have internet access or don't feel comfortable using it we can review the questions in person when we meet.
To Qualify for a Chapter 7
To qualify to file a chapter 7 you must be an individual, a partnership, or a corporation. An individual cannot file a chapter 7 if during the preceding 180 days a prior bankruptcy petition was dismissed due to the your willful failure to appear before the court or comply with orders of the court, or you voluntarily dismissed a previous case after a creditor sought relief from the court to recover property upon which it held a lien.
In addition, you cannot file chapter 7 until you have received credit counseling from an approved credit counseling agency. There are exceptions in emergency situations to this rule. I can explain in more detail how to take this credit counseling when we meet. It is not a difficult thing to accomplish but it is very important that it is completed before your case is filed. The course cannot be completed more than 180 days before you file or you must take it over.
Very Important. The Means Test.
To qualify for a chapter 7 case your income must be below a certain level or you must pass what is called the "Means Test" unless you are exempted from it or you must obtain the permission of the Bankruptcy Court to file.
Certain military and other persons are exempt from taking the Means Test.
It basically is a formula in the bankruptcy law which calculates out your income and expenses and determines out much is left over. Too much and you must file a chapter 13. The figures used in the Means Test change a few times a year so if you did not qualify before that does not mean you will not qualify now. .
Filing Fee for Chapter 7
The filing fee of $299. Normally, the fee is paid in full at the time of fling but it is possible to pay it in installments. Failure to pay the fee will result in dismissal of the case by the Court.
Exempt property in Chapter 7
The Bankruptcy Law allows you to protect some property from the claims of creditors because it is exempt under federal bankruptcy law or under the state law. This is why most people who file chapter 7 do not loose any of their property. Every situation is different but I can give you my opinion on your situation once I know more of the facts of your case.
Property Received After Filing In a Chapter 7
As a general rule, assets acquired after you file your file your case are yours and not involved with the case. There are, however, a number of exceptions. They are: the right to receive an inheritance, the right to receive a property settlement or money under a life insurance policy or the right to receive money under a death benefit plan. If you are "entitled" to received these types of assets within 6 month of your filing (even if you do not physically receive them during this time) you may have to turn them over to the trustee. If you think this might happen during your case be sure to discuss this with me. If this occurs unexpectedly after the case is filed you are under a duty to disclose this information to the trustee.
Automatic Stay In a Chapter 7
Once you file your case an "automatically stays" (stops) most collection actions against you and your property, including actions to foreclose on your house, repossess an automobile or garnishments. There are a few exception to the stay, such as some child support and landlord/tenant issues.
Meeting of Creditors In a Chapter 7
Between 20 and 40 days after your case is filed, there will be a "Meeting of Creditors". (Sometimes known as a 341 Meeting.) The Court location for the 341 Meeting will depend on your residence. During this meeting, (which you must attend) The trustee assigned to your case puts you under oath, and both the trustee and any creditors who might be present have the opportunity to ask questions. In some limited circumstances, attendance at the Meeting of Creditors can be waived by the Court. In most cases very few questions are asked. The Bankruptcy Judge is not present during this meeting. In the vast majority of cases no creditors appear and the whole process takes 15 minutes. Having said that, many cases are scheduled at the same time so we might have to wait perhaps 45-60 minutes to have your case called. It is imperative that you are on time for this Meeting. If your case is called and you are not there it will be put on the end of the docket or the Trustee will seek to have your case dismissed.
The Chapter 7 Trustee
"Asset Case" is to liquidate nonexempt assets. In the vast majority of cases the Trustee sells no property and the case is considered a "No Asset Case". The Trustee may also attempt to recover money or property under the Trustee's "avoiding powers." The Trustee's avoiding powers include the power to: set aside preferential transfers made to creditors within 90 days before you filed; undo security interests and other pre-petition transfers of your property that were not properly perfected under non-bankruptcy law at the time you filed; and pursue non-bankruptcy claims such as fraudulent conveyance and bulk transfer remedies available under state law.
The Chapter 7 Discharge
A discharge releases you from personal liability for most debts and prevents creditors from taking any collection actions against you. In most cases this is granted about 4 months after you file your case. The discharge granted in a chapter 13 case is broader than a chapter 7 Discharge which is why some people file chapter 13. If you would be better served by filing a chapter 13 I will advise you of that fact when I know more about your situation.
You can denied a Discharge by the Bankruptcy Judge under limited circumstances. The court may deny you a discharge if it finds that you: 1)failed to keep or produce adequate books or financial records; failed to explain satisfactorily any loss of assets; 2)committed a bankruptcy crime such as perjury; 3)failed to obey a lawful order of the bankruptcy court;4) fraudulently transferred, concealed, or destroyed property that would have become property of the estate; or 5) failed to complete an approved instructional course concerning financial management.
Reaffirmations In Chapter 7
Secured creditors may retain some rights to your property even after a discharge is granted. Depending on the circumstances, you may wish to keep certain secured property (such as an automobile), by deciding to "reaffirm" the debt. A reaffirmation is an agreement between you and your creditor that you will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in your case. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as you continue to make your payments.
If you wish to reaffirm a debt, you must do so before the discharge is entered. You must sign a written reaffirmation agreement and file it with the court. The Bankruptcy Code requires that reaffirmation agreements contain an extensive set of disclosures. Among other things, the disclosures must advise you of the amount of the debt being reaffirmed and how it is calculated and that reaffirmation means that the you remain personal liability for that debt and it will not be discharged in your bankruptcy. The law also requires that you sign and file a statement of your current income and expenses which shows that you can afford to pay the debt.
If I represent you in connection with the reaffirmation agreement, I will certify in writing that I have advised you of the legal effect and consequences of the agreement, including a default under the agreement. I will also certify that you were fully informed and voluntarily made the agreement and that reaffirmation of the debt will not create an undue hardship for you or the your dependents.
Non-dischargeable Debts In Chapter 7
Not all of your debts are discharged in chapter 7. Debts not discharged include debts for alimony and child support, certain taxes, debts to governmental units for fines and penalties, debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity, debts for death or personal injury caused by your operation of a motor vehicle while you were intoxicated from alcohol or other substances, debts owed to certain tax-advantaged retirement plans, debts for certain condominium or cooperative housing fees, and, finally, debts for certain criminal restitution order. These debts are automatically discharged.
Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for willful and malicious injury by you to another entity or to the property of another entity will not be discharged if a creditor timely files and prevails in a lawsuit before the bankruptcy judge to have such debts declared non-dischargeable. The Discharge given in a chapter 13 is broader which is why sometimes filing a chapter 13 is preferred. Very Important. If you think that you have any of these non-dischargeable debts be sure to tell me fully about them so that I can advise you how best to proceed.
Revocation of Discharge In Chapter 7 Cases
The court may revoke your discharge if the discharge was obtained through fraud by you, if you acquired property that is property of the estate and knowingly and fraudulently failed to report the acquisition of such property or to surrender the property to the Trustee, or if you (without a satisfactory explanation) make a material misstatement or fail to provide documents or other information in connection with an audit of your case.
Audits In Chapter 7
Individuals who file under chapter 7 are subject to audit. Appropriately one out of every 1,000 chapter 7 and chapter 13 cases will be randomly selected for audit. In addition, a case may be selected for an audit. The audit involves the verification of the income, expenses, and assets reported by you in the bankruptcy documents. You are required to provide some additional information and records and cooperate with the audit firm and provide this information promptly. There is no cost to you for the audit, except for the cost of making copies of documents needed for the audit. The information that you provide in connection with your case is subject to examination by the Attorney General or his designee. The audit firm will file a report containing the results of the audit. A copy of the report will be provided to your attorney. If the audit firm finds material misstatements of income, expenses, or assets, the clerk of the bankruptcy court will notify your creditors. Failure to cooperate with the audit firm, or failure to reasonably explain to the bankruptcy court any material misstatements contained in the audit firm's report, may result in the dismissal of your case or in the denial or revocation of your discharge, and, possibly, referral of the matter to the United States Attorney for criminal investigation.