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CLIENT INFORMATION FOR CHAPTER 7 AND CHAPTER 13 DEBTORS
This brochure covers both Chapter 7 and Chapter 13 of the Bankruptcy Code
(Chapters 11 & 12 are also discussed briefly). Please read this document
thoroughly to familiarize yourself with the general principles of bankruptcy.
Please remember that a Chapter 7 bankruptcy will last several months and a
Chapter 13 will last for several years and therefore will require regular
communication with this office. Accordingly, should you require information
about your case, change jobs, change your address, separate from your spouse, or
desire to change your intentions about reaffirmations, you should contact my
office for advice.
General Bankruptcy Information
When a bankruptcy petition is filed it creates an entity called the bankruptcy
estate. With a few exceptions, the estate consists of everything you own; all
tangible property and rights such as jewelry, automobiles, household goods,
lawsuits, patents, licenses, and so forth. In preparing your petition we will be
asking VERY detailed questions about everything you own. Under Federal law, it
is a felony criminal offense to fail to disclose any material asset.
You are also required to list ALL creditors in the schedule of debts. Your
failure to list any creditor may mean that the debt will not be discharged. Your
failure may also result in the denial of your bankruptcy discharge. If you wish
to add a creditor after filing, but before your case is closed, there will be an
additional fee. Once your case is closed, adding an omitted creditor requires
payment of even greater fees. We recommend that you tell us about any omitted
creditor as soon as possible after it is brought to your attention.
There are certain specific types of debts in the Bankruptcy Code which may be
nondischargeable depending on the facts and the Chapter you file under. These
are as follows:
• certain taxes;
• fraud;
• omitted creditors;
• alimony, maintenance and child support obligations;
• willful and malicious injury;
• crimes, fines, penalties, forfeitures and restitution orders;
• student loans (except in cases of severe hardship); and
• personal injury, property damage or death caused by the debtor's operation of
a motor vehicle under the influence of alcohol or drugs.
The filing of a bankruptcy implements an “automatic stay” of all collection
activities by creditors and/or collection agencies. This means creditors cannot
initiate or continue any lawsuit, wage garnishment, or even make telephone calls
or send letters demanding payments. Normally, it will take approximately ten
days for a creditor to be notified of a bankruptcy filing, so please forward any
phone calls or letters you receive to our office. There are several exceptions
to the Automatic Stay.
1. A bank, savings and loan, credit union or any institution in which you have a
deposit is allowed to take that deposit and setoff any outstanding debt you have
with that institution. If you have a deposit in an institution with which you
also have a debt, please take immediate steps to remove the funds in order to
keep them.
2. Utilities may not cut off service for a period of twenty days after the date
of the filing, but may discontinue service thereafter if you do not post a
reasonable deposit with the utility. A deposit is required only where you are
discharging a debt to a utility and still use their services.
3. The Automatic Stay does not stop the prosecution of a crime (i.e., writing an
NSF check).
4. Additionally, the collection of ongoing alimony and child support is not
stayed.
It is important to understand that during the pendency of your bankruptcy case
(either Chapter 7 or Chapter 13) you will not be able to borrow additional money
without Court approval (this includes a “rapid refund” on your taxes). In any
event, you should not be borrowing any money if you are attempting to repay past
creditors.
You will receive a notice from the Bankruptcy Court shortly after your petition
is filed with the court. Please note, a Meeting of Creditors hearing, (date,
time and location) will be listed on this notice. You both must attend this
meeting. Be at court early. I will meet you at the courthouse. It is difficult
to reschedule a Meeting of Creditors, and unless a true emergency comes up, we
expect you to be present and ready to go forward at the meeting. Your failure to
appear could result in dismissal of your case.
Under the Fair Credit Reporting Act (FCRA), Chapter 7 and Chapter 13 bankruptcy
information, tax liens, and Judgments will generally remain on your credit
record for ten years. The FCRA also provides that negative credit information
(late payments, charge off accounts, etc.) will generally remain on your credit
record for seven years. There are thousands of small credit reporting agencies
around the country with three major agencies doing the bulk of the work. They
are Experian, Trans Union, and CSC/Equifax. Other agencies work on a regional
basis or deal with specific entries such as bad checks, landlord/tenant
relations and criminal records.
Under the Fair Debt Collection Practices Act (FDCPA), individuals have certain
rights and protections provided by Federal Law. This consumer protection statute
limits what debt collectors, collection agencies, and attorneys can do when
collecting consumer debts on behalf of a creditor. Under the FDCPA, you have the
right to demand in writing the termination of any debt collector's activities
(excluding lawsuits). Once you send a cease and desist letter, the debt
collector must cease all communication.
Federal law prohibits public or private employers from discriminating against
anyone who has filed a bankruptcy petition, solely because of the filing of the
bankruptcy. However, this employment discrimination prohibition does not apply
to credit grantors. It does not prohibit landlords from refusing to rent to you,
nor does it prohibit banks from refusing to establish an account for you, nor
insurance companies from refusing to insure you or your property. Nevertheless,
it has been my experience that most banks, landlords, insurance companies and
other individuals and corporations do continue to do business with individuals
who have sought bankruptcy relief.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is a straight bankruptcy case filed by an individual,
partnership or corporation designed to give the debtor a “financial fresh
start”. Under this chapter, the debtor is permitted to retain certain “exempt”
property and receive a discharge of debts, with the exception of secured liens
on property. Potential debtors should realize that the filing of Chapter 7 case
could result in the loss of some assets.
Chapter 7 cases run approximately 120 days from the filing date until the
discharge is received.
At the end of your Chapter 7 Bankruptcy, you will receive a discharge of
liability of all unsecured debt. However, if you have loans secured by property,
such as an automobile or house, you must choose to surrender the property or
repay the creditor. Repayment is accomplished by reaffirmation or redemption. A
reaffirmation agreement is a contract between you and the creditor stating that
you will pay all or a portion of the money owed. In return, the creditor
promises that as long as the payments are made, the creditor will not repossess
the property. A reaffirmation agreement must be filed with the court and must
not cause undue hardship on you. You have 60 days after the entry of a
reaffirmation to rescind the reaffirmation, so please let us know at once if you
change your mind. Please note, a creditor cannot be required to reaffirm a
secured debt with you. As a rule, a creditor will reaffirm if you are current on
the loan, but your circumstances could dictate an unfavorable creditor response.
A redemption occurs when you simply payoff the balance of the account.
The Bankruptcy Code allows you to convert a Chapter 7 case to a Chapter 13 case
as long as you meet the eligibility standards under Chapter 13, and the case has
not previously been converted to a Chapter
The Bankruptcy Code provides that you may not file another Chapter 7 bankruptcy
until eight years have passed since your discharge in your last bankruptcy (if
any).
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is designed for individuals with a regular income,
including those who are self-employed or operators of an unincorporated business
who desire to repay their debts. Under this Chapter, debtors are permitted to
repay creditors, in full or in part, in installments over a period of time,
during which the creditors are prohibited from starting or continuing collection
efforts.
One of the benefits of Chapter 13 Bankruptcy is that friends, relatives or
coworkers who have co-signed for your obligations are protected. In a Chapter 7
Bankruptcy, you are able to discharge a co-signed debt, but this often leads to
the creditor simply turning to the co-signer. In a Chapter 13 Bankruptcy the
co-signer is protected, as long as the creditor is paid in full over time.
The debtor must file a plan of repayment with the petition. The Chapter 13 plan
must provide for the full payment of all claims entitled to priority (for
example, tax claims). The Chapter 13 plan may provide for either the full
payment or partial payment of unsecured and secured creditors. Where the debtor
proposes paying secured and unsecured creditors in full, the plan is called an
extension plan. In this type of plan, secured creditors get their regular
payment (including interest) and unsecured creditors receive repayment in full
without interest for between three and five years.
Where unsecured creditors receive less than their full amount, the plan is
called a composition plan. In this plan, unsecured creditors receive their
appropriate percentage of all the debtor's available disposable income. This
means the debtor's gross income minus taxes and reasonable expenses. In a
composition plan, the debtor is also able to “lien strip.” This is the process
whereby a secured creditor (excluding a home mortgage) is paid the fair market
value of the collateral plus interest, usually at eight percent. The remaining
balance of the loan is paid as an unsecured debt.
Your first plan payment is due to the Trustee within 30 days of filing the plan.
This usually means you will pay your first payment before the Meeting of
Creditors. After the Meeting of Creditors, the Bankruptcy Judge must determine
whether the plan is feasible and meets certain standards for confirmation. If
the plan is confirmed by the judge, the Chapter 13 Trustee commences
distribution of the funds received. If the plan is not confirmed, you have the
right to file a modified plan. You also have the right to convert the case to a
Chapter 7. unless you've had a prior Chapter 7 discharge in the last six years.
If the plan (or modified plan) is not confirmed or the case converted, the case
will most likely be dismissed.
Once the court confirms the plan, it is the responsibility of the debtor to make
the plan succeed. You must make regular payments to the Trustee, which will
require adjustment to living on a fixed budget for a prolonged period. Please do
not feel that you can still use credit -you simply cannot.
Chapter 11
Filing bankruptcy under Chapter 11 is most commonly used by businesses, but is
also available to individuals with large assets and liabilities. Creditors vote
on whether to accept or reject the plan proposed by the debtor, which also must
be approved by the court. The debtor normally remains in control of the assets,
but the court can order the appointment of a Trustee to take possession and
control of the business. The attorney fee for filing a Chapter 11 typically
starts at $10,000.00 and the filing fee is $1,000.00.
Chapter 12
Chapter 12 offers relief to those who qualify as family farmers. The debtor must
propose a plan to repay their creditors over a three-to-five year period and it
must be approved by the court. Plan payments are made through the Chapter 12
Trustee, who also monitors the debtor's farming operations during the pendency
of the plan.
Send mail to
consumerlaw@frontiernet.net with
questions or comments about this web site.
Last modified:
01/06/10
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