What is a bankruptcy?
Bankruptcy is a way for people or businesses who owe more money than they can pay right now, (a “debtor”), to either work out a plan to repay the money over time, under Chapter 11, 12 or 13, or for most of the bills to be wiped out (“discharged”), as in a chapter 7 case. While the debtor is either working out the plan or the trustee is gathering the available assets to sell, the Bankruptcy Code provides that creditors must stop all collection efforts against the debtor.
When the bankruptcy petition is stamped “relief ordered” upon filing, you are immediately protected from your creditors. What chapter you choose to file under, what bills can be eliminated, how long payments can be stretched out, and what possessions you can keep, and the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure control other details. These are federal laws, which means they apply all over the United States. The code and Rules are found in Title 11 of the United States Code. The various sections of the Bankruptcy Code are referred to throughout this informational packet as “11 U.S.C. § ___.”
What do I do when creditors call?
Once you have retained my office by paying your retainer fee, you may tell all of your creditors, “I have hired the Dunaway Law Group to represent me in a bankruptcy filing. They told me to tell you to direct all further communication to their office. His phone number is 480-389-6529.” Once you tell a collection agency that you have a lawyer they may not call you any more. If they call you back after you have told them you have a lawyer, make sure to get a name and phone number of the person calling you and then contact our office.
What happens if I file a chapter 7 bankruptcy?
A chapter 7 bankruptcy begins by filing a “petition” and schedules with the bankruptcy court. The person filing a chapter 7 is referred to as the “debtor”. The debtor is required to disclose to the court all of his or her property and debts and turn over all nonexempt property to the bankruptcy trustee, who then converts it to cash for distribution to the creditors. The debtor then receives a discharge of all dischargeable debts.
Who can file a bankruptcy?
Any person, partnership, corporation or business trust may file a bankruptcy. If the person or entity that owes the money, referred to as the debtor, starts the bankruptcy, it is called a voluntary bankruptcy. The people or entities that are owed money, referred to as the creditors, can also file a petition against a person or an entity who owes them money, and that is called an involuntary bankruptcy. In an involuntary case, the debtor gets a chance to contest the petition and contend it should not be in bankruptcy. Involuntary cases can only be filed under chapter 7 or 11. Voluntary cases can be filed under chapters 7, 9, 11, 12 and 13. Certain types of entities, such as banks and insurance companies, may not be eligible to file bankruptcy, however, almost all other entities can file a bankruptcy. A business that is NOT a partnership, corporation or business trust, cannot file a separate bankruptcy on its own. Those assets and debts would be included in the personal bankruptcy of the owner(s).
What is a joint petition?
A joint petition is the filing of a single petition by an individual and the individual’s spouse. Only people who are married on the date they file may file a joint petition. Unmarried persons, corporations and partnerships must each file a separate case. If you are an individual and have a business that is not a partnership, corporation or business trust, you should list the business as a “dba” (doing business as) on your petition. However, yours will not be considered a joint petition because the business is not an independently recognized legal entity.
Who can file a chapter 13 bankruptcy petition?
Individuals may file chapter 13 bankruptcy petition if they:
- have a source of regular income; and
- on the date the petition is filed owe less than $307,675 in non-contingent, liquidated, unsecured debts and less than $922,975 in non-contingent, liquidated, secured debts.
Corporations and partnerships may not file a chapter 13 bankruptcy petition.
If you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition and should check 11 U.S.C. §109(g).
Will the bankruptcy stop bill collectors from calling?
Yes. The automatic stay prevents bill collectors from taking any action to collect debts. Once you have retained our office to file your bankruptcy then direct all creditors to our office. You can tell them, “I have hired the Dunaway Law Group to represent me in a bankruptcy filing. They told me to tell you to direct all further communication to their office. Their phone number is 480-389-6529”. The creditors will call our office and verify that you are a client. Once they have verified that you are a client then they will stop calling you.
How long after filing will the creditors stop calling?
Once a creditor or bill collector becomes aware of a filing for bankruptcy protection, it must immediately stop all collection efforts. After you file the bankruptcy petition, the court mails a notice to all the creditors listed in your bankruptcy schedules. This usually takes a couple of weeks. Creditors will also stop calling if you inform them that you filed the bankruptcy petition and supply them with the “docket number” from your case. In some cases, you or your attorney should contact the creditor immediately upon filing the bankruptcy petition, especially if a lawsuit is pending. If a creditor continues to use collection tactics once informed of the bankruptcy they may be liable for court sanctions and attorney fees for this conduct.
Who notifies the creditors and bill collectors?
After the bankruptcy petition is filed, the bankruptcy court mails a notice to all the creditors listed in the schedules. This usually takes a couple of weeks.
Will my employer and landlord find out about my bankruptcy?
Bankruptcy petitions are public records. However, under normal circumstances, unless your employer or landlord is a creditor, it will not know you filed a bankruptcy petition. If your employer or landlord is a creditor is must be listed as a creditor on the schedules and receive notice of the bankruptcy proceeding. In some states, chapter 13 debtors are required to make payments through the wage garnishment and their employer will learn about the bankruptcy.
Can my employer fire me for filing bankruptcy?
No. 11 U.S.C. §525 prohibits government units and private employers from discriminating against you because you filed a bankruptcy petition or because you failed to pay a dischargeable debt.
Does the spouse of a married person also have to file bankruptcy?
No. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable then it might be advisable to have only one spouse file. If the spouse have joint debt, the fact that one spouse discharged the debt may show on the other spouses credit report.
Can I keep my credit cards?
Typically no, however, under some circumstances you may be able to keep a credit card if the creditor agrees. There are many factors that must be considered. Some of those include the credit card balance at the time of the bankruptcy, what the credit card company is willing to do and your ability to pay the present and future credit card debt.
Will I have to go to court?
About 30 to 40 days after filing the bankruptcy petition, you will have to attend a “341 Hearing” at the bankruptcy courthouse. This hearing is called the Meeting of Creditors. the trustee is not a judge, but an individual appointed by the United States Trustee to oversee bankruptcy cases. At the First Meeting of Creditors, the trustee will ask you questions under oath regarding the content of your bankruptcy papers, your assets, debts and other matters.
Creditors will also be permitted to ask you questions, although in the majority of cases creditors do not ask questions at the Meeting of Creditors. After the initial meeting you normally do not need to return to court. However, if a creditor or the trustee files a motion or an adversary action you may have to appear in court with your attorney.
What should I do to prepare for filing bankruptcy?
First, you should consult with an attorney. An attorney can help you plan for the bankruptcy, decide when to file a bankruptcy petition, or even avoid filing for bankruptcy. A few specific items are worth mentions.
- If you intend to file bankruptcy you should stop using your credit cards. If you borrow money with the specific intent of discharging the debt in bankruptcy instead of paying it back, the debt is not dischargeable. In addition, three specific circumstances are worth mentioning: (a) certain luxury purchases over $1225 within 60 days of the bankruptcy filing are presumed nondischargeable; (b) cash advances aggregating $1225 within 60 days of the bankruptcy filing are presumed nondischargeable; and (c) debts involving materially false financial statements are nondischargeable under certain circumstances.
- Don’t transfer your assets to friends, family and business associates to protect the assets from your creditors. The transfer may be considered a fraudulent conveyance. If it is, you may lose both the property and your right to a bankruptcy discharge.
- Don’t destroy any business or financial records. You can lose your right to a bankruptcy discharge as a result.
- Carefully choose the creditors you pay. some creditors, such as landlords, secured creditors, and some utilities should be paid under most circumstances. If you pay a credit card debt that eventually will be discharged, you may be throwing money away. Your attorney should advise you on what debts should and should not be paid while you prepare to file a bankruptcy petition.
Can I file bankruptcy to delay a creditor?
No. Rule 9001 of the Rules of Bankruptcy Procedure requires you to certify that your petition is not filed “for any improper purpose, such as to harass or to cause unnecessary delay…” Bankruptcy is intended as a tool for dealing with debts that can not otherwise be paid. You should not file a bankruptcy petition for the sole reason of delaying a creditor’s actions.
Do I have to disclose all of my assets?
Yes. If you knowingly and fraudulently conceal an asset from the court you have committed a felony and can be fined up to $5,000, imprisoned for up to five years, or both. In addition, the court can deny you your discharge, or dismiss or convert your bankruptcy proceeding.
What kinds of bills can I wipe out in bankruptcy?
Generally, if you go through
bankruptcy your goal is to wipe out your unsecured debts. Your unsecured debts
are typically major credit cards, department store cards, personal loans or
lines of credit from banks, medical bills, or any other money you may owe
someone that is not secured.
Can I keep my house and my car?
Yes. Most people filing bankruptcy can keep their homes, their cars, and all of the property.
Can I get rid of taxes in bankruptcy?
You may have heard that you cannot wipe out taxes in bankruptcy. THAT IS NOT ALWAYS TRUE! Under certain conditions you may be able to wipe out taxes in bankruptcy.
Can I get rid of student loans in bankruptcy?
You may have heard that student loans cannot be wiped out in bankruptcy. THAT IS NOT ALWAYS TRUE! Under certain conditions you may be able to wipe out student loans in bankruptcy, although it is very difficult to do so.
How long does BANKRUPTCY TAKE and who will be notified?
Typically, you can expect your case to take about three to four months from the day you file your papers (known as the bankruptcy petition) until the day the court actually wipes out your debts. Notices will only be sent to those you have listed on your bankruptcy petition.
When will I know my case is over?
Approximately 60 days after your hearing the court will mail discharge notices to you, your attorney and all of your creditors. The discharge notices will say that you have been released from all dischargeable debts.
What if I have used my credit cards just before bankruptcy?
If you intentionally run up your credit cards in hopes of wiping them out in bankruptcy, you have committed fraud. If you reasonably purchased necessities or needed to support yourself, that is not fraud.
What affect will bankruptcy have on my credit?
Bankruptcy may appear on a credit report for up to 10 years. But that doesn’t mean you can’t get credit for 10 years.
Can I rebuild my credit after bankruptcy?
Yes. You may have heard about people who have filed bankruptcy two or three times. Maybe they are the best proof that people can actually get credit after bankruptcy. If they weren’t able to get credit after their first bankruptcy, they would not have had to file bankruptcy again.
Upon filing, you will be required to file a sworn list of creditors, a schedule of assets and liabilities, a list of exempt property, a schedule of current income and expenditures, a statement of your financial affairs and a statement of intent regarding consumer debts secured by property of the estate. You will also be required to surrender to the trustee all property of the estate. 11 U.S.C. §521. The order of relief is granted when you file. What this means, among other things, is that an automatic stay is triggered, prohibiting creditors from pursuing you or your property outside of the bankruptcy proceeding.
The clerk of the court will give notice of the bankruptcy to your creditors. 11 U.S.C. §342.
There will be a meeting of creditors called to question you about your debts and ability to pay. The U.S. Trustee sets this meeting and you are required to attend. This meeting is called the meeting of creditors. A creditor or the trustee assigned to your case may object to your listed exemptions within 30 days after the meeting of creditors.
An objection to your receiving a general discharge of all your debts must be filed by the Trustee or a creditor within 60 days following the first date set for the creditors meeting. If no objections are filed, and if no motion to dismiss is pending, the court will ordinarily grant a discharge upon expiration of the 60 day period. Bankruptcy Rules 4004 and 1017; 11 U.S.C. §727.
A creditor may object to the dischargeability of a particular debt at any time if the debt: (1) is for a tax or customs duty; (2) is not listed in the schedules so that a creditor could file a proof of claim; (3) is related to alimony or child support; (4) is a government fine or penalty; or (5) is a government insured student loan. Any student loans guaranteed or insured by the government or a non-profit institution will not be dischargeable. This means that you will continue to be liable for the payment even if you file bankruptcy.
A creditor may object to the dischargeability of a particular debt only within 60 days of the first date set for the meeting of creditors, if the debt: (1) is a consumer debt incurred close to filing;
- is a result of fraud; or (3) is a result of a willful and malicious injury to a person or property of another. Bankruptcy Rule 4007; 11 U.S.C. § 523.
The debtor’s goal in any chapter 7 bankruptcy is to have as many debts discharged as possible. The general rule is that all debts created before the bankruptcy filing are discharged. Discharge destroys any personal liability you may have on a claim or debt. (Discharge will not destroy liens; liens survive the bankruptcy).
There are some very significant exceptions to the general rule that all debts will be discharged. As stated above, a creditor can try to have his claim excepted from discharge pursuant to the provisions of 11 U.S.C. §523. If the claim is not discharged, the debtor continues to be responsible for its payment; obviously, this could have severe consequences to the debtor seeking a “fresh start” which is the very purpose of the chapter 7 filing.
PUNISHMENT CAN BE UP TO FIVE YEARS IN PRISON, AND A $25,000.00 FINE. THE FBI INVESTIGATES ALLEGATIONS OF BANKRUPTCY FRAUD. WHEN IN DOUBT ABOUT WHETHER AN ASSET OR FACT NEEDS TO BE DISCLOSED, OR IF WHAT YOU INTEND TO DO IS LEGAL, CONSULT AN ATTORNEY FOR ADVICE.
There are ten categories of debt excluded from discharge under §523. These fall into two areas: debts that are not dischargeable due to the wrongful conduct of the debtor and debts that are not dischargeable due to public policy.
The debts not dischargeable due to the debtor’s misconduct include those created by intentional torts, fraud, larceny, embezzlement, fiduciary violations, and drunken driving. The debts not dischargeable due to public policy include alimony and child support, taxes and customs duties, governmental fines, penalties and forfeitures, educational loans, unscheduled debts and certain debts surviving a prior bankruptcy case. A claim must fall within one of these exceptions to be found non-dischargeable.
To prevail on a fraud exception, the creditor would need to show that there was a false, material representation of fact made by the debtor that the debtor knew was false at the time he made it, made with the intention of deceiving the creditor. Some courts have held that when a credit card is used, the debtor impliedly represents that the debtor has the ability and intention to pay for the goods and services charged. Those courts have therefore found that some credit card debt is non-dischargeable under the fraud exception.
This is not the only potential problem that can arise with credit card or similar debt. Section 523 also provides that there is a presumption that certain consumer debt created right before filing a chapter 7 is non-dischargeable. The presumption of non-dischargeability will apply if the debt is consumer debt for so-called “luxury goods or services” incurred within 40 days before the filing, owing to a single creditor aggregating more than $500.00. Further, the presumption of non-dischargeability will apply if there are cash advances made by a creditor for more than $1,000 that are extensions of consumer credit under an open end credit plan within 20 days of filing bankruptcy.
Luxury goods and services are not defined by the Bankruptcy Code and the determination of it will be contingent upon the facts and circumstances of each case. I can tell you that courts have characterized such items as a personal computer, coffee maker, floral arrangements and three- wheel recreational vehicle as “luxury” items.
Any credit based upon false financial statements is subject to exception from discharge. Statements made in the financial statements have to be materially false with the intent to deceive the creditor to fall within this exception. Note that a credit application should not qualify as a “financial statement” if it does not require a disclosure of debts.
It is crucial for the debtor to include all creditors in his schedules filed with the Court. If a debtor knows of the creditor and does not schedule him, the creditor is denied participation in any distribution; to protect the creditor from this type of problem, the code provides that unscheduled claims may be non-dischargeable.
Debts created by willful and malicious injury will also be excepted from discharge. These types of claims arise from intentional actions by the debtor, done with malice that causes damage. It is important to note that ordinary negligence claims are dischargeable. A plaintiff with a personal injury claim would need to allege significantly more than simple negligence to have his or her claim deemed non-dichargeable in the Bankruptcy Court.
Not only may a single creditor attempt to have a particular debt found non-dischargeable pursuant to §523. Chapter 7 debtors also need to be aware that, pursuant to U.S.C. §727, upon motion by the trustee or a creditor, the court may disallow a final discharge of all debts, of whatever nature, if the debtor, among other things:
- Destroys or conceals his property within one year before filing or after the date of filing, with the intent to hinder, delay or defraud a creditor;
- Conceals, destroys, falsifies or fails to preserve records of his financial conditions;
- Knowingly in a bankruptcy case makes a false account, oath or claim;
- Gives, offers, receives, or attempts to obtain money, property or an advantage for acting or forbearing to act;
- Withholds from an officer of the estate records related to his property or financial affairs;
- Fails to satisfactorily explain any loss of assets; or
- Refuses to obey court orders or refuses to respond to questions posted by the Court.
Finally, the court may dismiss a chapter 7 case if the debtor:
- Unreasonably delays the proceedings to the creditors’ prejudice;
- Fails to pay necessary fees or payments; or
- Fails to file his schedules.
Dismissal may also be justified if the debtor is an individual who has primarily consumer debts and the court finds that the granting of relief would be a substantial abuse of the bankruptcy process. Substantial abuse has been found by courts if the debtor is actually able to pay his debts when due.
If you have questions about your bankruptcy then contact the Dunaway Law Group at 480-389-6529 or message us HERE.