If
your collections bills in general are around 2 or more years old, credit
repair may be a better Solution.
There have been a number of changes to bankruptcy laws and requirements.
For the average consumer for the average debtor, bankruptcy is still a viable
option but there have been a few changes...
Before Filing your Chapter 7 Bankruptcy Case, You Now, Must
Receive a Briefing from a Credit Counseling Agency
The law requires that you receive a Credit Counseling Briefing
from a certified credit counseling agency before you may file a
Chapter 7 bankruptcy petition. The agency will explain financial
management and how to do a budget analysis, and will also discuss
alternatives to bankruptcy. While there are some hardship exceptions
to this rule, most debtors will have to get this briefing, and
failing to do so before filing may result in your case
being DISMISSED.
What
if your income is High?
Recent Bankruptcy legislation has changed
Income/Debt requirements for filing bankruptcy. This has been done with
the intent of minimizing the abuse of bankruptcy protection laws. There is
now a means test, but the the good news is, if you really need it, bankruptcy is still an option. For details of bankruptcy means test income
requirements
Click here.
The following is an outline of select areas of bankruptcy law which are
significant as you contemplate a filing under Chapter 7. Often, someone who considers bankruptcy is
unaware of the nuances of bankruptcy or certain creditors' rights in bankruptcy. You should
be familiar with some of the applicable provisions as you prepare for filing. What follows is
not, by any means, an exhaustive review of bankruptcy law; nor does it fully explain each provision
of the bankruptcy code or rules which might apply because each individual's situation
is unique and sometimes unanticipated events occur; however, this overview will provide you
with broad guidelines so that you may be comfortable with your decision. I will begin with
an outline of basic procedures in Chapter 7 case and conclude with a discussion of various
Chapter 7 pitfalls.
Basic Procedure
A. 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.
B. The clerk of court will give notice of the bankruptcy to your creditors. 11
U.S.C. 342.
C. There will be a meeting of creditors called to question you about your debts
and ability to pay. The U.S. Trustee calls this meeting and you are required to attend. The
judge may not question you at this time. Other creditors and the trustee may question you.
Unlike a trial, your attorney may not "object" to questions in a formal sense. It is an
open opportunity for creditors to question you and you are required to respond in good faith. 11 U.S.C. 341.
D. A creditor of the trustee assigned to your case may object to your listed
exemptions within 30 days after the meeting of creditors.
E. A creditor must file a proof of claim within 90 days after the first date set
for the meeting of creditors. At the end of the case, if a surplus remains after all of the claims
are paid in full, the court may grant an extension of time for filing of claims not filed during the
initial 90 day period.
The trustee may object to any claim.
F. An objection to your receiving a general discharge of all of your debts must
be filed by thetrustee 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.
G. 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 (4) is a
government insured student loan. Any student loans guaranteed or insured by the
government
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
created close to filing; (2) is a result of fraud; (3) is a result of a wilful and malicious injury to a
person or property of
another. Bankruptcy Rule 4007; 11 U.S.C. 523.
Debtor Pitfalls
The debtor's goal in any Chapter 7 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
person 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.
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. 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 a consumer debt for so-called "luxury goods or services" incurred or
within 40 days before the filing, owing to a single creditor aggregating more than $500. Further, the
presumption of
non-dischargeability will apply if there are cash advances made by a creditor
for more than $1000 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
same will be contingent upon the facts and circumstances of each case. I can
tell you that courts
have characterized such items as a person computer, coffee maker, floral
arrangements and three-wheel recreational vehicle as "luxury" items.
Any credit extended based on 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 which
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-dischargeable 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:
(1) 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;
(2) conceals, destroys, falsifies or fails to preserve records of his financial
condition;
(3) knowingly in a bankruptcy case makes a false account, oath or claim;
(4) gives, offers, receives, or attempts to obtain money, property or an
advantage for acting or
forbearing to act;
(5) withholds from an officer of the estate records related to his property or
financial affairs;
(6) fails to satisfactorily explain any loss of assets; or
(7) refuses to obey court orders or refuses to respond to questions posed by the
court.
Finally, the court may dismiss a Chapter 7 case if the debtor:
(1) unreasonably delays the proceedings to the creditors' prejudice;
(2) fails to pay necessary fees or payments; or
(3) fails to file his schedules.
Dismissal may also be justified if the debtor is an individual who has primarily
consumer debt 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.