ome
of these requirements listed above may not apply if the
Debtor is a company, or debts are not primarily consumer
debts and has nonexempt property above $150,000. §101(3)
What
is the role of an attorney in a chapter 7 consumer bankruptcy case?
Many people ask me if they "can file their own bankruptcy".
I always answer "Yes, anyone has the legal right to do their
own open heart surgery, so why not not their own bankruptcy!"
The laws were complicated before they changed in 2005, now I
believe that only an idiot would file their own bankruptcy,
no matter "how simple". In fact, after the law changed
many lawyers stopped doing any bankruptcy law because it had
become so complex. Never listen to the advise of
someone who filed their own bankruptcy. They had a
"fool for a client" and probably committed at least one
federal crime, but did not get caught. The new laws
are being aggressively enforced and the Attorney General's
Office is actively pursuing bankruptcy fraud. Do not
use those who advertise on TV - you will end up paying their
advertising costs. Also, do not use "legal document
preparers". These are folks who want to be attorneys,
but decided not to go to school. Instead, they pretend
to know the law, or, worse yet, are disbarred attorneys or
other scum who prey off the innocent who do not know better.
Always check out your lawyer with their state bar. Ask
for references from the lawyer. Most people find good
lawyers by asking friends or relatives for referrals.
The
debtor’s attorney will normally do the following things
in a chapter 7 consumer case:
-
Analyze the amount and character of the debts owed by
the debtor to determine whether bankruptcy is the best remedy
for the debtor’s financial problems.
-
Assist the debtor in preparing his estate for bankruptcy, so
that a minimum amount of property will later have to be
turned over to the Trustee.
-
Review the Debtor's history of
payments and transfers to determine possible exposure to
Debtor and others.
-
Assemble the information and data necessary to prepare
the bankruptcy schedules and statements for filing.
-
Prepare the proper petitions, schedules, and statements
for filing with the bankruptcy court.
-
Determine whether the education
classes are necessary. If so, file the required
certificates with the court.
-
File the bankruptcy petitions, schedules, and
statements with the court and obtaining the necessary
injunctions and restraining orders.
-
Attend the Meeting of Creditors with the debtor.
-
Preparing and filing amended schedules as required by
the court.
-
Address issues related to redemption, surrender or
reaffirmation.
-
Respond to inquiries from your creditors and/or the
Bankruptcy Trustee.
How much does it costs to file a chapter 7 bankruptcy?
The Court's filing fee is $299.00 for a chapter 7 and
$274 for a chapter 13, whether you are filing bankruptcy
individually or jointly with your spouse. Congress is
trying to increase these fees. In addition to
the court filing fee there are also two classes each
individual must take. The cost for the two classes is
approximately $100.00.
Our office will assist you in
making arrangement for both classes.
More information on these classes.
As to attorney fees - the 2005
Bankruptcy Reform Act requires a great deal more work for
everyone - including the attorney for the Debtor. As a
result many attorneys are leaving the bankruptcy practice
completely. Those who are staying find that they must
increase their fees in order to pay for the additional work
required. It is impossible to quote a fees without
first reviewing
your situation we will not be able
to quote a specific fee for the attorney's time. In
order to give you basic information: the attorney fees for a chapter 7 case start at
$1,275.00 for an individual with consumer debts and no
past due child support or alimony, no contested matters, no
delinquent taxes or business issues. Attorney fees for
a chapter 7 that includes the problems listed above>
Small business Chapter 7 bankruptcy starts at
$2,250.00.
I am told by other clients that my
fees are a lot less than those charged by other firms
(especially Phillips & Associates who charge more than double
in fees and who use strong-armed tactics to bully people to
retain their services).
Why?
I can do this only if my clients gather information
in an orderly fashion by filling out as much of the
requested information
as pertains to their situation. If a client provides me
with only part of the requested information, then my fees will
have to increase for that client because I am forced to do
more of the client's work. So the client
who fails to
provide the names, dates,
addresses, and/or amounts on the questionnaire
will be charged more for the additional attorney time than the
client who does their portion of the work without my
intervention. That does not mean you should not ask
questions. Thoroughness and accuracy are of utmost
importance in a properly filed bankruptcy. Inaccurate
paperwork can cause you to lose your bankruptcy protection,
cost you more in attorney fees defending fraud claims and you
may face jail time for bankruptcy fraud. My job it to
help you avoid all those problems. So, thoughtful and
organized questions are encouraged.
What classes are required before and after filing a bankruptcy?
Every
consumer who files Chapter 7 or 13 bankruptcy is required take a
credit counseling "briefing" within 180 days PRIOR to filing
their bankruptcy and file a certificate of compliance.
There is a provision for emergency situations, but they
still must prove that they tried to obtain the class within
the last 5 days of filing, but they must take the class and
file a certificate of compliance within 30 days after filing
their bankruptcy Petition. There is also a budget
class that must be taken within 45 day s after filing your
bankruptcy. Failure to do so will result in additional
fees and costs in order to get your discharge in your
bankruptcy. There will be
fees charged for those classes, unless you cannot
afford to pay such fees. Ms. Drain will explain the process.
Warning about all these credit counseling companies - their
information regarding bankruptcy is often not accurate. You must talk to a
bankruptcy attorney in your State.
Before filing bankruptcy you must take one class called
credit counseling: Ms. Drain recommends
Institute for Financial
Literacy Their fees are reasonable. BEWARE: YOU MUST TAKE THIS
CLASS BEFORE THE ACTUAL DAY THE BANKRUPTCY IF
FILED. If you cannot afford to pay
the fee then contact them for a waiver. Bring a copy of all documents to
your meeting with Ms. Drain. Ms. Drain does not recommend GreenPath or Springboard.
After filing your bankruptcy you must take a class called
Personal Financial Management. Ms. Drain highly recommends
Arizona
Learning Connections, LLC. This is run by a very competent attorney,
who really knows her business. DO NOT TAKE THIS CLASS BEFORE FILING
YOUR BANKRUPTCY. Credit
Counseling and Debtor Education (US Trustee's Office)
What is the Mean's test?
The "Mean's Test" is a formula that determines whether the
person filing for bankruptcy protection has enough income to
pay the expenses that are allowed, plus extra money to pay
to non-priority, unsecured creditors such as credit cards.
The Debtor must calculate their "current monthly income",
including all income from spouses, rents (minus expenses),
bonuses, plus "help" Debtor has been
receiving from family or friends. Allowed living
expenses and payment of secured and priority debts are
subtracted from the total income for a net income or monthly
disposable income that could be used to pay unsecured
non-priority debts. The chapter 7 can be challenged if the
net income, multiplied by 60, is greater than (1) either 25%
of the nonpriority unsecured claims or $6,000, or (2)
greater than $10,000. The Debtor may be required to
convert the case to a chapter 13 or lose the bankruptcy
protection completely.
§707(b).
Basically, if the debtor can pay $100 per month to their
unsecured creditors, then they may face a challenge to their
chapter 7. Only time will tell what the law really means.
To
understand the Mean's Test you must first understand some of
the terms. Current monthly income before taxes – it is not
current, monthly or income. Instead, it is the total income
received by your family for the last 6 full months, plus
regular gifts and contributions by others toward household
expenses. Income does not include social security, perhaps
unemployment (to be determined by a court), and payments to
war crimes/terrorism victims.
§101(10A).
Allowed expenses are then deducted from the total current
monthly income. Allowed expenses are in
§707(b)(2)(A)(ii)
and the
IRS standards. Refer to this final number as the
Debtor's "monthly disposable income". (Form
for calculating Means test)
Once
"monthly disposable income" is calculated, the Debtor must
compare it with the
median family income for the Debtor's state of
residence. If the "monthly disposable income" is less than
the median family income, then the Debtor may file a chapter
7. But, see the next paragraph.
Comparison of Schedule I and J: If the Debtor's real
monthly income, minus the allowed monthly expenses, is
greater than some unstated number (usually in the range of
$200 to $300) the Debtor may still have a problem filing a
chapter 7, even though the Debtor passed the net current
monthly income test. This situation could occur when a
Debtor has been unemployed for several months of the last 6
months, but now earns more than needed to pay the allowed
expenses.
If the
court determines that the Debtor should not be in a chapter
7, it is possible that the Court can sanction the Debtor, or
their attorney, for reimbursement of the Trustee's
reasonable attorney fees incurred in prosecuting the action.
(§707(b)(4)(A)
and Rule 9011).
What
happens to the property that I turn over to the Trustee?
A public auction is held and your property is
is converted into cash, which is then distributed to those
of your creditors who file claims (Proof of Claim) against your bankruptcy
estate. You, your family and friends have a right to bid
at this auction. The expenses of administering your estate will
also be paid from these funds. The
Trustee assigned to your case will be responsible for paying
his/her attorney or other professional.
What
will happen if there is no money or property to turn over to
the bankruptcy Trustee in my case?
If
you have no money or property of a value in excess of the
exemptions allowed by law, your case will be considered a
“no-asset” case. Soon after the Meeting of Creditors
the Trustee/court will decide whether or not your case is a
no-asset case. Normally, your discharge will be entered
approximately 120 days after your case was originally
filed,
unless a creditor files an objection to your discharge,
the Trustee request an extension of time or
you ask for more time in which to reaffirm debts. Your
case will probably be closed shortly after the discharge.
What
happens if I have assets?
If
your case involves assets, the
bankruptcy Trustee will immediately begin to collect
all of your property to which he is entitled by law. You
are obligated to protect those assets until the Trustee
can make arrangements to pick them up. After the
auction of the items, your
creditors will be notified by the Trustee to file a proof
of claim; usually within six months after the
Meeting of Creditors. The Trustee will examine the proof
of claims and object to those the Trustee deems to be improper.
All claims not objected to by the Trustee, you, or another
creditor will be approved by the court and the creditors
will receive a pro-rata share of whatever the Trustee
has collected. The fees for the auctioneer,
trustee and their attorney are paid out of the funds
they collected, not by the Debtor.
What is the
Automatic Stay?
The filing of the petition
creates an automatic stay under
11 U.S.C. §362 prohibiting all
collection actions.
11 U.S.C. §§ 301,
302,
101(42) - unless the Debtor has filed a prior
bankruptcy in the last 12 months. The automatic stay
is good for
only 30 days if that Debtor has filed one prior case in last 12 months.
§362(c)(3)(A).
If the Debtor wants to extend the automatic stay they
must file a motion to extend the Stay immediately after
filing the bankruptcy. There is no automatic stay
if the Debtor has filed 2 or more cases in last 12 months.
§362(c)(4)(A)(i)
A dismissed case is a filed case. There is no
excuse for a Debtor's failure to understand these
limitations.
How
will the court contact me and what should I do about Court orders
or instructions?
The
orders or instructions will be mailed to you, unless you sign up for
e-mail notification.
You
should contact your attorney as soon as you receive the
orders to obtain advice on how to properly follow the
orders. It
is very important, therefore, that you always keep the
court and your attorney informed of your correct address.
What
should I do if I move or change my address?
Contact
your attorney immediately about a change of address or
phone number for a year after you receive you discharge.
Also, make sure the Court and the Trustee are informed of your new
address.
How
does filing bankruptcy affect my credit rating?
The filing of a bankruptcy generally means that your credit
rating will be 480. Given your situation, it may not take
long after your discharge to
substantially
raise that rating.
Several
financial institutions openly solicit
business from recent debtors, apparently because they know
that the debtor cannot file another chapter 7 for at least
eight years (six under the pre-10/2005
law). If
there are compelling reasons for filing bankruptcy that
were not within your control, such as an injury or
illness, the creditor may take that into
consideration in rating your credit after bankruptcy.
Will
news of my bankruptcy be published?
When
your bankruptcy papers are filed, they become public
records. The record of your filing may be published by
some credit-reporting agencies. In addition, your name
will be published in one newspaper in Arizona, and
possibly more. However, your name will be listed on a page
with hundreds of other debtors, so your name will probably
not stand out.
Do
I lose any of my rights, such as the right to vote, by filing
bankruptcy?
No.
Bankruptcy is a civil, not a criminal proceeding.
You do not forfeit any of your civil or
constitutional rights by filing a bankruptcy. Also, neither a utility,
a governmental unit, nor your employer may discriminate
against you because you have filed bankruptcy. But,
if you discharge a utility bill then you may find that you
are charged a very large "deposit" when you
apply for new utility service.
Must my employer be told I am filing bankruptcy?
The
bankruptcy Trustee will request that you provide copies
of several documents (tax returns, bank statements,
etc). One of these items will be copies of some of
your pay stubs before filing. If you refuse to
provide this information then the Trustee may send a
form to your employer seeking information about
your wages. Therefore, your employer will usually not be
contacted
so long as you comply with the Trustee's request.
Are my out-of-state debts discharged in bankruptcy?
Yes.
Bankruptcy is a federal proceeding and the bankruptcy
court has the jurisdiction and power to discharge debts
contracted anywhere in the Country, whether in or out of
your state of residence.
Will
I lose all of my property if I file bankruptcy?
You
will only have to turn your non—exempt property over to
the Trustee. Unless you owe back child support, or
alimony/maintenance. Under the laws of the state
where you live, and under the federal laws, certain
properties are declared to be exempt, and out of the reach
of your general creditors.
Warning - all your property, including exempt property,
can be sold to pay back child support or
alimony/maintenance.
This is a list of the
properties that are
exempt under Arizona law. Be aware that the 2005
Bankruptcy Reform Act dramatically changed law governing
exemptions. The new law requires that you must reside in
Arizona for the last 2 years in order to use Arizona
exemptions. Otherwise, you will have to use the
state that you lived in for the six months prior to the
last 2 years prior to filing a bankruptcy.
Confusing - you betcha! Moral - use an experienced
bankruptcy attorney.
Is
there a way that I can minimize the amount of non-exempt
assets that I will have to turn over to the
bankruptcy trustee?
This
is a very difficult situation, especially if you paid
money or transfered assets within 3 - 24 months before
bankruptcy.
Discuss
this with your bankruptcy attorney before you pay money or
transfer any assets since not all
such transactions are permitted under the Bankruptcy law,
but may be permitted under your state law. The
2005 Bankruptcy Reform Act
has added several very complicated hoops to planning for
a bankruptcy. Paying down mortgages within the
last 10 years, buying or transferring assets in the last
2 years or more, paying friends or relatives money in
the past 12 months may all be doorways for the Trustee and
your creditors to attach your assets. Given the
current status of the new law - never plan for your bankruptcy without
seeking assistance from an experienced bankruptcy lawyer.
By "experienced" I mean someone who practices only
bankruptcy law, is in good standing with the State Bar,
and has a great reputation in the Bankruptcy Court.
What is a
Reaffirmation Agreement?
To reaffirm a debt is to sign a new contract with the
lender, thereby reaffirming the Debtor's personal liability
for the obligation. This is typically done with
vehicles. The Debtor should always talk to their
attorney before reaffirming any personal liability for a
debt. There may be other options to reaffirming,
such as surrender, redeem, or avoidance of the lien.
If, after considering the options a debtor voluntarily
decides to reaffirm and re-establish their personal
liability to a creditor, and enters into a written agreement
to that effect signed by the debtor and the creditor, the
Debtor must then submit the agreement to be approved by the
Court. Even once the reaffirmation agreement is signed
the Debtor has 60 days to revoke it. The consequence of a debtor’s failure to take
advantage of other options, other than reaffirming the
debt, is that the debtor is bound by
the terms of the new agreement and can be sued if there is
a default.
The danger for the Debtor is that they can be sued on
any new contract signed after filing their bankruptcy.
If the Debtor does not sign a new contract, then the lender
cannot sue, but they can take the vehicle - MAYBE.
Here is where it gets complicated.
Under the old bankruptcy law the Debtor could keep their
vehicle so long as they made the regular monthly payments
and kept insurance current. They were not required to
sign a reaffirmation agreement. That way, if later on
the car became a lemon, the Debtor could surrender the car
to the lender and was not subject to any deficiency action
(lawsuit).
Under
the 2005 Reform act: a reaffirmation agreement is binding
only if it is entered into before the discharge is filed,
the debtor receives the numerous disclosures required from
the creditor, except credit unions (§524(k),
the Debtor does not rescind the agreement and the court
approves the reaffirmation agreement - that may include
having a hearing (§524(c)).
The Court may refuse to sign the reaffirmation agreement if
it appears that the Debtor cannot afford the contractual
payments.
So what is the problem? Some creditors are taking the
position that the new Bankruptcy law requires the Debtors to
sign a reaffirmation agreement, if they want to keep the
car. But,
§524(c)
states that an obligation must be "enforceable under
applicable non-bankruptcy law, whether or not discharge of
such debt is waived". So, if the Debtor is keeping the
vehicle payments current, has insurance, but refused to sign
the reaffirmation agreement - there does not appear to be a
default which is "enforceable under applicable
non-bankruptcy law". After all, the creditor is
receiving their monthly payment. Most Arizona
Bankruptcy judges are very reluctant to sign a reaffirmation
agreement if the Debtor does not want to or cannot afford
the payment.
Lastly, the new Bankruptcy
reaffirmation forms require the attorney for the Debtor to
sign a statement, that in the attorney's opinion, the Debtor
is able to make the payments. There is no expiration
on that opinion. Would you sign a statement that, in
your opinion, someone else can make a payment? I doubt
it. I also doubt that most attorneys are going to sign
this type of statement.
So why would you gladly sign a
reaffirmation agreement? Perhaps, in the situation
where the creditor is offering better terms on a new
contract; such as a reduction in the principal equal to the
current fair market value of the vehicle and reduction of
the interest rate. Nothing stops the Debtor from
negotiating these new terms as part of any reaffirmation
agreement.
What is a
Discharge in Bankruptcy?
A discharge
is the court's order stating that you do not have to pay
your debts to the creditors that were listed in your
bankruptcy documents, so long as the court did not entered a
non-dischargeability order. Other debts that are
not discharged
under the current laws include student loans, child
support, alimony/maintenance, government fines or
penalties, most taxes and a few others.
The
effect of a discharge is that debtors are released from
personal liability for all dischargeable debts, and all
creditors, whose debts are discharged, are prohibited from
performing any act to collect such debts from the debtors.
This is known as a permanent, federal injunction. Only
people received discharges,
companies do not.
Creditors and the trustee have a 60 day period after the
creditor's meeting to file a complaint indicating that they
believe there is good reason why their debt should not be
discharged (forgiven) or a good reason why this chapter 7
case should not be continued (Bankruptcy Code §523(a)(2),
(4), (6, and (15)). This action is called
non-dischargeability complaint. The Trustee can
request that the court deny a chapter 7 discharge in
some cases.
The
granting of a discharge does not stop the Debtor's
involvement in their case. The Debtor is not relieved from
performing the duties required under the Bankruptcy
law. One example of a continuing duty is the Debtor's
obligation to surrender assets or tax refunds to the
Trustee after the discharge is entered. In
the event the Debtor fails to perform those duties an action may
be brought to revoke the discharge. This will mean
that the Debtor went through all this hassle and ends up
with no protection from their creditors garnishing
wages, suing or seizing bank accounts.
Even after a discharge, generally
a creditor that has a valid lien on property belonging to a
debtor (such as: house, car, furniture, jewelry) may recover the property or its value. However, if
the debtor possesses certain property that is encumbered by a judicial
lien or a non-purchase—money security interest, the
Debtor will have to bring this issue to the Court for an
order which will remove the effect of the lien.
This action is called a Motion to Avoid a Lien.
If the debtor wants to keep assets that have secured
liens (such as a house or car) the debtor can either
continue making the same payments as before the
bankruptcy, or pay the lender one lump-sum payment equal
to the fair market value of the item (redemption).
See more on reaffirmation agreements below.
How
will I receive my discharge in bankruptcy?
Usually
by mail, unless you have asked for electronic notification. In some states there may be a court hearing,
which you must attend, where the court will explain the
meaning of the discharge, or the reasons for denying your
discharge, if it is not granted. Arizona
does not have this discharge hearing, unless yours is a
very unique situation.
What
debts are not discharged in bankruptcy?
If
your discharge in bankruptcy is granted, in most
circumstances all of your debts
will be discharged except the following list, which is
intended to be only an outline of most debts that are not
discharged.
-
Taxes due within the last three years or taxes not
assessed because of fraud.
-
If the bankruptcy court so rules, debts for obtaining
money, property, services, or an extension, renewal, or
refinancing of credit by means of false pretenses, fraud, or a
false financial statement used with intent to deceive.
-
Debts not listed on your bankruptcy papers, unless the
creditor had knowledge of the case in time to file a claim.
-
If the bankruptcy court so rules, debts for fraud,
embezzlement or larceny.
-
Debts for
domestic support obligations (alimony, maintenance or support).
-
If the bankruptcy court so rules, debts for intentional
injury.
-
Debts for certain fines and penalties payable to
governmental units.
-
Debts for student loans that were insured by a
governmental agency, unless not discharging the debt would
impose an severe undue hardship.
This undue hardship must be properly plead to the Court and
the judge will decide based on your unique situation.
-
Debts that were or could have been listed in a prior
bankruptcy case in which you either waived your discharge or
your discharge was denied.
-
Debts that are owed to a single creditor for a total of
more than $500 for the purchase of "luxury goods" incurred by
you in the 90 days before you filed the petition for
bankruptcy.
The 90 day period may be long, depending on your history of paying, what
the money was used for and your "intent" at the time
of incurring the debt.
-
Cash advances that total more than $750 that arose
from the extensions of consumer credit under an open—end
credit account incurred by you an the 70 days before the
bankruptcy was filed, regardless of the number of creditors
involved.
-
Debt for personal injury judgments against you
resulting from car accidents in which you were a drunk driver.
-
Post-petition HOA fees.
-
Monies owed to a pension,
profit-sharing, stock bonus or such other plan.
Can
my utility company refuse to serve me if I discharge their
bill?
If, immediately after filing the bankruptcy the Debtor
provides their utility company with a deposit or other security to
insure the payment of future services, the utility may not
stop service, refuse to serve, or discriminate
against the Debtor for discharging their bill.
But,
if the Debtor discharges a utility bill do not be
surprised that there is a very large deposit required
whenever a new service is requested.
Can
I continue to pay some of my debts after I file bankruptcy?
You
can pay as many of your debts as you want after you file
bankruptcy. Certainly, if you want to keep your house and
car you must continue paying the lender. You are also obligated to pay the debts that
for which you enter into a Reaffirmation Agreement. (See
discussion above on
reaffirmation
agreements). I recommend that you not make any
payments that are not absolutely necessary. Do not take on
any new credit for at least one year after bankruptcy.
My clients tell me they have more money than they ever
thought, once they were relieved of the obligation to pay
the high interest rates for their credit cards and other
unsecured debts.
What
should I do if I am sued after bankruptcy on a debt that was
discharged?
First make sure the debt was listed in your bankruptcy.
If it was not you may still have the time to add it.
As to the lawsuit - do not ignore it, otherwise a default judgment will
be entered against you. Respond to the law suit by
filing an answer in
the court where you have been sued, stating that the debt
has been discharged in bankruptcy. In most instances the
case will be dismissed once the judge learns the debt was
listed in the bankruptcy and subsequently discharged. If the
judge does not dismiss the case, then you can
apply to the bankruptcy court for an injunction ordering
the creditor to stop the suit against you. A
discharge in bankruptcy is a valid legal defense against
any debt that has been properly discharged, but it is a
defense that you must raise.
What
about my tax refund check?
Any right that you had to a
tax refund at the time of filing the bankruptcy is an
asset of your bankruptcy estate and belongs to
your trustee. At the time that you get your tax refund
check, you must turn that check over to the trustee. If
the amount is small it is
possible that you may get back the check back. However, you should anticipate that the trustee
will take a portion of the refund equal to the amount due
to you on the date of filing.
How often can I
file a chapter 7?
Only individuals, who have
complied with the Bankruptcy laws, can receive a chapter 7
discharge. That individual cannot receive another
chapter 7 or chapter 11 discharge for 8 years after the
filing of the first bankruptcy. 727(a)(8). If
the debtor commits fraud, or fails to perform as required by
law, the discharge can be revoked. Even if a chapter 7
discharge is not available the Debtor may be able to file a
chapter 13.
