CHAPTER 7 & 13 Bankruptcy FAQ

Bankruptcy laws were formulated to give the "honest" debtor a "fresh" start. Bankruptcy is not intended to give debtors an unfair advantage over their creditors. This requirement comes from the United States Bankruptcy Code, Title 11 of the United States Code, and it is not intended to protect the debtor who has acted in bad faith in an attempt to defraud creditors.

The United States Bankruptcy Code is divided into Chapters:

Chapter 7 bankruptcy is referred to as a liquidation. A Chapter 7 debtor is an individual or entity whose expenses exceed its income.

Chapter 11, commonly referred to as a "business reorganization", is commenced by the filing of a voluntary petition by the debtor, or the filing of an involuntary petition by creditors.

Chapter 12, a reorganization for family farmers and fisherman. 

Chapter 13, commonly known as "individual debt adjustment", "individual debt consolidation", or "repayment plan". A Chapter 13 bankruptcy can be filed only by individuals. A typical case generally involves people who have fallen behind in their mortgage payments, delinquent with their priority taxes, or have debts that are generally non-dischargeable in a Chapter 7 (student loans, child support arrears, and others). Filing a Chapter 13 plan of reorganization takes into assumption that the individual has a source of income. Such income exceeds the individual's household expenses. In essence, the individual has disposable income to be able to fund the plan of reorganization.

History affords us many instances of the ruin of states, by the prosecution of measures ill suited to the temper and genius of their people.  The ordaining of laws in favor of one part of the nation, to the prejudice and oppression of another, is certainly the most erroneous and mistaken policy. ... These measures never fail to create great and violent jealousies and animosities between the people favored and the people oppressed; whence a total separation of affections, interests, political obligations, and all manner of connections, by which the whole state is weakened." --Benjamin Franklin

Bankruptcy is a very complicated interplay of several laws and should not be undertaken without adequate representation.  Do not use document preparers or attorneys who do not practice bankruptcy law full time.  Most bankruptcy lawyers offer free or very low cost initial consultations.

"When I was a young woman we had a government that declared war on poverty. Today we have a government that has declared war on the poor. "  (author unknown, contributed by Annette Gerhardt).  The 2005 Bankruptcy Reform Act is this declaration of war.  I am proud to say that our office is in the business to help relieve people from the misfortunate of too much debt and to protect them from the outrageous actions of some heartless creditors and collection companies who refused to honor the Fair Debt Collections laws.  We do this by helping our clients file for bankruptcy relief under the Bankruptcy Code.

◙  General Information:
         ♦  What are the changes in the bankruptcy law I have been hearing about?
        ♦  Notes and Links for Bankruptcy Lawyers regarding the new law, including notes on the means test.

         ♦  "Maxed Out" a award-winning documentary describing the abuses by and little known secrets of the banks and credit card industry and their effect on our daily lives.

◙  What is Bankruptcy and how does it work?
◙  Now that you have decided Bankruptcy is the right choice, what next?

◙  Important Deadlines and Timeline for chapter 7 and 13.

◙  Your bankruptcy has been filed with the court - now what?

◙  The Discharge

◙  Now that your bankruptcy is over...

◙  Sale of property by the Bankruptcy Trustee

◙  What do you need to do in order for Ms. Drain to help?

◙  What is Bankruptcy and how does it work?

1. What is a bankruptcy?

2. What are the different types of bankruptcy?

3. How do you determine if bankruptcy is right for you?

4. What is the means test?

5. Where can I file bankruptcy?

6. Are there alternatives to bankruptcy?

7. What about debt consolidation and consumer counseling?

8. How much does it cost to file bankruptcy?

9. How do I handle harassment by creditors and collection companies?

10. What is pre-bankruptcy planning?

11. Bankruptcy Fraud

12. Who can file bankruptcy?

13. Can I file for bankruptcy if I am not a citizen or do not have my own social security number?

14. Can both husband and wife file a joint bankruptcy petition?

15. Under what conditions should both husband and wife file bankruptcy?

16. Can I file bankruptcy if my debts are being administered by financial counselors?

17. How does filing bankruptcy affect lawsuits and attachments already filed against me?

18. How is a wage garnishment affected by bankruptcy?

19. Can my social security be garnished?

20. What about child support, alimony/maintenance and/or property settlements?

21. What can I do about defaulted student loans?

22. Will there be forgiveness of debt "income" as a result of a bankruptcy?

23. Bankruptcy and Taxes - An Accountants Viewpoint, © by Greta P. Hicks, CPA

24. What about taxes and Bankruptcy? (link to another law firm web site)

25. How do I get a copy of my credit report?

26. Who is filing bankruptcy?

◙  Now you have decided that Bankruptcy may be the right choice:

1. What should I do to prepare for filing bankruptcy?

2. What are the credit counseling and debtor education classes I have been hearing about?

3. What is involved in filing a bankruptcy?

4. What information do I need to provide in order to file a bankruptcy?

5. What are the different types of Bankruptcies?

6. What is a Chapter 7 bankruptcy?

7. Why would I choose a Chapter 13 bankruptcy?

8. Who is eligible for a Chapter 13 bankruptcy?

9. Important Deadlines and Timeline for chapter 7 and 13.

10. What is median income for Arizona? 

11. Where is my bankruptcy filed?

12. When should I file bankruptcy?

13. How long after filing the bankruptcy will the creditors stop contacting me?

14. What property do I get to keep?

15. Why is it important that all information on my bankruptcy documents be absolutely accurate

◙  Your bankruptcy has been filed - now what?

1. Who will notify the creditors that I have filed bankruptcy?

2. Will I have to go to court?

3. Who is a bankruptcy trustee?

4. What are my responsibilities to the bankruptcy trustee?

5. What is the first meeting of creditors?

6. What happens after the First Meeting of Creditors?

7. Why should I follow Ms. Drain's directions about mortgage and car payments?

◙  The Discharge:

1. What is dischargeable in bankruptcy?

2. What is a Discharge and how do I get one in a Chapter 7?

3. Can I be denied a discharge?

4. What happens after the discharge?

◙  Now that your bankruptcy is over:

1. How often can I file bankruptcy?

2. Can I pay my friends, relatives or employer back monies they lent me?

3. What are a creditor's obligations to me?

4. How long does a bankruptcy stay on my credit report?

5. How do I get information off my credit report once the 10 years have expired?

6. How Do I Survive After Filing a Chapter 7? (article written by a out-of-state paralegal)

◙  Sale of property by the Bankruptcy Trustee

1. How do I find out about property for sale by the Bankruptcy Trustee?

◙  More Information about Bankruptcy:

1. Chapter 13 FAQ

2. Chapter 7 FAQ

What is a bankruptcy?
Bankruptcy is a Constitutionally guaranteed protection designed both to help an individual or business that cannot meet its financial obligations and to protect the creditors involved. This is a very complicated process and full of traps for the unwary.  Always use experienced lawyers, who practice bankruptcy law full time.

What are the Credit Counseling and Debtor Education Classes I have been hearing about?
Every person who files Chapter 7 or 13 bankruptcy will have to 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 All States Connection, LLC.  This is run by a very competent attorney, who really knows her business.  DO NOT TAKE THIS CLASS BEFORE FILING YOUR BANKRUPTCY. 

Important Note: no matter who you chose to provide these classes - make sure to confirm that they are approved by the US Trustee's Office - Credit Counseling and Debtor Education.

What are the different types of bankruptcy?

There are two basic types of bankruptcies.  The first is called a liquidation (chapter 7).  In a chapter 7 an individual keeps certain items (house, furnishings, car, pension plan - see list of Arizona exemptions.  Each state has a different list of exemptions. 

The second type is a reorganization (chapter 11, 12 and 13).  Each reorganization chapter is different and used for specific purposes.  Individuals usually file a chapter 13 in order to cure the arrearages on their homes, deal with the debt on their cars, and/or manage the payments on their tax debts. Chapter 12 is for farmers or fishermen - so that they can reorganize the debt on their livelihood.   Chapter 11 is for businesses.  Chapter 11 also has two mini-chapters for (a) small businesses and (b) companies that own only a single asset.

Under the 2005 Bankruptcy Reform Act a Chapter 15 bankruptcy was created to deal with Cross-Boarder Bankruptcy cases. 

How do you determine if bankruptcy is right for you?

Bankruptcy is a legal remedy offered by our laws since 1898 (United States Constitution, Art. 1, Section 8).  Bankruptcy is a very complex set of rules.  See flow chart of even the simplest of bankruptcies.  Only an attorney, experienced in bankruptcy law, can properly advise you on the process. Often, your question is not a legal one, but one based on emotion and urban legends. My experience has been that the decision to file bankruptcy is based partially on facts, partially on emotion and partially on a person's view of their future.  The law allows any person and most entities to file a bankruptcy.  This is not the time to depend on the "advice" of friends and others. What type of bankruptcy is the important question.  We have attempted to clarify this issue in our series of questions for chapter 7 and chapter 13.

What is the means test?
The means test is used to determine whether the Debtor is eligibility for Chapter 7 or 13 bankruptcy.  The debtor's average income for the 6 months prior to filing is compared to the State Median Income. For example, as of 2/07 the median annual income for a single wage earner in Arizona is $38,703. This amount will change over time so make certain to check the current median annual income.  Ms. Drain will be able to assist you in this.  If the Debtor’s income is below the median, then Chapter 7 is an option. If the income is above the median, then step two is applied.
 

Step two in the calculation takes income, less living expenses (as set forth in the IRS standards), times 60. This represents the amount of income available over a 5-year period for repayment of the debt obligations.  If the income is $10,000 or more, a Chapter 13 will be required. In other words, anyone earning above the State Median Income, and with at least $166.67 per month of available income, will automatically be denied Chapter 7.

But that is not the end on the analysis.  Step three - if the available income is between $100 and $166.66 per month it is multiplied by 60 (5 years of payments).  If the resulting number is more than 25% of the debt owed, then the Debtor may still not be able to file a chapter 7.

Where can I file bankruptcy?
The Bankruptcy code 28 U.S.C. §1408 specifies that you can file only in the state in which you have had your domicile, residence, principal assets or principal place of business for the majority of the last 180 days.  Therefore, you can file in Arizona after you have resided here for at least 91 days.

Are there alternatives to bankruptcy? 
Yes. Sometimes payment plans can be negotiated with creditors. Obtaining loan extensions, compromises and workout agreements require negotiation skills and experience. These alternatives may alert your creditors to the existence of non-exempt property that the creditor could reach and can involve considerable expense. You also have the option of doing nothing.  In any event you should seek professional advise in dealing with most of these alternatives.  
You may call Consumer Credit Counseling Service, Inc. in your local.  BEWARE - using such services will be included in your credit report and will have the same impact as a bankruptcy.  Also, the counselors will fail to disclose that there could be serious and expensive tax consequences to paying less than that you owe (called "forgiveness of debt).  I do not recommend the use of "debt restructuring" companies.  Most, like AmeriDebt and its progeny are scams. 

What about debt consolidation and consumer counseling.  None of these companies want you to know that using their services will have the same impact on your credit as filing for bankruptcy.  For several years now my clients and many others, have been experiencing serious problems with using these services.  They are no longer free; they are not "non-profit" despite their claims; they pay themselves before paying your creditors.  They are very late on making payments to the creditors, causing more late fees to accrue, some just take the account and sell it to another "counseling service", keeping the money they have received.  What these "counseling" services do not tell their clients is that, according to creditors and credit reporting agencies, the use of their services has the same credit impact as filing bankruptcy. 

Both the IRS and the FTC have started investigations into these abuses.  Some of these problems are set forth in the Federal Governments investigation into "Profiteering in a Non-Profit Industry: Abusive Practices in Credit Counseling".  NOTE: I am not even trying to keep these updated - there are so many actions being filed that it would be impossible.

1. 2005 Bankruptcy Reform - Congress expressed that the Board of Governors of the Federal Reserve System shall conduct a study of the consumer credit industry practices of soliciting and extending credit and report within 12 months of its finds.  This was prompted by the extensive abuses suffered on the consumer by the credit industry.

2. AmeriDebt is one of the first to be sued for fraud based on these and other claims; I predict they will not be the last.

3. UTAH CREDIT COUNSELING Service shut down (3/2004).

4. Senate Report raises concerns about credit counseling companies (3/2004)

5. The Federal Trade Commission on Monday shut down National Consumer Council Inc., citing "misrepresentations and omissions" by the Santa Ana nonprofit credit-repair firm and its for-profit affiliates (5/2004).

6. NCO Financial Systems, Inc. and  NCO Portfolio Management, Inc. fined $1.5 million for violations of Fair Credit Reporting Act.

7. Florida Supreme Court sanctions "WE THE PEOPLE" for unauthorized practice of law.

What should I do to prepare for filing bankruptcy?
First, you should consult with an experienced bankruptcy attorney.  Only an attorney can help you plan for the bankruptcy, decide when to file a bankruptcy petition, or even avoid filing for bankruptcy. This is a life altering decision - if it is done wrong you will be in a worse situation than you were without the bankruptcy.  The following are some specific items that you need to keep in mind.  Please remember that the dollar amounts stated may change by operation of law.

1. 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, (a) certain luxury purchases over $500 within 90 days of the bankruptcy filing are presumed non-dischargeable; (b) cash advances aggregating $750 taken within 70 days of the bankruptcy filing are presumed non-dischargeable (523(a)(2)(C)); and, (c) debts involving materially false financial statements are non-dischargeable under certain circumstances. 

2. Don't sell or transfer your assets to friends, family and business associates expecting to protect the assets from your creditors.  The transfer may be considered a fraudulent conveyance.  If it is, the person you sold or transferred the asset to will lose the property.   In addition, you could lose your bankruptcy discharge.

3. Don't destroy any business or financial records. You can lose your right to a bankruptcy discharge as a result. 

4. Carefully choose the creditors you pay before filing a bankruptcy.  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. Our firm can advise you on what debts should and should not be paid while you prepare to file a bankruptcy petition.

What is involved with filing a bankruptcy?
In order to file a bankruptcy you must complete a series of documents that list all items that you own, all debts that you owe and all rights that you have.  This also includes your income and expenses.  If a business is filing, then there are a series of questions related to business issues.  Everything you own or owe must be listed.  This does not mean you cannot keep most, if not all, of those items that you list; this just means that you must be thorough in your listing all your debts and assets.  Assuming that you have lived in Arizona for the last full 2 years, then the basic living items are exempt under Arizona law.  I will review all these rules with you when we meet.  Once the documents are completed they are signed and electronically filed with the Bankruptcy Court.  At a creditor's meeting you will be asked to testify that you have reviewed all the documents filed with the Court and that they are true and accurate.  

The court has approved the forms that must be used for these documents.  They are called the petition, schedules, statement of financial affairs, statement of intentions, social security declaration, master mailing matrix, means test, employer declaration and other documents, depending on the circumstances.  These forms are used to list all of your assets, debts, along with some recent financial history.  The automatic stay goes into effect upon filing the petition.  The automatic stay is very powerful.  It stops all creditors from taking any action against you or your assets, without first obtaining a Bankruptcy order.

If you are filing a chapter 13 you must also file a Plan of Reorganization, with other documents related to the Plan.  Some chapter 13 trustee's have forms for these chapter 13 plans.  In order to have a successful chapter 13 plan there must be in-depth analysis of income, expenses, arrears and fair market value of assets; along with certain transactions that you may have made before filing.

All Debtors must appear at a §341 meeting, also called a creditors meeting.  The Trustee assigned to your case will ask you questions under oath about your assets and liabilities and other important issues.  Creditors can also question the debtor on those subjects, but seldom appear.  Normally, the creditors will contact your attorney; who will assist you in understanding your rights as to each issue the creditor raises.

If there are assets in a chapter 7 case which are not exempt, the Trustee takes control of those assets and usually, sells them at a public auction.  You and/or your family/friends have a right to bid at that auction.  From the sale of assets or the recovery of certain transfers or payments (called avoidance powers), the Trustee pays the expenses related to your case, and then distributes the remaining funds to creditors who have filed proofs of claims.   In a chapter 7 case all wages you earn after the case belong to you.  But, monies that were owed to you before your case was filed belong to your creditors, such as tax refunds, inheritances, accounts receivable, and money from any lawsuits.

Generally, the only responsibilities you have after the 341 meeting is to cooperate with the Trustee in providing any information requested and assist your attorney in addressing any assets that you want to keep, but that are secured by a creditor.

What information do I need to provide in order to file bankruptcy?
In order to file bankruptcy you must fill out several forms.  These forms will include basic information about all your debts, all your real and personal property and all significant transfers you have made in the last year.  This information has been summarized in a questionnaire that I require all my clients to fill out based on your past and current situation.  You and I will have a free telephonic discussion.  After that you will complete some educational classes; obtain a recent credit report (if you are married you will need a separate report for each spouse) and fill out more information at our web site.   Once this is done you can call to set an appointment, which is normally 2 hours in length. You are to bring the documents listed to that meeting.

All meetings are with me, not with my staff.  I do not believe in delegating the meetings to anyone else.  At the meeting you and I will complete a draft of your bankruptcy documents.  At the end of the meeting you will be given a copy of the draft documents, along with additional instructions.  You will be asked to review the draft and amend or correct the entries that you and I have highlighted during our meeting.  We then schedule another meeting to final review, edit and signing.  At that meeting you and I will determine the best time for filing your bankruptcy. 

You must list everything that you own. 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 also deny you your discharge, or dismiss or convert your bankruptcy proceeding.

Who can file bankruptcy?
Any person who resides in, does business in, or has property in this country can file bankruptcy. There is no threshold of debts versus assets required in order to file a bankruptcy. In order to file in Arizona you must live here for the greater part of the last 6 months. There are limits on certain entities in filing bankruptcy, such as banks and savings and loans.

Can I file for bankruptcy if I am not a citizen or do not have my own social security number?
Section 109 of the Bankruptcy Code: "Notwithstanding any other provision of this section, only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title".  There does not appear to be a "legal citizen requirements".  This may be changed by case law.  Use of a social security number is the "norm" with most bankruptcies, yet the law does not specifically require it.  What is required by the US Trustee's office is some type of identification which is issued by a governmental agency.  Therefore, an ITIN (Individual Taxpayer Identification Number) number should also suffice.  The problem that non-residents face is that many of them have used a false social security number to obtain credit, buy a home or car.  By doing this they have committed a crime of moral turpitude.  If these folks file for bankruptcy protection their creditors can bring an action which determines the debtors to have committed fraud.  This will have serious consequences if that debtor ever tries to apply for citizenship.  Moral - don't use someone else social security number to obtain credit.

What is a Chapter 7 bankruptcy?
Chapter 7 bankruptcy is called a liquidation bankruptcy.  It is intended to give the individual debtor a fresh start. Debts such as credit cards, medical bills and lawsuits are discharged.  The debtor keeps most of their property (exemptions) that are not considered luxuries.   A company that files a chapter 7 will be closed and its assets sold to pay its creditors.  See our link to additional FAQ for chapter 7 cases.

In most consumer cases, all the assets are exempt, and therefore there are no assets to liquidate and there is no money to be paid to creditors.  If there are assets in a chapter 7 case which are not exempt, the trustee takes control of those assets and usually, sells them at a public auction.  You and/or your family/friends have a right to bid at that auction.  From the sale of assets or the recovery of certain transfers or payments (called avoidance powers), the trustee pays the expenses related to your case, and then distributes the remaining funds to creditors who have filed proofs of claims.

What is a Discharge and how do I get one in a Chapter 7?
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.

What is Dischargeable in Bankruptcy?
The scope of the discharge is different in each chapter.  Under the pre-2005 Bankruptcy Reform Act a Chapter 13 discharge more encompassing, to encourage individuals to use Chapter 13 to repay a portion, if not all of their debts. A Chapter 13 discharge also offered protection in the case of some fraudulent actions that would not have been discharged in a Chapter 7.  That does not appear to be the case after the Reform Act.

Put most simply, most unsecured debts are dischargeable.  Most secured debt survives bankruptcy as a charge on the property to which it attaches unless a court order modifies the lien.

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, (a) certain luxury purchases over $500 within 90 days of the bankruptcy filing are presumed non-dischargeable; (b) cash advances aggregating $750 taken within 70 days of the bankruptcy filing are presumed non-dischargeable (523(a)(2)(C) ; and, (c) debts involving materially false financial statements are non-dischargeable under certain circumstances. 

If taxes are involved, it is important to know the exact status of your obligations.  Ask your tax authority for a document called a literal transcript. This is a very complex set of facts and the mere date of your bankruptcy may lock you into a result that you did not anticipate. 

NOTE: The law changes and the following is only a synopsis of what has been deemed dischargeable.  Always consult your attorney to determine the current status of the law and its affect on your debts and assets.

Can I pay my friends, relatives or employer back monies they lent me?
Debtors frequently want to friends, family or employers back monies that they have borrowed.  This is called preferential treatment.  That means that you owed other creditors money, but preferred to pay your friend or relative.  This includes not only family but also other creditors (paying off a credit card so they can keep it after the bankruptcy).  If you made these preferential payments within 90 to 365 days prior to filing the bankruptcy, the Court can force the parties who received the money to give it to the Bankruptcy Trustee.

The 90 day period is for "outsiders" - those that have no reason to want to help the Debtor. If the person/entity receiving the funds is an "insider", then the period extends to one full year.  "Insider" is defined in 11 U.S.C. 101 and includes family members, partners, and corporations in which the debtor is a decision maker.

It is not wrong for the debtor to make payments to one creditor and not another so long as they are genuine debts. If the Trustee elects to go after the monies or transfers made to that creditor, then it is the creditor who will lose, not the debtor.  This is an issue that needs to thoroughly discussed with your attorney, BEFORE making the payment or the transfer.  There is nothing to prohibit you from voluntarily paying anyone you wish after your bankruptcy is completed.

The same problem arises if the Debtor has sold or transfers any assets prior to filing for bankruptcy.  The look-back period is 90 day  for outsides and two years for insiders.  Again, do not make any transfers or give any any assists without first obtaining the advice of an experienced bankruptcy lawyer.  

What property can I keep after a bankruptcy?

Debtors often worry that they will lose personal possessions and household goods when they file bankruptcy. Most Chapter 7 cases are no asset cases: that is, the debtors give up nothing to the trustee because used household goods and personal effects are worth very little to anyone, other than the Debtor. The point of bankruptcy is to get a fresh start and that is only possible if the debtor has something to start over with.

The Bankruptcy Code allows each individual who files bankruptcy to keep basic assets deemed necessary for the debtor's "fresh start" after bankruptcy. That property is the debtor's "exempt property". Be aware that the 2005 Bankruptcy Reform Act dramatically changed the law governing exemptions.  Under the 2005 Reform Act 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

In Arizona ERISA retirement plans are usually exempt, but any monies put into any retirement account within 120 days of filing the bankruptcy are not exempt.  You may only protect $150 in a bank account (on the day that the bankruptcy is filed).  No cash is protected.  Also, 25% of what you are owed on the day you file belongs to your creditors.  New paychecks you earn after filing belong to you.
 

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.

Why is it important that all information on my bankruptcy documents be absolutely accurate?

Bankruptcy Judge's open letter to Debtors and their Attorneys: Hon. Alan Jaroslovsky U.S. Bankruptcy Judge, Northern District of California, Santa Rosa Division

"I have noticed a disturbing trend among debtors and their counsel to treat the schedules and statement of affairs as "working papers" which can be freely amended as circumstances warrant and need not contain the exact, whole truth. Notwithstanding execution under penalty of perjury, debtors and their counsel seem to think that they are free to argue facts and values not contained in the schedules or even directly contrary to the schedules. Some debtors have felt justified signing a statement that they have only a few, or even a single creditor, in order to file an emergency petition, knowing full well that the statement is false.

Whatever your attitude is toward the schedules, you should know that as far as I am concerned they are the sacred text of any bankruptcy filing. There is no excuse for them not being 100% accurate and complete. Disclosure must be made to a fault. The filing of false schedules is a federal felony, and I do not hesitate to recommend prosecution of anyone who knowingly files a false schedule.

I have no idea where anyone got the idea that amendments can cure false schedules. The debtor has an obligation to correct schedules he or she knows are false, but amendment in no way cures a false filing. Any court may properly disregard subsequent sworn statements at odds with previous sworn statements. I give no weight at all to amendments filed after an issue has been raised. As a practical matter, where false statements or omissions have come to light due to investigation by a creditor or trustee, it is virtually impossible for the debtor to demonstrate good faith in a Chapter 13 case or entitlement to a discharge in a Chapter 7 case. I strongly recommend that any of you harboring a cavalier attitude toward the schedules replace it with a good healthy dose of paranoia. "

Bankruptcy Fraud:
Without exception you must disclose all assets and liabilities.  The United States Trustee's Office is very aggressive about uncovering bankruptcy fraud.  See the attached for the consequences.

Wage Garnishments - bankruptcy stops creditors from garnishing your wages; with the exception of child support or alimony payments.

Arizona law allows creditors to be paid one-fourth of your after-tax wages with a writ of garnishment.  In order to obtain this writ of garnishment the creditor must serve a complaint, obtain a judgment and then obtain a writ.  A creditor can even seize money from your bank account, without a judgment, but they first must file a complaint and post a bond.  Garnishment will immediately cease if you file a bankruptcy - but in order to permanently stop that garnishment you must receive a discharge.
 

Can my social security be garnished?

What about child support, alimony/maintenance and/or property settlements?
11 U.S.C. § 523(a)(5) states that a person who files bankruptcy generally cannot discharge his or her obligations to pay support to a child, to a spouse, or to a former spouse in divorce.  This also applies in a chapter 13 - 11 U.S.C. § 1328(a)(2).

After the 2005 Bankruptcy Reform Act it has become obvious that Congress wants to guarantee that all child support and alimony/maintenance payments are made.  This protection goes so far as allowing, if not requiring, that the Bankruptcy Trustees liquidate exempt property to pay these debts. This area of law will be litigated for several years to come. 

Other protections:

• Exception from the automatic stay for efforts to establish orders for paternity, child support, or alimony. 11 U.S.C. §362(b)(2)(A).
• Exception from the automatic stay for collection of child support or alimony. 11 U.S.C. §362(b)(2)(B).
• Priority for unsecured claims of the debtor's spouse, former spouse, or child for alimony or support. 11 U.S.C. §507(a)(1).
• Priority of a judicial lien for support over the exemptions otherwise available to a debtor in bankruptcy. 11 U.S.C. §522(f)(1)(A).
• Nondischargeability of obligations for support owed to children, spouses, and former spouses. 11 U.S.C. §523(a)(5).
• Possible nondischargeability of obligations for property settlement claims owed to children, spouses, and former spouses. 11 U.S.C. §523(a)(15).

Can I be Denied a discharge?
Chapter 7 - Debtors should not worry about denial of discharge if they fully disclose their assets and their financial history, take all the required classes, file the required forms, not have any excess income which is deemed to be disposable income and should be used for paying their creditors over time (a chapter 13)

The debtor can be denied a discharge of all of debts if the court finds, after trial, that the debtor committed certain acts such as: transferring, concealing or destroying assets or financial records; making a false oath on the schedules or under oath in the case; or failing to keep books and records from which the debtor's financial condition can be ascertained. Discharges are not denied lightly or easily. This is intended as a penalty for debtors who deliberately try unfairly or dishonestly to thwart their creditors. The complete list is found at 11 U.S.C. 727.

Denial of discharge affects the debtor's liability to all creditors, whether or not the debtor committed some fraudulent act with respect to that particular creditor.  Denial of discharge doesn't stop the case from proceeding forward.  The trustee proceeds to gather and liquidate the assets of the estate, so the debtor loses not only the non-exempt assets but any chance of ever discharging the debts in bankruptcy.

Chapter 13 - Same as above, except the Debtor is required to complete their Plan payments, keep all child support and alimony/maintenance current and comply with the requirements of the Court and the Bankruptcy Trustee.

What happens after the discharge?
Debts that survived can still be collected.  These debts include: priority taxes, support, student loans, and secured liens.  Any debts that were reaffirmed also survive the bankruptcy. 

Why would I choose a Chapter 13 bankruptcy?
Chapter 13  bankruptcy is a repayment plan that protects the debtor from collection action during the plan and discharges any unpaid balance of dischargeable debts at the end of the plan. 

The discharge in Chapter 13 covers a few debts that cannot be discharged in Chapter 7.  The 2005 Bankruptcy Reform Act changed this area of law, but it is still a powerful tool for debtors to regain control of their financial lives and to get a meaningful fresh start. 

Debtors choose to file a repayment plan under Chapter 13 when:

• they owe debts not dischargeable in Chapter 7 ( such as taxes, child support, fraud judgments)

• they have liens that exceed the value of the assets securing the debt

• they have years of unfiled taxes

• they are behind on car or house payments

• their assets are worth more than allowed exemptions

• their income is substantially more than their allowed expenses.

This is an excerpt from a bankruptcy court case that details what the court looks at to decide if a person is permitted to file a chapter 7 (this Order is dated before the 2005 Reform Act, so may not be applicable):
(1) Whether the debtor has a likelihood of sufficient future income to fund a Chapter 11, 12, or 13 plan which would pay a substantial portion of the unsecured claims;
(2) Whether the debtor’s petition was filed as a consequence of illness, disability, unemployment, or some other calamity;
(3) Whether the schedules suggest the debtor obtained cash advancements and consumer goods on credit exceeding his or her ability to repay them;
(4) Whether the debtor’s proposed family budget is excessive or extravagant;
(5) Whether the debtor’s statement of income and expenses is misrepresentative of the debtor’s financial condition; and
(6) Whether the debtor has engaged in eve-of bankruptcy purchases.


Who is eligible to file a Chapter 13 bankruptcy?
In order to file for a chapter 13 you must:

• Before filing complete the Credit Counseling for Consumers Class.  (Click here and review Step Five)

• Have sufficient regular income to meet monthly living expenses allowed by the chapter 13 Trustee, as allowed by the IRS and make a plan payment. [§109(e), §101(30)]

• Have less than $307,675 of unsecured debt, and less than $922,975 of secured debt. [§109(e)] (as of April 1, 2004)

• Not be a corporation, partnership, stockbroker, or commodity broker. [§109(e), §101(30)]

A liquidated debt is one where the amount the debtor owes is known, or capable of easy calculation.  For example,  a loan is a liquidated debt;  the damages owing in an auto accident are usually unliquidated until judgment is entered.

A strategy frequently used is to file Chapter 7 to discharge those debts that are dischargeable, and file a subsequent Chapter 13 to repay those debts that were not discharged in Chapter 7, or that cold not be dealt with in a chapter 7 (such as paying arrears on houses, etc).


How much does it cost to file bankruptcy?  
The Court's filing fee is $299.00 for a chapter 7 (personal and company) 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; this does not apply to a company debtor.  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 usually start at approximately $1,750.00 for an individual with a few 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, and/or others, starts at $2,000.00.  Small business Chapter 7 bankruptcy start at $2,250.00.  Attorney fees for a  Chapter 13 case are approximately $4,000.00 for an individual, with no business issues; $5,000.00 for the Chapter 13 with business or more complicated issues.

Clients ask why my fees are a lot less than those charged by TV advertising lawyers.  Remember these TV ads cost millions of dollars and someone has to pay for them - namely the clients.  I am told that the TV firm's fees were double or triple my fees, plus there was an attempt to use strong-armed tactics to bully people into signing contracts to retain the TV firm.  If you are being treated like you are buying a used car - run, don't walk out of that office.  There are also numerous reports about these TV advertising firms that the clients were treated like cattle and, other than at the creditor's meeting, never saw, or were allowed to talk to an attorney.   This is not the practice of law - this is cattle or sheep ranching.  The reports go on to say that these folks were not given proper advice to plan for bankruptcy, resulting in them losing tax refunds or money in bank accounts.  I have personally seen this sickening result at several creditor's meeting.  It is my opinion that such TV or billboard ads is the prostitution of all lawyers, especially those doing the advertising, and an insult to the honorable profession of the practice of law.  The Arizona Republic, East Valley Tribune, Corporate Legal Times, and Associated Press on CBS 5 - April 20, 2009: " PHOENIX (AP) -- The managers of well-known Phoenix law firm Phillips & Associates are facing sanctions from the Arizona State Bar.  Jeffrey Phillips and Robert Arentz where responsible for lapses .. The State Bar, which licenses and regulates the state's attorneys, says the law firm's aggressiveness is sometimes directed at its clients and has recommended that the firm managers be temporarily suspended from practicing law." "The findings really go to the structure of the intake process they have at that firm and how that system is really incentivized to get as many people in as possible without any particular safeguards in place," said Maret Vesella, acting chief Bar counsel.  The complaints range from a potentially misleading advertisement to the company's reluctance to refund money to dissatisfied clients.  Phillips and his associates deny any wrongdoing.  12/16/09: Phoenix Business Journal/ Channel 12/ Arizona Republic: Phillips & Associates - Supreme Court sanctions Jeffrey Phillips and Robert Arentz: The Disciplinary Commission of the Supreme Court of Arizona is recommending that the Supreme Court sanction Jeffrey Phillips and Robert Arentz for violation of the state Bar’s Rules of Professional Conduct.  The Disciplinary Commission on Monday recommended that the Supreme Court suspend Jeffrey Phillips for six months and one day, plus two years of probation. The commission also recommended the suspension of Robert Arentz for 60 days, plus two years of probation.   The commission’s decision states that … Phillips and Arentz’s business practices caused “actual injury to clients and to the profession”.  If the Supreme Court orders the suspension of the attorneys, they would not be allowed to practice law in Arizona during the specified time period. Phillips would be required to apply for reinstatement to practice law in Arizona.  The Arizona Republic: 5/21/10: Robert Arentz suspended for 60 days.  "Their focus was on getting people to sign on the dotted line and get as much money up front as possible," said Maret Vessella, chief Bar counsel. Rather, she said, consumers should expect to meet with an attorney, have that person listen to their problems and receive a fair evaluation of their situation before deciding whether to hire the firm. A disciplinary committee of the Arizona Supreme Court recommended the suspensions, along with two years' probation for each attorney and restitution of nearly $14,000 to three clients.  UPDATE: 1/2011  Phillips and Associates sells their "clients" to various firms.

My fees are also low because we use technology to process information and all clients are asked to participate in that use of technology (via the web).  My clients are expected to 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, my choices are two: (1) not take them as clients or (2) charge more for the additional attorney & paralegal time.  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, complete candor is required; and thoughtful and organized questions are encouraged.

Also, check out any State Bar complaints against a lawyer.  Go to www.azbar.org.  Click on "Find a Lawyer" in the upper right hand corner. Enter the attorney's name.  Click on "activity".  For example: the Supreme Court censured Jeffrey L. Phillips, Phillips & Associates.  There were 20 charges.  Here is a portion of the summary "Mr. Phillips failed to adequately supervise subordinate attorneys and non-lawyer specialists. Specifically, intake personnel failed to affirmatively identify themselves as non-attorneys and failed to affirmatively offer or provide adequate information concerning limitations on the applicability of Mr. Phillips’ firm’s advertised “little or no money down” payment plans."  Compare that to other advertising firms: Hastings & Hastings - no activity as to David Hastings; or Solomon & Relihan - no active as to Martin Solomon or John Relihan.  This research was done March 22, 2006.  Again, always investigate any lawyer before investing your time and money.

How often can I file bankruptcy?        
A discharge in bankruptcy cannot be granted if you have received a discharge in a chapter 7 bankruptcy case filed in the last 8 years. A Debtor is prohibited from receiving a discharge under Chapter 13 if they received a discharge in a 7,11 or 12 bankruptcy which was filed within the last 4 years; or a chapter 13 case in the last 2 years. 11 U.S.C. § 1328(f)

Where is my bankruptcy filed?        
In the office of the Clerk of the United States Bankruptcy Court in the District where you have lived or where you have maintained your principal place of business for the last 180 days. If you have not lived in or maintained your principal place of business for 180 days in the Bankruptcy Court District where you now reside, you must file your bankruptcy in the District where you have lived or maintained a business for the greater Part of the 180 days before the date of filing. The bankruptcy court is a part of the federal court system.

Under what conditions should both husband and wife file bankruptcy? 
First, the expectation is that both husband and wife file a joint bankruptcy.  If they do not, then they must explain the deviation from the norm.  Both husband and wife should file when some of the debts are owed jointly by both the husband and the wife.  If both husband and wife owe the debts and only the husband files bankruptcy, the creditors may try to force or harass the wife into paying the debts, even if she is unemployed.  Under Arizona law this may not be appropriate for the creditors - but it depends on the specific circumstances surrounding the debt.

Can both husband and wife file a joint bankruptcy petition? 
Yes. Under the bankruptcy laws a husband and wife may file a joint bankruptcy petition, using the same set of forms.  Only one filing fee is charged for a joint petition, so it costs no more to file a joint petition than to file a single petition.

When should I file bankruptcy?
The answer depends on the status of your dischargeable debts and the nature of your non—exempt assets. It is not wise to file bankruptcy if you are likely to incur sizeable new debts in the near future. For example, if you or a member of your family are in bad health and have incurred huge medical bills, it would be wise to wait until the illness or injury is cured, or until you have obtained adequate insurance coverage, before filing bankruptcy. It will be at least eight years before you can file a chapter 7 bankruptcy again and it will do you little good to discharge, say $20,000 in medical bills by filing now, and then incur another $40,000 bills in the next few months. It would be better to wait a few months, let your situation stabilize, then decide if it is necessary for you to file.  Having said that you cannot incur debt that you know you will never pay - this is fraud.  There is a fine line here that you need to discuss with experienced bankruptcy lawyer.

Under the bankruptcy law, all non-exempt property that becomes yours by inheritance, life insurance, or divorce within six months after the date that you file bankruptcy must be turned over to the Trustee. Therefore, if you anticipate acquiring any property or money during the next six months by inheritance, as the beneficiary of a life insurance policy or death insurance plan, or through a divorce, you should not file now.  These are issues that you must discuss with your attorney before taking any legal action.

Can I file bankruptcy if my debts are being administered by financial counselors?
Yes. A financial counselor has no legal status and cannot prevent you from filing bankruptcy.

How does filing bankruptcy affect lawsuits and attachments that have already been filed against me?        
The filing of a petition in bankruptcy will automatically stop most lawsuits. A few days after your bankruptcy is filed the court will mail a notice to all of your creditors, ordering them to stop all actions against you. If you cannot wait this long, your attorney will contact the creditor and give them your bankruptcy case number and date of filing.  Any criminal actions will not be terminated by filing a bankruptcy case.

How long after filing the bankruptcy will the creditors stop contacting me?
Once a creditor 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 retained an attorney.  In urgent cases, we will 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 it may be liable for court sanctions and attorney fees for this conduct 

Who will notify the creditors that I have filed bankruptcy
After the bankruptcy petition is filed, the court mails a notice to all the creditors listed in the schedules. The 2005 Bankruptcy Reform Act requires that you send notice to all addresses on any bills, statements, or letters received from any creditor or collection company in the 90 days prior to filing.  Therefore, it is very important that you list all the addresses on your schedules, otherwise the creditor will not stop its collection activities.  It usually takes a couple of weeks fro the creditors to receive notice of the bankruptcy filing.  If you have a creditor that is ready to foreclose on your home, repossess your car or garnish your wages then you can ask our office to send special notice to that creditor.

Will I have to go to court?
No, but between 20 and 40 days after your bankruptcy was filed, you will have to attend the “Meeting of Creditors.” It is held at the office of the United States Trustee. You will be put under oath and questioned about your bankruptcy papers and your assets by the U. S. Trustee. In all probability, none of your creditors will appear at the meeting. If the husband and wife file a joint petition, both must be present or the case will be dismissed.

Who is a bankruptcy trustee? 
The bankruptcy trustee is an officer of the court, appointed to review all your documents, research public records for assets you have failed to disclose, gather your non-exempt property, turn it into cash, and pay this money out to the proper creditors. The law gives the Trustee a lot of power.  Make sure to comply with the Trustee's request.

What are my responsibilities to the bankruptcy trustee?
The law requires the debtor to cooperate with the bankruptcy trustee in the execution of his or her duties.  The Trustee will most likely request that you give them copies of the following documents: picture identification, proof of social security number, copies of all pay stubs or income statements for 3 periods before filing, copies of all bank or credit union statements for the last 3-4 months before filing, copies of all bills, cancelled checks, and check registers to support your expenses, last two years tax returns, along with W-2's, homeowners, life and casualty insurance policies, property appraisals, title documents, mortgagee and liens for all real and personal property, divorce and/or support orders.  The Trustee will also request a copy of the next year's tax return.  All tax refunds must be remitted to the Trustee.  Do not cash or endorse the refund checks, send them directly to the Trustee. Throughout the process the Trustee may request more information.  If you refuse to cooperate with the Trustee, your discharge in bankruptcy may not be granted or may be revoked.

What is a First Meeting of Creditors?
In order to fulfill that law governing bankruptcy you must attend a "hearing" called a 341 creditor's meeting.  This meeting is not in a courtroom, it is not before a judge.  This is not an adversarial forum where you will be cross-examined as to why you have filed bankruptcy.  Your attorney will be present to help you with any questions.  At this meeting you will meet the Trustee assigned to your case and will be sworn to tell the truth.  You will also be asked to testify that the documents that you have filed with the court are true and accurate.  In addition, this meeting is intended to give the Trustee an opportunity to ask you any questions regarding your documents.  Also, any creditors can ask questions, but it is rare to have a credit appear at one of these meetings.   As your attorney, my job is to help you through this meeting and help you to answer questions.  A normal creditor's meeting last between 2 to 5 minutes.  Of course, this varies depending on the complexity of your bankruptcy case.   

      YOU MUST BRING A PICTURE ID: DRIVER’S LICENSE, PASSPORT OR LEGAL RESIDENT ALIEN CARD and PROOF OF YOUR SOCIAL SECURITY NUMBER (YOUR SOCIAL SECURITY CARD, A W-2 FORM FROM THE MOST RECENT TAX YEAR, or A RECENT PAY STUB).  FAILURE TO DO SO WILL CAUSE YOUR CASE TO BE DISMISSED. 

What happens after the First Meeting of Creditors?
After the First Meeting of Creditors, the court may issue orders to you. These orders will be sent through the mail and may require that you turn money or property over to the Trustee, or they may require that you provide certain information to the Trustee.

      Why should I follow Ms. Drain's directions about paying mortgage and car payments?
Each client receives instructions to pay all their mortgage and car payments in a way that they can prove those payments were made.  Some clients do not feel it is important to follow my directions.  One client that did not paid an additional $350.00 for attorney fees to prove that he made his payments.  Another client that followed my directions, paid nothing in additional fees.  That client stated the following: "It's clear that my record keeping made a crucial difference in proving our case - that mortgage payments had been kept current. I'm glad I keep cancelled checks and that I keep a record of what payments were made to specific monthly payments. This information made available the exact information needed to prove that payments had been made as we claimed."

      What are a creditor's obligations to me?
The following is a web site that identifies the consumer protection laws Title 15 of the United States Code.

How do I handle harassment by Creditors and collection companies?
There are laws that control the actions of collection companies.  One of these is the Fair Debt Collection Practices Act.  See this article on about your rights as to collection companies.  Also see this Cornell site on the Fair Debt Collection Practices Act and many other federal Acts that protect you.  I remind you that the information in any articles is generic and may be outdated, therefore it is not to be applied to your particular situation.  The information in the Internet sites may also be old.  Therefore, you are to seek legal guidance regarding your rights under these laws.

What can I do about Defaulted Student Loans?

Loan Cancellations/Discharges
Article from Consumerlaw.org
No Way Out: Student Loans, Financial Distress and the Need for Policy Reform. 6/06, NCLC
That Student Loan, So Hard to Shake, by Jonathan Glater NY Times 8/24/08
American Federation of Teacher Loan Forgiveness Program
Article from American Bankruptcy Law Journal re Student Loans Scandal and Hardship Discharge
IBO Info: an independent, non-profit source of information about new federal student loan payment and forgiveness programs: http://www.ibrinfo.org/

Garnishment by Student Loan: Re administrative wage garnishments (AWG), it used to be that only 10% could be garnished, but for the Dept of Ed, it is apparently now up to 15% of disposable pay under 31 U.S.C. § 3720D, enacted by Section 31001(o) of the Debt Collection Improvement Act of 1996 (DCIA), Pub. L. 104-134,110 Stat. 1321-358 (Apr. 26, 1996).   It is possible that student loan guarantors may still be held to that 10% cap, but I am not sure.  See 20 U.S.C. § 1095a.  Federal law only allows up to 25% withholding if there are other garnishment writs in place (except child support, etc.).  See 15 U.S.C. § 1673. 

Administrative Discharge for Student Loans form. It is the most current version and if your clients have a permanent and total disability that may prevent them from repaying the loan, it may be a good way to eliminate that debt.  Of course the Administrative Discharge may result in a forgiveness of debt income situation thus possibly resulting in tax liability unless the debtor is otherwise insolvent. Here is the web site for the application.  http://www.ecsi.net/bwr/forms/dis_discharge.pdf

For additional questions - talk to The Dept of Ed's administrative wage garnishment.  They can be reached at: Administrative Wage Garnishment Branch (AWG) at (404) 562-6013 or email at awg@ed.gov.

Bankruptcy: Currently the only ground for discharging a student loan in bankruptcy is if the student can show that repayment will “impose an undue hardship on the debtor and debtor’s dependents.” For cases filed after October 7, 1998, there is no longer a discharge for loans more than seven years old. For more information about discharging student loans in bankruptcy, see NCLC’s publications Student Loan Law and Consumer Bankruptcy Law and Practice.

State Discharges: State tuition recovery funds (STRFs) can be a valuable source of relief for defrauded students where a school is insolvent and where the student cannot obtain a federal discharge. The majority of states have either a STRF or a bond program to reimburse defrauded students.

Federal Loan Cancellations: In limited circumstances, borrowers may be able to completely cancel their federal student loans. Borrowers that receive loan cancellations are also eligible for reimbursement for previous payments (including tax refunds seized by the IRS and payments made by the borrower) and cleaning up of credit report problems due to student loan defaults.

These critical rights are summarized below.

A. Closed School Discharge (34 C.F.R. §682.402(d)-FFEL loans)
Applies only to loans received at least in part on or after January 1, 1986. Students must have been enrolled at the time of school closure or they withdrew, the withdrawal had to have occurred within 90 days of closure. The Department of Education maintains a list of official closure dates, available at: http://wdcrobcolp01.ed.gov/CFAPPS/FSA/closedschool/searchpage.cfm

B. False Certification Discharge (34 C.F.R. §682.402(e)-FFEL loans)
Applies only to FFEL or Direct loans received at least in part on or after January 1, 1986. Perkins loans are not eligible.
To qualify, student must show that their eligibility to borrow was falsely certified by the school. In most cases, students with high school diplomas or G.E.D.s at the time of admission are not qualified. There are exceptions to the high school diploma requirement: A student may qualify if s/he was unable to meet minimum state employment requirements for the job for which the student was being trained, or if the school forged or altered the loan note or check endorsements.

C. Unpaid Refund Discharge (34 C.F.R. §682.402(l)
A new discharge was passed as part of the 1998 Higher Education Act allowing students to discharge loan liability for loans obtained after January 1, 1986 to the extent of the amount of a refund that a school owed the student and failed to pay. Perkins loans are not eligible, but borrowers can already raise an unpaid refund as a defense in Perkins collection actions.

D. Disability Discharge (34 C.F.R. §682.402(c)
Borrowers can discharge loans if they can document a permanent and total disability. Pre-existing conditions qualify only if there has been deterioration.

Forms for all of these discharges are available on-line at:
Closed School
False Certification of Ability to Benefit
Total and Permanent Disability
Unpaid Refund

Particularly for false certification and unpaid refund discharges, borrowers often need to submit evidence of school fraud. NCLC has information in its files on a limited number of schools. For more information, see NCLC’s publication, Student Loan Law,

Additional information about government investigations of schools can be found on the web site of the Department of Education’s Office of Inspector General and the Department’s Office of Hearings and Appeals

College Cost Reduction and Access Act - Struggling with Student Loans? New Federal Rules May Help,    July, 2009
If your student loan balances make you feel like a member of the Class of Forever, help may be here. It's not exactly a bailout, but a number of federal student loan rule changes that went into effect this week are aimed at lightening the repayment load for overburdened borrowers.
Lower Interest Rates. As of this week, people with older student loans will catch a bit of a break. For federal loans issued before July 1, 2006, the interest rate will be reduced to 2.48 percent, down from the current 4.21 percent rate. And the interest rate on new subsidized federal Stafford loans will fall to 5.6 percent (down from 6 percent), as the Chicago Sun-Times reports.
Relaxed Loan Forgiveness for Public Service Jobs. If your job relates to public service -- if you work for the government, teach in public schools, or are employed by a qualifying non-profit, for example -- you may be able to have your entire student loan obligation forgiven (erased) after 10 years. This is down from the previous 25-year forgiveness standard, according to Reuters.
Income-Based Repayment. A new income-based federal student loan repayment option also went into effect this week. It lets borrowers set up a monthly student loan repayment that is as low as 15 percent of their adjusted gross income for the year. As CNN points out, while the income-based option can make payments significantly lower, the loans themselves could take longer to repay, meaning more interest is paid. But the trade-off may be worth it for some borrowers.

Many of the new federal student loan rules going into effect this week are part of the College Cost Reduction and Access Act, which was signed into law in 2007. On top of the features outlined above, the Act extended federal Pell and TEACH Grant funding, and increased income protection allowances for many students.

Additional Resources regarding student loans:
See this web site for a good article and links to other legal references.
Or see article: The Smart Student Guide to Financial Aid at www.finaid.org

Will there be forgiveness of debt "income" as a result of a bankruptcy?
Normally not (11 USC Section 346(j)(1).  But make certain to discuss your situation with an experienced tax attorney.  Taxes issues can be very complicated.

How long does a bankruptcy remain on my credit report?
The Fair Credit Reporting Act - 15 USC 1681c(a)(1) provides that no consumer reporting agency may report "cases under title 11 or under the bankruptcy act that, from the date of entry of the order for relief or the date of adjudication, as the case may be, antedate the report by more than 10 years". To interpret that legal jargon into English it means that the credit reporting agencies must remove any reference of your bankruptcy after 10 years from the date of filing your bankruptcy, not the date of your discharge

If the 10 years has expired how do I get the bankruptcy off my credit report?
You need to write the reporting agency a letter quoting the citation; point out that the FCRA imposes duties upon credit reporting agencies, and tell them that you want it removed, now, or face suit under the FCRA.  Make sure to send this demand by certified, return receipt request.  Also, make sure that you send this demand to all three credit reporting agencies.

How do I get a copy of my credit report?
I would prefer that you have a credit report that no more than 3 months old.  If you are married you will need a report for each spouse.  I would also prefer that you order a credit report that includes all three major credit bureaus (CBI/Equifax, Experian and TransUnion).  As of December, 2004, every Arizona resident can receive one free credit report (all 3 bureaus) per year.  See the attached article.

How do I find out about property that is being sold by the Bankruptcy Trustee?
The Bankruptcy Trustee may take certain items that are not protected under Arizona law (those not listed as exempt property.)  If the value of those items is sufficient to justify the Trustee's time and effort they will hold an auction then the debtor will be asked to surrender the property to the Trustee.  The debtor, or their family, friends and other interested parties will have an opportunity to bid on those items.  Normally the Trustee requires that the bid price be paid either at the auction or a short time thereafter.  The money from the sale of those items will be paid, first to cover the costs of the sale, then a percentage to the Trustee, then priority debts (such as taxes), then the balance to the unsecured creditors.

WARNING AT ALL SALES:  *PROPERTY WILL BE SOLD “AS IS, WHERE IS”, WITH NO WARRANTIES OR REPRESENTATION MADE OR IMPLIED.  PROSPECTIVE PURCHASERS ARE ENCOURAGED TO PERSONALLY INSPECT / PERFORM THEIR OWN DUE DILIGENCE OF THE PROPERTY BEING SOLD. ALL SALES ARE SUBJECT TO SALES TAX UNLESS THE PROPERTY BEING SOLD IS TAX EXEMPT OR A RESALE NUMBER IS USED AS PROOF OF EXEMPTION.* 

(1)  The last Friday of each month the Maricopa County trustees hold an auction at 230 North 1st Avenue, Phoenix, beginning at 8:30.
(2)   If you are interested in receiving notices of potential trustee sales send several self-addressed, stamped envelopes to:  Deene Kende, LMK Services, PO Box 1570, Dewey, AZ 86377.  (520) 632-1289, fax (520) 623-1294.or Jennifer Campbell, Diane Mann's office, (480) 451-3053.
(3)  Checkout www.NABT.com or www.BKassets.com for list of assets being sold.
(4)  Diana Monell provides e-mail lists on a monthly basis.  If you are interested contact my office for her e-mail address.