Most of our clients have never before filed bankruptcy
and usually have no experience with any legal process
at all. What I want to do is explain the bankruptcy
process from start to finish with the one simple goal
in mind – to relieve your stress and
anxiety. Filing bankruptcy
is nothing to fear and when it is all over, you will
be surprised how painless it was for you.
The Concept Behind Bankruptcy
Chapter 7:
If you are filing chapter 7, you understand that you
will be able to wipe out your debts (with some exceptions)
in return for surrendering your assets (with some
exceptions). In return, you will receive
a "discharge" in
your case and get a "fresh start.” If
you own more property than you can claim as "exempt",
do not despair! The trustee will allow you
to "buy back" the "overage" over
a reasonable period of time.
Chapter 13:
If you are filing chapter 13, you will adopt a plan
to repay some of your creditors
over a 5-year period in return for keeping your
assets, and at the conclusion of the case, receive
a discharge for the debts that you were not able
to repay during the plan. You will inform the
court (through us) of your monthly income, less current
taxes, less reasonable necessary living expenses
and secured debt payments, and the excess will be
paid on a monthly basis to the trustee for distribution
to the creditors.
Honesty Required:
This means you will not be granted a Discharge if you
lie or mislead us, or the court, or the trustee.
This can include failing to disclose all your assets,
or list all your debtors, or otherwise fail to answer
truthfully all questions put to you. Bankruptcy
fraud is a federal crime and is taken very seriously.
Right now you only have financial concerns; don’t
make this a criminal matter as well.
The Paperwork
The bulk of your work will come at the beginning of
the process. After the decision has been made
to go forward, you will be sent questionnaires that
must be completed thoroughly and honestly. We will
also obtain your credit report to assist us as well.
There is quite a bit of documentation that must be
provided to us as well as to the trustee. (Trustee’s
list of required documents).
The Disclosures
You will be asked to list all your creditors and all
your assets, and to assign values to your assets (values
are set based on what the particular asset would sell
for in a garage sale). You must also list all
payments you made to creditors within the 90 days prior
to the filing, as well as all transfers and repayments
to family, business associates, and other "insiders"
within the previous year.
Preparation of Petition
and Schedules
This information will be
carefully reviewed by us and used to prepare the
Petition and the various schedules that support
it. When we have the draft completed, it will be
emailed to you for your careful review and revision
if necessary. Once it is ready for filing, you
will sign and date it under "penalties of perjury"
meaning you swear to the completeness, truthfulness
and accuracy of all information therein.
Required Credit Counseling
You will be required to attend (usually through an
on-line course) a short but informative class on Credit
Counseling and you must provide the court with proof
of attendance as a condition to filing your case. Further,
you will be required to take a second course after
we file and before your case is concluded. We will
provide you with all the information about this later.
The Immediate Effect of
Filing
When we file the Petition and supporting schedules
with the bankruptcy court, all your creditors will
be notified and there is an "automatic stay" put
in place. This means none of your creditors can
contact you or continue with a lawsuit or take other
collection actions without violating the law. (Of
course, there may be some contact in the first day
or two between when you file and when they receive
their notification in the mail – if you do get some
contact, simply tell the creditor you filed BK and
give them the case number, the date you filed, and
the court in which you filed).
The Duties of the Trustee
About 30 days after we file your Petition and Schedules,
you will have to attend a "341 meeting" or "meeting
of the creditors." This is held at the local
federal court (directions will be given). At
the creditors’ meeting the Trustee will swear you in
and will review your paperwork. She will ask
you about your assets, liabilities and what transfers
you have made. The Trustee is appointed to collect
from you all assets (if any) in excess of what you
are allowed to keep and will use the proceeds from
those assets to distribute among your unsecured creditors
on a pro rata basis. The creditors’ meeting should
take less than 10 minutes.
Chapter 7:
After this creditors’ meeting, there is really nothing
further for you to do (unless the Trustee asks you
to provide yet more documentation) and unless a creditor
or Trustee objects to you receiving your Discharge,
the Discharge will be entered after another 60 days
or so.
Chapter 13:
After this creditors' meeting, there is really nothing
further for you to do other than to make your monthly
plan payments to the trustee. A Confirmation Hearing
will be set to confirm your plan about 6 months later.
In almost all our cases, because we do a good job
in getting all our ducks in a row before the Confirmation
Hearing, neither you nor I will be required to attend
the Confirmation Hearing; your plan will simply be
confirmed by the court. One of the conditions
of being in a chapter 13 is that you may not incur
more debt, including future tax debts, without approval
of the court. If you feel you must, such as
to purchase a new car, please contact us to make
the request of the court. You must also provide
the trustee with your annual tax returns by April
30 of each year, and all refunds must go to the trustee. Further,
we must advise the trustee annually if your income
and expenses go up or down which may force your monthly
payments to increase or decrease for the upcoming
year.
Credit Repair
The biggest concern most people have about filing
bankruptcy is the effect on their credit. My
opinion? Your credit will improve. Here’s
why: if you owe large tax debts and a federal
tax lien has been filed, then your credit is trashed
already. And if you don’t bankrupt those tax
debts, then the tax debt and the tax lien will not
go away until the end of the 10-year statute of limitations
has expired. If your debts consist of credit
cards, medical bills, and judgments, how will you clean
that up without bankruptcy? When your bankruptcy
is concluded, yes it will reflect on your credit reports,
but you can rehabilitate your credit by doing two simple
things: live within your means and pay your debts
on time. Two years down the road, a lender will
see your BK of record, but will also see that since
that time you have paid your car payments, your house
payments, and other debts in full and on time. Coupled
with a decent income, and maybe a decent down payment,
you should be considered a good risk. Banks have
to lend money to someone! If they were to refuse
to lend to people who had filed BK in the past, to
whom would they lend?
Conclusion
Other than the work on your part in getting us all
the information we request, seeking relief under the
bankruptcy laws really is not a difficult or painful
experience and you will enjoy a certain euphoria upon
its completion. We have never heard from a bankruptcy
client that they regretted the decision. Rather,
this process allowed them to straighten out their lives,
relieved stress in their lives and in their marriages,
and accomplished what the laws were meant to do – allow
the honest debtor a fresh start.
> back to Bankruptcy
Basics
