Chapter 7 Bankruptcy

A Chapter 7 bankruptcy is the most common type of bankruptcy that is filed under the Federal Bankruptcy Code.  Chapter 7 bankruptcy is often referred to as “liquidation” bankruptcy.  This description creates a common misconception.  Some people think that they will lose all of their property if they file a Chapter 7 case.  This is often incorrect, because most people are able to keep most, if not all of their property, in Chapter 7 cases.  It is very important to speak with Justin M. Myers, your Utah bankruptcy attorney to learn about the Chapter 7 option.

With several exceptions, people in Chapter 7 bankruptcy are able to eliminate most of their debts.  In Chapter 7 cases, people can usually eliminate all of their credit card debt, medical bills, signature loans, personal loans, unsecured lines of credit, pay day loans, and deficiency balances on repossessed vehicles and foreclosed homes.  Debts that are typically not dischargeable (meaning they will not be eliminated in a bankruptcy) include child support, alimony, criminal fines and civil fines.  Taxes and student loans are dischargeable under certain limited circumstances, but the general rule is that these debts will not be discharged and that they will survive a Chapter 7 bankruptcy.

Upon filing of a Chapter 7 Utah bankruptcy, creditors are required to immediately stop all collection activities.  This means that creditors must stop sending collection letters and calling on the phone.  This also means that creditors must stop all garnishments and halt all lawsuits.

A Chapter 7 Utah bankruptcy will generally stop foreclosure sales and repossessions from proceeding if the case is filed before these events occur.  However, since these debts are secured by homes or vehicles, a Chapter 7 Utah bankruptcy filing usually only stops foreclosure sales and repossessions temporarily (generally only for a few weeks or months).  Usually, if the person who files the Chapter 7 Utah bankruptcy does not get caught up on payments with the mortgage company or the vehicle financing company, these creditors will file a motion with the bankruptcy court asking the Judge to grant them permission to proceed with the foreclosure or the repossession.

In a Chapter 7 case, if the debtor feels overwhelmed with a secured debt payment (such as a vehicle payment or a house payment) the debtor can surrender the property back to the bank holding the loan.  A lending bank then only has the right to take the property back (the home or the vehicle) and after foreclosure or repossession the bank cannot sue the debtor for any short fall or deficiency.

In a Chapter 7 Utah bankruptcy, there is a Chapter 7 trustee assigned to each case.  The Chapter 7 trustee’s primary job is to try to find money that the Trustee can distribute to the creditors in the case. To accomplish this objective, the trustee also looks for assets that the trustee can take and liquidate, or sell.  The trustee uses whatever money is collected to pay the debtor’s creditors.

Most people worry about losing all of their property when they file a Chapter 7 case.  The reality is that most Chapter 7 bankruptcy filers end up keeping their property and the Chapter 7 trustee ends up taking little or nothing from them.  Utah state exemption laws allow people who file Chapter 7 cases to claim certain exemptions in their property.  Valid exempt property cannot be taken from a person who files a bankruptcy.   This means that most people who file Chapter 7 cases in Utah are allowed to keep their vehicles, homes, and their household furnishings and possessions.  It is important to speak with a Utah bankruptcy attorney to determine what property is exempt and what property the trustee may be entitled to take.

Procedurally, the instant a Chapter 7 case is filed, creditors must stop all collection efforts immediately.  Approximately two weeks after the case is filed, the bankruptcy court mails notice of the case filing to all of the debtor’s creditors.  About a month after the case is filed, the debtor will have a meeting with the trustee.  This meeting is called a “341 Meeting” or the “Meeting of Creditors.”  Your Utah bankruptcy attorney can discuss this meeting with you in greater detail This meeting is open to the public and all of the debtor’s creditors are invited to attend.  Most creditors do not attend this meeting and usually the only people in attendance are the person who filed the bankruptcy, the debtor’s attorney and the Chapter 7 trustee.

In Utah there are usually six to eight 341 Meetings scheduled per hour.  This meeting provides the trustee an opportunity to question the person who filed the case about the person’s debts and assets.  This meeting usually only lasts about five to ten minutes.  Typically if the trustee takes no property from the debtor, about sixty days following this meeting the debtor will receive a discharge and the case will be closed.  The trustee has the right to keep the case open longer if the trustee finds assets to take or wants to investigate the case further.  Most cases are closed and discharged within three to four months after they are initially filed.

MEDIAN INCOME REQUIREMENTS FOR FILING CHAPTER 7

In order to qualify for a Chapter 7 bankruptcy filing in Utah, a person’s income must be less than Utah’s median income based on the debtor’s household size.   These numbers vary from year to year.  For example, the median income for Utah bankruptcy cases filed after May 1, 2012, are as follows:

  • Family of one:  $49,697;
  • Family of two:  $57,309;
  • Family of three:  $61,508;
  • Family of four:  $66,825;

For each additional household member in excess of four add $7,500.

If a debtor’s household income exceeds the applicable median income, the debtor still may qualify to file a Chapter 7.  In order to qualify, the debtor will need to take a “Means Test” to see if the debtor is eligible to file a Chapter 7.  The “Means Test” looks at the debtor’s average income for the past six months and then allows the debtor to deduct certain expenses.   If  a debtor’s allowed expenses exceed their average gross monthly income, then the debtor may qualify to file a Chapter 7 case.

IF I HAVE FILED BANKRUPTCY BEFORE HOW LONG DO I NEED TO WAIT TO FILE AGAIN?

If the debtor has filed a prior Chapter 7 bankruptcy and received a discharge in that case, the debtor needs to wait eight years before filing another Chapter 7 case again.  If the debtor filed a prior Chapter 13 bankruptcy and received a discharge in that case, the debtor will need to wait at least 6 years before filing a Chapter 7 case unless in the prior Chapter 13 case (1) the debtor paid all “allowed unsecured” claims in the earlier case in full, or (2) the debtor made payments under the plan in the earlier case totaling at least 70 percent of the allowed unsecured claims and the debtor’s plan was proposed in good faith and the payments represented the debtor’s best effort.  The waiting period between each case is measured from the initial filing date in the first case to the filing date in the second case.

TIME LINE FOR A CHAPTER 7 CASE

Below is a basic time line for a typical Chapter 7 Utah bankruptcy case.  This time line does not include all of the minor deadlines and events that need to occur but it does list all of the major events that transpire in a typical Chapter 7 case.  A competent Utah bankruptcy attorney will be able to assist the debtor throughout this entire process.  Call Justin M. Myers today to discuss your Chapter 7 options today.

  • Pre-filing Credit Counseling Class—This is a basic credit counseling class that must be taken by debtors prior to the filing of the case.  This class in usually taken online or over the phone but can be taken in person as well. 
  • Petition Date—This is the date the debtor files the bankruptcy case with the Utah Bankruptcy court.  The debtor is required to file all of the required documents and schedules with the Court within a certain time frame or the case may be dismissed.  A Chapter 7 trustee is assigned to the case.  Once the case is filed, all creditors must immediately stop all collection activities against the debtor.
  • Post-petition Personal Financial Management Course—This is a class that debtors are required to take after the bankruptcy petition has been filed.  This class also needs to be taken within 45 days after the 341 Meeting takes place. If the debtor fails to take this class on time the debtor will not receive a discharge in the case.  This class is usually taken online or over the phone, but it too can be taken in person.
  • Notice of 341 Meeting Mailed to Creditors—Notice of the Utah bankruptcy filing and details about where and when the 341 Meeting will take place sent approximately 10-14 days after petition date.  This notice is mailed to all the creditors that were listed in the debtor’s bankruptcy schedules.
  • 341 Meeting—This meeting occurs approximately 30-45 days after the petition date.  This is also called the Meeting of Creditors.  It is conducted by a Utah Chapter 7 trustee and the debtor is required to attend the meeting.  The debtor’s attorney also attends the meeting with the debtor.  It is important that the debtor comply with all of the Utah Chapter 7 trustee’s requests in a reasonable manner.  If the debtor fails to comply with the trustee’s requests, the debtor may not obtain a discharge in the case.
  • Discharge—A bankruptcy discharge is granted approximately 60 days following the 341 Meeting.  Unless otherwise ordered by the bankruptcy court, the debtor’s discharge is generally always granted so long as all of the proper paper work has been filed with the court.  It can be revoked at a later date for various reasons.
  • Closure of the Case—after the discharge is granted and a Utah Chapter 7 trustee files his or her final report in the case, the case is closed.

ROLE OF THE CHAPTER 7 TRUSTEE

The United State Trustee’s office is a branch in the United States Department of Justice.  The United States Trustee’s office contracts with individuals, usually attorneys across the country, who act as Chapter 7 trustees.  These Chapter 7 trustees do not work for the government.  They usually are a part of bigger law firms or they work by themselves and run their own offices.  For every Chapter 7 case that is filed with the Bankruptcy court a Chapter 7 trustee is randomly appointed to the case from this panel of trustees.  In Utah, there are different groups of trustees that are assigned to different geographical areas.

Once a Utah Chapter 7 trustee is assigned to a case, the trustee first reviews all of the bankruptcy schedules and statements that have been filed in the case.  The Utah Chapter 7 trustee’s next job is to conduct the 341 meeting, or the Meeting of Creditors.  This meeting usually occurs about a month or so after the case is filed.  At this meeting the trustee reviews and verifies the documents and information that debtor is required to bring to the meeting.  The trustee also asks the debtor a series of routine questions, plus any additional questions that the trustee feels are necessary in each case.

If the trustee finds errors or incorrect information in the schedules and statements that were filed in the case, the trustee may require the debtor to change and amend the schedules to reflect accurate information.  The trustee may also ask the debtor to produce other documents and information at a later date.

As soon as a Utah Chapter 7 case is filed, a bankruptcy estate is created.  The creation of the bankruptcy estate means that the Utah Chapter 7 trustee has the right to administer the debtor’s property.  Basically, this gives the Utah Chapter 7 trustee the right under certain circumstances to take the debtor’s property.  Once the debtor files a Chapter 7 case and while the case is open, the debtor cannot sell or transfer any property without the permission of the trustee.

As mentioned above, one of the Chapter 7 trustee’s main jobs is to investigate the assets and property of the debtor to determine if there is any property that the trustee is entitled to take for creditors.  If the trustee finds available assets, he may then take and sell the assets for the benefit of creditors.  Chapter 7 debtors are entitled to claim exemptions in certain property.  This is property that the trustee cannot take and that the debtor is allowed to keep.

The Chapter 7 trustee can take and sell homes and vehicles as well as any other non-exempt property.  However, the vast majority of people end up keeping their vehicles and homes because there is not enough non-exempt equity for it to make mathematical sense for the trustee to take the property.  If a trustee wants to take a home, the trustee needs to sell the house for enough to pay a realtor (and cover all other costs of the sale), pay off all mortgage loans and other liens against the home and then pay out to the debtor’s the properly taken exemption.  If there is enough money left over after all of these outlays to pay something to general unsecured creditors, the trustee may sell the home.

The trustee can take and sell any non-exempt property.  In Utah this means a trustee could take or sell recreation vehicles, stocks, bonds and a portion of tax refunds.  In Utah, any money in the debtor’s bank account as well as any cash on hand on the date the case is filed is non-exempt property.

Sometimes the debtor’s property is not exempt, but if such non-exempt property has a relatively low value in the trustee’s opinion, the trustee may abandon such property.  This means that the trustee will not sell the property because it is of inconsequential value, so the debtor can keep it.  This judgment call is left to each individual trustee, so there is no way of knowing exactly what the trustee will do with any particular piece of property.

In cases where there are assets and where the trustee chooses to take those assets, the trustee will notify all of the debtor’s creditors so that they can each file a proof of claim with the Bankruptcy court.  A proof of claim is a document where creditors state how much the debtor owes them.  Once creditors have each filed a proof of claim, the trustee then distributes the funds collected from the debtor’s estate to each of the creditors in order of priority on a prorated basis.

The Chapter 7 trustee also has powers that allow the trustee to retrieve property that the debtor has recently given away or sold to other people.  For instance, if a debtor has repaid a debt to an insider (which is usually a family member) within the past year, the trustee can sue that family member and get the money back in order to distribute it to all of the creditors in a more equitable manner.  This means that if the debtor paid the debtor’s mother back $5,000 with his or her entire tax refund within the past year the trustee will likely sue the mother to get that money back.  If it is a small amount, the trustee may elect to not bother with it.

The Chapter 7 trustee is entitled to keep a percentage of what is collected, so the trustee is highly motivated to find and take assets.  Discussing what a trustee is likely to take with a Utah bankruptcy attorney is very important to do before the debtor files for bankruptcy.

If a debtor is uncooperative in supplying the trustee with information or documentation that the trustee requests or if the debtor refuses to turn over property to the trustee, the trustee can file a motion with the bankruptcy court requesting that the debtor’s discharge be denied or revoked.  This means that the debtor will not obtain debt relief through the bankruptcy and will still owe all of his or her creditors.  So, it is very important for the debtor to be truthful, honest and cooperative with the trustee.

The vast majority of all Chapter 7 cases filed end up being “no asset” cases.  In fact, the American Bar Association estimates that over 85% of all Chapter 7 cases filed are “no asset” cases. In a “no asset” case, the trustee abandons the trustee’s interest in all of the assets of the debtor and the debtor is allowed to keep all of his or her property.

Dealing with a Chapter 7 trustee can be extremely frustrating at times.  This is one of the main reasons that debtors hire Utah bankruptcy attorneys to assist them with the Chapter 7 bankruptcy process.  A Utah bankruptcy attorney deals directly with the trustee and can assist the debtor in complying with the trustee’s demands and requests.

PREFERENCES

One of the main jobs of a Chapter 7 trustee is to provide for an equality of distribution among general unsecured creditors so that all of these creditors are able to share equally when assets are available.  The Bankruptcy Code has a number of provisions that assist the Chapter 7 trustee in accomplishing this goal.  Under the bankruptcy code a “preference” is a transfer of money or of an asset before the bankruptcy is filed that has the effect of paying one creditor more than that creditor would have received if that transfer had not been made.

The Chapter 7 trustee has the power to “avoid” or reverse preferential transfers.  Generally speaking there are two types of preferences.  The first type is a preference made to an ordinary creditor.  An example of this would include payments made to credit card companies.  The second type of preference is a payment made to an “insider.”  Examples of “insider” preferences are payments made to family members or business partners.

The Chapter 7 trustee has the authority to retrieve preferential payments from the parties to whom the payments were made.  There is a look back period (the period during which a trustee is entitled to retrieve payments) of 90 days before the filing date of the bankruptcy case for ordinary preferences and one year before the filing of the bankruptcy case for insider preferences.  This means that if the debtor paid money to American Express within 90 days of filing or the debtor paid the debtor’s mother back for a loan within a year of filing, the trustee can recover this money in order to distribute it to creditors on an equal pro-rata basis.

When a trustee attempts to recover a preference, the trustee will often first write a letter demanding that the payee turn the money over to the trustee.  If the payee (the party who received the transfer) does not turn over the money, the trustee will often sue the person or company to recover the money.  A trustee may accept a settlement offer to avoid the time and expense of litigation.  For instance, if a debtor gave the debtor’s brother $5,000 to pay off a personal loan within a year of the debtor’s bankruptcy filing, the trustee may settle for a recovery of $3,000, instead of the seeking the full amount.  A trustee has complete discretion regarding settlement options.

Even payments made from exempt funds may be considered preferential payments.  For instance, if a debtor pays off a debt to his sister with money withdrawn from a 401(k), then the trustee is still entitled retrieve the money even though the trustee could not have gone after the original source of the money (the 401(k)).  This scenario can be frustrating to the debtor, but it is the law.  There is a section in the bankruptcy schedules where the debtor needs to disclose all preferences.  If a debtor fails to disclose preferences, the debtor could be denied a discharge or could even face criminal charges.

The public policy behind allowing the trustee to recover preferential transfers is simple.  It is not fair that one creditor gets paid something, even if the creditor is the debtor’s mother, while the rest of the creditors get less or even nothing.  Bankruptcy law allows the trustee to recover this money so that it can be distributed fairly to all creditors, instead of just the ones the debtor wants to pay.  It is important to discuss any preferences that the debtor has made with Justin M. Myers, a Utah bankruptcy attorney before filing for bankruptcy.

PRE-BANKRUPTCY TRANSFERS (FRAUDULENT TRANSFERS)

Debtors often wonder if they can transfer property (such as homes or vehicles) out of their names and into the names of family members or friends in order to avoid losing the property in bankruptcy.  This is called a “fraudulent transfer,” and is not allowed for obvious reasons.  In the context of a bankruptcy a fraudulent transfer is any transfer of property or any transfer of an interest in any property made within TWO years of filing the bankruptcy that was made EITHER:

With an intent to hinder, defraud or delay the collection efforts of the debtor’s creditors;

Example: The debtor transfers all of the debtor’s property out of his or her name personally and into the name of a newly formed shell corporation in order to thwart the collection efforts of creditors.

OR, If the transfer was made for value that was less than “reasonably equivalent” to the value          of the property that was transferred.

Example: A Debtor sells a $10,000 car to his mother for $500.

The trustee has the right to undo these types of transfers.  For instance with the car example, the trustee could go after the mother and legally obtain possession of the car.  Generally, if this was done, the trustee would pay $500 to the mother.  If the mother had sold the car, the trustee could sue the mother for the value she was given or $10,000.  Under the Bankruptcy Code, trustees can go back two years for any of these types of transfers.  However, most states have separate state laws that may allow the trustee to go back further in time to deal with this type of transfer.  For example, in Utah, state law allows trustees to go back four years.  A Utah bankruptcy attorney can assist you in understating fraudulent transfers.

A debtor is required to list all of these types of transfers on the bankruptcy schedules that are filed with the Court.  If the debtor fails to list these types of transfers, the debtor could have his or her bankruptcy discharge denied or revoked and could even face bankruptcy fraud criminal charges.

CHAPTER 7 MEETING OF CREDITORS (341 MEETING)

The Bankruptcy Code requires a Meeting of Creditors in every Chapter 7 case.  The Meeting of Creditors is nicknamed a “341 Meeting” because Section 341 of the Bankruptcy Code describes this meeting.  Some people mistakenly believe that this meeting is held in a court room setting.  This meeting is not held before a bankruptcy judge and in most cases is not held in a court house.  The Chapter 7 trustee presides over this meeting.  Creditors are invited but rarely attend this meeting.  For the majority of these meetings the only people in attendance are the debtors, their attorneys and the Chapter 7 trustee.  These meetings are open to the public, so anyone may attend them.

Debtors are required to attend this meeting.  At the meeting, the debtors are required to prove their identity and they are required to prove the accuracy of their social security number.  This is usually done by the individual debtor showing his or her driver’s license and social security card to the trustee.  Then the trustee proceeds to ask the debtor a series of questions.  The trustee’s main goal is to make sure that the statements and schedules that the debtor filed were accurate and to determine if the debtor has any non-exempt assets that the trustee would be entitled to take and sell for the benefit of the debtor’s creditors.

Even though the debtor’s attorney is present, the trustee will generally ask all the questions directly to the debtor.  The attorney is there to ensure that the trustee’s questions are appropriate and sometimes the attorney may object to a trustee’s line of questioning in order to protect the debtor or the attorney may provide clarification on an issue.  All debtors need to attend this meeting.  If a debtor is unable to attend the meeting for an excellent reason, the debtor’s attorney can file a motion to reschedule the meeting.  Most trustees and bankruptcy judges do not like to make a habit of rescheduling these meetings.  The bottom line is if the debtor misses the meeting and wants to reschedule, the debtor had better have an excellent reason for doing so.

If a debtor misses the Meeting of Creditors and if the judge does not agree to reschedule the meeting, the case could then be dismissed.  Often the Chapter 7 trustee will give the debtor a directive at this meeting.  Usually a directive consists of a demand to turn over certain property for the trustee to sell or a demand to produce certain documents (such as copies of tax documents, bank statements or business documents).  If the debtor fails to comply with the trustee’s requests it could result in the debtor losing his or her discharge.

The Bankruptcy court usually schedules a large number of these meetings for a trustee on any given day.  It is not uncommon for a trustee to have eight meetings an hour for eight straight hours.  Most meetings only last between five and ten minutes.  This means that a trustee needs to be efficient with these meeting in order to stay on schedule.  It is important that the debtor has all of the required documents out and ready for the trustee to examine the minute the case is called.  Most trustees don’t have the time or patience to wait for a debtor to fumble through her purse looking for a driver’s license.

If the debtor’s case is complicated, the trustee may continue the meeting until a later date so that the trustee may have more time to question the debtor.  After the trustee is done questioning the debtor, the trustee generally asks if there are any creditors with questions for the debtor.  If a creditor does show up at the meeting, the trustee will usually allow the creditor to ask a reasonable number of questions of the debtor.  Once again, most creditors do not attend this meeting.

QUESTIONS A TRUSTEE MAY ASK THE DEBTOR AT THE 341 MEETING (MEETING OF CREDITORS) IN CHAPTER 7 CASES

At the 341 Meeting (Meeting of Creditors), the Chapter 7 trustee is required by the U.S. Trustee’s office to ask the debtor specific questions.  After asking the required questions, the trustee may ask the debtor other questions.  The main goal of the trustee in asking these discretionary questions is to determine if there are assets that the trustee is entitled to take for the bankruptcy estate that can be distributed to the debtor’s creditors.  Usually, this line of questioning only lasts several minutes.  If the trustee wants to examine the debtor further, the trustee will generally schedule additional time at a later date.

Questions the Chapter 7 Trustee is Required to Ask (There May be Some Variations of These Questions)

1. Please state your name and current address for the record.

2. Please provide your picture ID and social security card for review.  (If a social security card is unavailable a W-2 will generally work).

3. Did you sign the petition, schedules, statements, and related documents and is the signature your own? Did you read the petition, schedules, statements, and related documents before signing them?

4. Are you personally familiar with the information contained in the petition, schedules, statements and related documents? To the best of your knowledge, is the information contained in the petition, schedules, statements, and related documents true and correct? Are there any errors or omissions that you would like to bring to my attention at this time?

5. Are all of your assets identified on the schedules? Have you listed all of your creditors on the schedules?

6. Have you previously filed bankruptcy? (If the debtor has previously filed bankruptcy, the trustee will determine how long it has been since the prior case filing to determine the debtor(s) discharge eligibility.)

7. Is the copy of the tax return you provided a true copy of the most recent tax return you filed?

8. Do you have a domestic support obligation (child support or alimony)? If yes, generally the debtor who has the obligation is required to complete a one page domestic support obligation worksheet and deliver this document to the trustee.

9. Have you read the Bankruptcy Information Sheet provided by the United States Trustee?

Sample General Questions that the Chapter 7 Trustee May Ask

These questions may be asked at the trustee’s discretion.  Below is just a sample of the types of questions the Trustee may ask.  There are many more questions that the Chapter 7 trustee could ask but this is a sample of common questions that trustees often ask.

1. Do you own or have any interest of any kind in any real estate?  Sometimes the trustee will go back five years or longer and ask the debtor if the debtor has had an interest in real property at any time in the past five years.

If the debtor answers “yes” the trustee may ask some follow up questions.  When did you purchase the property?  How much did you pay of the property?  What are the mortgage liens or other liens encumbering the property? What do you think the property is worth?  How did come to that value?  Is there any other party on title with you on this property?

2. Have you transferred any property or given any property away within the last year?  (Sometimes the trustee may go back further in time when asking this question.)  If the debtor answers “yes” the trustee will ask for all of the details regarding this transfer.

3. Have you repaid any debts to family members in the past year?  If the debtor answers “yes” the trustee will ask all of the specifics regarding this repayment of debt.

4. Does anyone hold property belonging to you?  If the debtor answers “yes” the trustee will ask all of the specifics regarding this situation.

5. Do you have an interest in any life insurance that has cash value?  If yes, please explain the particulars regarding this policy.

6. Are you entitled to life insurance proceeds or an inheritance as a result of someone’s death?

7. Does anyone owe you money or do you have any type of accounts receivable?  If “yes” the trustee may ask you about the collectability of the money and may ask you if you have tried to collect it.  The trustee will likely ask to you deliver any information regarding the debt to the trustee along with the contact information of party that owes you the money.

7. Have you made any large payments to anyone or any business in the past year?  The Trustee is generally looking for payments made in an amount over $600.

8. Have you filed your income taxes for this year and for the past several years?  Generally, the trustee has previously asked for copies of the most recent tax returns in the most recent year the debtor has filed.   If the debtor is entitled to a tax refund, the trustee will likely ask if and when the tax refund was received.  If the tax refund was received after the case was filed, the trustee may ask the debtor to give the tax refund to the trustee.  If the tax refund was received prior to the filing date, the trustee may ask how the tax refund was spent.

9. Do you have a bank account of any kind with any banking institution or credit union?  If so, what were your account balances on the date of filing?

10.  Have you ever been divorced?  If yes, are you entitled to receive any type of property settlement as a result of this divorce?

11. When you filed your bankruptcy petition on the date of filing did you have any cash, any government bonds, any corporate stocks or bonds, or any certificates of deposit?

12.  Do you have a safe deposit box?

13.  Do you own a car, truck or any other vehicle, including any type of recreation vehicle?  If yes, please describe the type of vehicle and disclose whether you owe any money on it.

14. Do you own a business or have any interest in a business or have you had any interest in a business in the past six years?  Does the business have any assets?  Is the business operational?  Does the business have any debts?  What is the nature of the business?  If the business was sold or closed prior to the filing of the bankruptcy, what did you do with the assets or sale proceeds of the business?

15.  Do you have a personal injury claim, legal claim or general claim against any individual(s) or any business(es)?

16. Have you paid any money to help support another individual in the past year?

HOW LONG WILL MY CHAPTER 7 BANKRUPTCY CASE REMAIN OPEN?

Typically a “no asset” Chapter 7 bankruptcy case (where the trustee does not take any of the debtor’s property) will be discharged and closed within three to four months after the case is filed.  Make sure to discuss with your Utah bankruptcy lawyer the complete time frame for a Chapter 7 case.

About four to six weeks after the case is filed, the trustee conducts a 341 Meeting (the Meeting of Creditors).  Your Utah bankruptcy lawyer will be at this hearing with you. About 60 days after this meeting, the Chapter 7 case is discharged.  If the trustee decides that there are no assets that the trustee can or wants to take from the debtor, the trustee will file a “no asset” report.  A “no asset” report is a report that the trustee files with the court stating that the trustee has no intention of taking any of the debtor’s assets due to the fact that there are no non-exempt assets of consequential value.  If this report is filed BEFORE the discharge is granted, then the Court will sometimes close the case when the discharge is granted.  Therefore, a typical “no asset” case is closed and done within three to four months after filing the case.

If the trustee finds additional information after the case is closed, the trustee may reopen a closed case in order to recover assets or to further administer the case.  This rarely happens.  Generally once a case is closed, it is never reopened.

If the trustee in a Chapter 7 case does find assets, the case could be open for as long as it takes the trustee to collect and sell the assets and then notify creditors and distribute money to them.  This can take anywhere between several months to several years.  Unless cause exists to prevent it from happening, a debtor will still obtain a discharge in the bankruptcy about three to four months after the case is filed.  Once a debtor receives a discharge, the case is not necessarily closed.  The debtor still needs to comply with all of the Chapter 7 trustee’s requests to turn over assets or provide information.  Your Utah bankruptcy lawyer can help you comply with any of the trustee’s requests.

MEANS TEST

In order to be able to be eligible to file for a Chapter 7 bankruptcy a debtor needs to pass the “Means Test.”   Congress created the Means Test as a way to limit the number of people who can file Chapter 7 cases.  The main purpose of the Means Test is to force more individuals to file Chapter 13 cases so that they pay back at least something to creditors.

If the majority of a debtor’s total debt came from operating a business, the debtor is not required to complete the Means Test.  The Means Test is quite complex and it is important to go through it with your Utah bankruptcy lawyer to understand it.

First Step (Determine Income)

The first step of the Means Test is performed by determining the debtor’s average gross monthly income for the six months prior to the filing of the Chapter 7 case.  If the debtor’s income is less than the state median income based on the debtor’s household size then the debtor can typically file a Chapter 7 bankruptcy.

In computing a debtor’s income, the debtor must include income from the following sources:

  • All wages, salary, tips, overtime, commissions and bonuses
  • Income from the operation of a business, profession or farm income
  • Interest, dividends and royalties
  • Rents and real property income
  • Pension and retirement income
  • Alimony and family support
  • Spousal contributions (if not filing jointly)
  • Unemployment compensation
  • Workers’ compensation
  • State disability insurance
  • Annuity payments
  • Lump-sum payments
  • Other income

Income that can be excluded from this calculation includes tax refunds, Social Security retirement benefits, Supplemental Security Income, Social Security Disability Insurance and Temporary Assistance for Needy Families.

Once this first step has been completed, if the debtor is below the median income for the debtor’s state the debtor may file a Chapter 7 case and does not need to move on to the second step.  However, if the debtor’s income is above the median income for the debtor’s state, the debtor needs to move on to the second part of the Means Test.  The income section of this test is often difficult to complete accurately and your Utah bankruptcy lawyer can assist the debtor with this process.

Second Step (Expenses)

If the debtor is above the median income for his or her state, the debtor will need to complete the second part of the Means Test by deducting allowable expenses.  Once the debtor’s average gross monthly income has been established, the Means Test allows the debtor to deduct certain expenses.  With the help of your Utah bankruptcy lawyer the debtor can learn what expenses can be deducted on this test. Some of the allowable deductions include housing, utilities, basic living expenses, taxes, health insurance premiums, transportation, alimony, child support, child care and charitable contributions.  There are a number of other expenses that are also allowed.  If after all of the allowed expenses are entered, the debtor has no disposable income with which to pay creditors in a Chapter 13 case, the debtor may proceed with filing a Chapter 7 case.

If the debtor has available income, the debtor is deemed to have failed the Means Test.  If the debtor fails the Means Test, the debtor may still be able to file a Chapter 13 case.

There is always a chance even if the debtor passes the Means Test that the U.S. Trustee’s office may determine that the debtor has sufficient income to repay creditors in a Chapter 13 case and may file a motion to attempt to force the debtor to convert the case.

EXEMPT PROPERTY IN CHAPTER 7 CASES

Exempt property is property that is exempted from the bankruptcy estate.  This is property that debtors can keep and that a Chapter 7 trustee CANNOT take from them.  Exemptions are allowed in order to help people get a fresh start.  When debtors properly claim their exemptions, they are usually allowed to keep their basic furniture, clothing and other necessities.  Also, depending on the value, debtors can often keep vehicles and homes in their Chapter 7 bankruptcy cases.

If the value of the property exceeds the value of the exemption, the Chapter 7 trustee could take and sell the property for the benefit of the debtor’s creditors.  If the trustee sells any of the debtor’s property, before any money is disbursed to creditors, the trustee must pay the debtor the dollar amount of the debtor’s rightfully claimed exemption. This means that if the debtor owns a car that is worth $5,000 and the debtor claims an exemption in the car in the amount of $2,500 (the state of Utah currently limits a motor vehicle exemption to $2,500 per person), then the Chapter 7 trustee might take and sell the vehicle.  If the trustee does sell the car, the trustee would first pay an auctioneer to sell it and then the next $2,500 would be paid to the debtor.   As a rule of thumb, trustees only sell property if it will net them enough money to pay a reasonable amount to creditors.  If a trustee only nets $100 from the transaction, the trustee might not take the property for sale.

For homes and vehicles, most states require that the debtor’s name be titled on the property in order for an exemption to be claimed.  For instance, if a couple owns two cars and they are both titled in the husband’s name only, the husband will be the only one who can take advantage of the vehicle exemption and the wife will be unable to claim any vehicle exemption at all.

Debtors must use the exemption laws and rules for the state where the debtor lived exactly two years before the bankruptcy case was filed.  This means for a bankruptcy case filed June 30, 2012, the debtor will use the exemption laws from the state where the debtor lived on June 30, 2010.  This can get rather tricky because some states only allow a debtor to claim that state’s exemptions if the debtor is currently living in that state.  If this is the case for a debtor, then the debtor may be entitled to claim the federal exemptions.

Before the debtor files a bankruptcy case, it is important to understand exactly what the debtor’s state exemption rules are and which exemption laws the debtor is required to use.  This way the debtor will not be surprised if or when the Chapter 7 trustee demands that the surrender of certain property for the trustee to sell.  For this reason alone, it is very important to consult a Utah bankruptcy attorney who can help understand exemption laws.

WHAT IS A REAFFIRMATION AGREEMENT?

A reaffirmation agreement is a new legal agreement between the debtor and a creditor where the debtor agrees to become legally obligated to pay a debt again after the debt has been discharged through bankruptcy.  A reaffirmation agreement must be signed by the debtor after the bankruptcy case is filed and before a discharge is granted in the case.  A reaffirmation agreement needs to be approved by the court in order for it to be effective.  Also, if the debtor is represented by an attorney, the attorney needs to sign a certification wherein the attorney certifies that the reaffirmation agreement is not a hardship for the debtor.  If the debtor is not represented by an attorney, the judge in the case will set a hearing to discuss with the debtor the legal issues surrounding the reaffirmation and the judge will determine whether or not the reaffirmation is a hardship for the debtor.

Before signing a reaffirmation agreement, the debtor needs to know what the reaffirmation agreement is and what legal ramifications are associated with signing it.  Reaffirmation agreements are typically only used in Chapter 7 cases only.  Reaffirmation agreements are not generally used in Chapter 13 cases because Chapter 13 cases have reorganization plans that provide for treatment of debts to all secured creditors.  If a debtor signs a reaffirmation agreement and then defaults on the loan later, the debtor is completely liable for the debt.  This means a creditor can sue the debtor later if the debtor defaults on this reaffirmed obligation in spite of a bankruptcy discharge.

Typically, creditors will not report to the credit bureaus any payments made on any secured debt like a home mortgage or a car loan if the debtor does not sign a reaffirmation agreement.  This means that if the debtor makes on time payments but does not sign the reaffirmation agreement, these payments will not be reflected on the debtor’s credit report.  Many car companies and mortgage companies will not take any repossession or foreclosure action against the debtor if the debtor is current on the loan and if the debtor does not sign a reaffirmation agreement, but there is no guarantee of this.

A debtor needs to think long and hard before signing a reaffirmation agreement, particularly if the debtor is having trouble making the payment.  If the debtor defaults on a reaffirmed secured loan, the creditor can repossess or foreclose the property secured by the debt. The creditor can then sue the debtor for a deficiency and this can make it quite difficult for the debtor to take advantage of the “fresh start” that a Chapter 7 bankruptcy offers.  It is very important to discuss with a Utah bankruptcy attorney the consequences of signing a reaffirmation agreement before the debtor signs anything.

CAN I CONVERT MY CHAPTER 7 CASE TO A CHAPTER 13 CASE?

Lots of debtors wonder whether they can change their minds after they file their Chapter 7 cases.  If a debtor wants to convert his or her Chapter 7 case to a Chapter 13 case, the debtor will have to file a motion to convert with the Bankruptcy court.  The Court will likely have to hold a hearing where the debtor will have to tell the judge why the debtor wants to convert the case.  The Chapter 7 trustee may object to the debtor’s motion.  If the judge grants the motion, the debtor is expected to stay in the Chapter 13 plan.  A debtor should be aware that if the debtor has a great deal of equity in his or her property that is not exempt, the debtor may have to pay a significant amount back to the general unsecured creditors under a Chapter 13 plan.

CAN I DISMISS MY CHAPTER 7 CASE?

If a debtor decides to dismiss their Chapter 7 case, the debtor will have to file a motion with the court asking for permission to dismiss.  The Chapter 7 trustee may object to this motion if the trustee feels like there are nonexempt assets that can be taken for the benefit of creditors.  If the judge feels like creditors will be unduly harmed in a dismissal of the Chapter 7 case, the judge may not grant the motion to dismiss the case.

 

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Justin M. Myers

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