Misc.

INHERITENCES THAT THE DEBTOR RECEIVES

If the debtor receives an inheritance or an interest in property paid through a life insurance contract within 180 days of the filing of the bankruptcy petition, the debtor is required by law to file amended schedules disclosing the inheritance.  If there is an exemption in the debtor’s state that covers this type of property, the debtor may amend the schedule of exemptions in order to claim the appropriate exemption.  Debtors should be aware that in Chapter 7 cases, if there is no applicable exemption covering this property, the trustee may take this property to pay the debtor’s creditors.  If the debtor fails to notify the debtor’s attorney, the trustee and the Bankruptcy court, the debtor could have his or her discharge revoked or even be charged criminally for hiding assets.  There is a strict 180 day limit, meaning if the debtor obtains an interest in an inheritance or life insurance policy on the 181st day after the bankruptcy case was filed, the trustee cannot take the inheritance from the debtor.

CAN I LOSE MY JOB IF I FILE FOR BANKRUPTCY?

Many people who are considering filing bankruptcy ask the question, “Can I lose my job if I file for bankruptcy?”  The short answer is “no” the debtor cannot lose his or her job if the debtor files for Chapter 7 or Chapter 13 bankruptcy.  Section 525(b) of the Bankruptcy Code deals with private (non-government) employers.  This code section clearly states, “No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor…”

Section 525 states that employers cannot terminate employees or even discriminate against them if they have filed for bankruptcy protection.  Section 525 of the Bankruptcy Code also states that no governmental agency can terminate or discriminate against government employees who file for bankruptcy protection.

Many people worry about employers discovering that they have filed for bankruptcy protection.  When people file for bankruptcy, it is a matter of public record.  This means that these records are public documents that anyone could potentially access.  Even so, very few people will go through the trouble of checking court records to see if the  an individual has filed bankruptcy.  Most employers will never know that an employee has filed for bankruptcy.

If the debtor works in a field where the employer requires a credit check as part of the hiring process, the bankruptcy will show up on the credit report.  The bankruptcy filing can have a negative impact on the debtor’s credit score.  However, if the debtor is in a position where he or she needs to file for bankruptcy, the debtor may already have a number of collections and law suits against him or her, so the debtor’s credit score may already be poor.  Some employers factor in credit scores into their hiring decisions.  However, employers are still prohibited by law from discriminating against people who have filed for bankruptcy and from terminating people who have already been hired.

IF I AM MARRIED, CAN I FILE FOR BANKRUPTCY WITHOUT MY SPOUSE?

If a couple is married, the couple can file a joint bankruptcy with both spouses or one spouse may file by himself or herself without the other spouse.  Regardless of whether a Chapter 7 case or a Chapter 13 case is filed, the couple may file jointly or alone.  The decision as to whether or not both spouses should file together is one that should be made after thorough consideration of several factors.

Typically, if both spouses are jointly liable for most of the debt, or if they each have enough separate debt they should probably both file the bankruptcy together.  In some marriages, one of the individuals has incurred all or most of the debt solely in his or her name while the other spouse has little or no debt at all.  If this is the case, it may make sense for only the spouse with all or most of the debt to file for bankruptcy protection.

There are several things that the couple ought to consider when making this decision.  First, if only one spouse files, the non-filing spouse will then solely be liable for any of the joint debt.  This debt will only be discharged as to the filing spouse.  That means for any joint debt, the bank cannot collect against the spouse who filed the case but can collect against the spouse who didn’t.

One major reason a spouse with little or no debt might decide not to file a joint bankruptcy is to preserve that spouse’s credit.  This is a valid reason for one party not to file.  Just make sure that it makes sense though.  For example, if a husband has $30,000 in credit card debt and a wife has $15,000 in credit card debt, to some it may make sense for only the husband to file the case.  However, this would only make sense if the parties have sufficient income to pay off the wife’s debt in a timely manner.  If the couple only has a couple hundred dollars each month after paying for rent, food, transportation and utilities, it could take the couple twenty years to pay off the $15,000.  This would not allow the couple to get a “fresh start.”  Thoughtfully consider all of the options and legal ramifications before making the decision to file together or not.

CHILD SUPPORT AND ALIMONY IN A BANKRUPTCY

Many debtors wonder how child support and alimony factor into a bankruptcy filing.  People often ask, “Can child support or alimony be discharged in a bankruptcy?”  The answer is no.  Child support and alimony are non-dischargeable debts.  This means these debts cannot be discharged in either a Chapter 7 case or a Chapter 13 case.

However, these debts are treated differently in Chapter 7 and Chapter 13 cases.  In a Chapter 7 case, the debtor’s general unsecured debt (like credit cards and medical bills) are eliminated or discharged, but all of one’s child support and alimony debt (including past due amounts and ongoing payments) will survive the bankruptcy.  This means the debtor will still owe these debts in full once the Chapter 7 case is discharged and closed.  The party who is owed child support does not have to file anything in the debtor’s bankruptcy case in order for child support and alimony to survive the bankruptcy.  These obligations automatically survive the bankruptcy discharge.  Typically, after the case is discharged the debtor must deal with these obligations on his or her own.

In Chapter 13 cases, the debtor is required to pay a Chapter 13 plan payment to the Chapter 13 trustee.  The Chapter 13 trustee receives the payment and distributes the money to creditors.  In most Chapter 13 cases, the general unsecured creditors only receive payment for a small percentage of what they are owed through the Chapter 13 payment plan.  However, certain unsecured debts are called “priority unsecured debts.”  Priority unsecured debts need to be paid back in full through the plan.  The most common priority unsecured debts include some taxes and all of one’s past due child support or alimony.

This means that the full amount of any back or past due child support and alimony due and owing on the date that the debtor files the Chapter 13 case needs to be paid back entirely through the Chapter 13 plan.  This can really increase the Chapter 13 plan payment amount for a debtor.  For instance, if one owes $30,000 in past due child support when he or she files the Chapter 13 case, this entire amount needs to be paid back through the plan.  The maximum length of a plan is five years or sixty months.  This means the debtor’s Chapter 13 trustee would have to average paying out $500 per month to the person receiving the support for each of the 60 months in order to satisfy the entire debt.  This amount is in addition to all of the other debts that need to be paid through the plan.  For this reason, a Chapter 13 bankruptcy may not be a viable option for those who owe a great deal in back child support and alimony.

Ongoing payments need to also be kept current throughout the entire duration of the Chapter 13 plan.  At the end of the Chapter 13 case, the debtor needs to certify that he or she is current on all child support and alimony obligations, or the court may deny the debtor who owes the obligation his discharge at the end of the case.  This means that if the debtor does not remain current on these support obligations, the whole three to five years of bankruptcy payments may have been made in vain.  A denial of discharge means the debtor still owes all of the debtor’s creditors under the original terms of the debt contracts.

STUDENT LOANS IN BANKRUPTCY

Student loans are generally not discharged in a Chapter 7 case or a Chapter 13 case.  This means that student loans are not eliminated in bankruptcy and the debtor will still owe these debts after the bankruptcy case is closed.  This applies not only to the students themselves who signed for their own student loans, but also for parents and others who have co-signed on their children’s or friends’ student loans.  Co-signers on student loans will still owe these debts after the bankruptcy has been discharged.

There is a provision under Section 523(a)(8) of the Bankruptcy Code that allows for people to obtain a discharge of student loans in bankruptcy.  The standard for discharging a student loan is when the student loan debt would impose “an undue hardship on the debtor and the debtor’s dependents.”  Unfortunately, most judges who have ruled on this issue have made it very hard for a person to prove that his or her student debt constitutes an “undue hardship.”  Ultimately, it is up to a judge to listen to the person’s circumstances and then to decide whether that person’s student loans should be discharged.  The bottom line is that discharging student loans is very difficult and impossible in most cases.

HOW IS MY HOME TREATED IN A BANKRUPTCY?

One of the major concerns for most bankruptcy filers who are homeowners is what will happen to their homes when they file for bankruptcy.  The answer to this question depends largely on whether a person files a Chapter 7 or a Chapter 13 case.

If a debtor chooses to file a Chapter 7 case, the debtor first needs to decide whether or not to keep the home.  If the debtor owes far more on the home than it is worth and decides he or she can’t continue to make the payments or doesn’t want to make the ongoing payments, surrendering the home may be the best option.  If a debtor files a Chapter 7 bankruptcy and surrenders a home, the mortgage company cannot sue the debtor later for a deficiency judgment if the home is sold at foreclosure for less than what is owed on the debt.  Mortgage loans are discharged along with all of the other allowable discharged debts.

However, if the debtor in a Chapter 7 case decides she or he wants to keep the home, this option is available to the debtor as well.  If the debtor is current on the payments and continues to remain current, the debtor can usually keep the home.  A home can often be kept without signing a reaffirmation agreement with the mortgage company.  Examine applicable state laws and speak with an attorney regarding all the options and the consequences of keeping the home and/or signing a reaffirmation agreement on a home loan.

If a debtor files a Chapter 7 case and wants to keep the house but is behind on payments at the time of filing, the debtor needs to work directly with the bank and devise a way to get caught up on the payments.  The mortgage delinquency does not go away in a Chapter 7 case.  Common ways of getting caught up on the mortgage include doing a loan modification with the bank, simply paying the deficient amount, and working out a repayment schedule with the bank wherein the debtor makes extra payments on the loan for a certain period of time.  Some of these options require the agreement of the mortgage company.  If the mortgage company refuses to work with the debtor, and the debtor cannot repay all of the back payments, he or she may lose the home eventually.  If this happens and the debtor has received a discharge in a Chapter 7 case and has NOT signed a reaffirmation agreement with the bank, then the bank is barred from suing the debtor down the road for a deficiency amount.  The bank’s only remedy is to foreclose the home and the bank cannot come after the debtor personally.

Remember, if the debtor has equity in the home that exceeds the amount of the debtor’s state’s homestead exemption, the Chapter 7 trustee has the right to take the home and sell it and use the proceeds to pay the debtor’s creditors.  If this happens, the Chapter 7 trustee is required to pay off the liens against the home and to pay the debtor the allowable exemption amount before any amount is used to pay the debtor’s other creditors.

Second mortgage liens cannot be stripped or eliminated in Chapter 7 cases.  However, if debtor has a judgment lien from a general unsecured creditor, like a credit card, the debtor may be able to strip or eliminate this lien from the home by filing a motion with the court.  Judgment liens against the home or other real property are not automatically stripped from the property through a Chapter 7 discharge.  If these secured liens are not stripped while the case is open, they will survive the bankruptcy as valid liens against the property.

Homes and mortgage loans are dealt with differently in Chapter 13 cases.  If a debtor decides to surrender the home in the context of the Chapter 13 case, the debtor is free to do so.  The mortgage company will usually foreclose the home and depending on state law, the mortgage company is usually allowed to file a deficiency claim that is paid through the plan as a general unsecured debt.

If the debtor wants to keep the home, ongoing payments made after the case is filed are usually paid directly to the mortgage company.  In a small number of cases the ongoing mortgage payment may be made by the Chapter 13 trustee through the plan.  Such an arrangement is certainly the exception, not the rule.  If the debtor is current on payments when the case is filed, then no portion of the mortgage loan is paid through the trustee and the debtor simply makes ongoing payments directly to the mortgage company after the case is filed.

If a debtor is behind on mortgage payments or has mortgage arrears on the date that the case is filed, the debtor will continue to make ongoing mortgage payments after the case is filed directly to the mortgage company.  The back payments or mortgage arrears are paid through the Chapter 13 payment plan.  By the end of the case, all of the arrears would have been paid back through the trustee and the ongoing payment would have been made directly by the debtor, so the debtor will be completely current with the mortgage company.

Sometimes banks have trouble accounting when they receive payments from the debtor and the trustee.  This is why it is very important for debtors to make their payments on time each month after they file and it is a good idea to keep a record of each and every payment made while the debtor is in the bankruptcy case.  This will help the debtor prove that all of the scheduled payments were made if the bank has an accounting discrepancy at the end of the case.

Depending on the value of a home and the amount of the loans that are secured against a home, a debtor may be able to strip or eliminate a second mortgage, third mortgage lien and/or judgment liens in a Chapter 13 case.  As the home is often a debtor’s largest asset and a home mortgage is often the largest debt in a bankruptcy, it is important to thoroughly understand how the home and any associated debts will be treated in both a Chapter 7 and Chapter 13 bankruptcy case before any case is filed.  Stripping junior mortgage liens is discussed in greater detail in the Chapter 13 section of this book.

HOW ARE BANKRUPTCY TRUSTEES PAID?

Chapter 7 trustees and Chapter 13 trustees are paid differently.  Chapter 7 trustees are paid based on a percentage of what they are able to collect for the bankruptcy estate.  This means that the more money they are able to collect in a particular case, the more money they get paid.  Chapter 7 trustees are highly incentivized to find and take assets because they are able to keep a percentage of what they collect.  Chapter 7 trustees also receive a nominal amount ($60 per case) for each case they administer regardless of whether they collect any property or not.  In cases where they collect money they receive the following percentages for their fees:

  • 25% of the first $5,000;
  • 10% of the next $45,000;
  • 5% of the next $950,000; and
  • 3% of the balance.

Chapter 13 trustees are paid differently.  They take a percentage of each plan payment made in every case that they administer.  Generally, they take between five and ten percent of whatever the debtors’ plan payments are.  This means that every plan payment is slightly higher than it would be otherwise because the trustee’s portion of each payment is built into each payment.

THE AUTOMATIC STAY

As soon as a debtor files for either Chapter 7 or Chapter 13 bankruptcy something called the “automatic stay” immediately goes into effect.  The “automatic stay” is the legal term for the requirement that all of a debtor’s creditors must stop all debt collection activities the instant a bankruptcy case is filed.

This means that as soon as a debtor files a bankruptcy, creditors must stop collecting on every debt.  Collection activities that must be stopped include letters, phone calls, law suits, vehicle repossessions, sheriff sales and foreclosures.  All garnishments must also stop immediately.

The Bankruptcy court sends all creditors notice of the bankruptcy about two weeks after the case is filed.  This notice informs all creditors that a case has been filed and then they know to stop collection activities.  Prior to the court mailing notice, the debtor or the debtor’s attorney can call and give creditors notice of a bankruptcy if there is a pressing reason to do so (like stopping a garnishment or a foreclosure sale).  If a creditor calls a debtor before it has received notice of the bankruptcy filing from the court, the debtor can give the creditor the bankruptcy case number and the creditor is required by law to stop calling.

If a creditor continues to engage in collections activities against the debtor after that creditor has received notice, then the creditor is in violation of bankruptcy laws.  The debtor can file a motion with the court asking the judge to award him or her damages (usually a money judgment) and the Court can sanction the creditor.  Most creditors know not to violate bankruptcy laws and will stop collecting as soon as notice is received.

Sometimes secured creditors who are not being provided for in a Chapter 13 repayment plan will ask the court to allow them to continue collection activities (such as a foreclosure or a repossession).  In order to accomplish this, the secured creditor files a motion seeking “relief from the automatic stay.”  If this motion is granted then this particular secured debt will be taken out of bankruptcy protection and the creditor can proceed with collection activities.

CAN I FILE A CHAPTER 13 OR CHAPTER 7 IF I OWN A BUSINESS?

Many people who own businesses mistakenly think that because they own businesses, filing a Chapter 11 case will be the best for them.  Chapter 11 is available to individuals and to businesses, but the reality is that most business owners are much better off filing a personal Chapter 7 or a Chapter 13.  Chapter 11 bankruptcies are helpful in many circumstances but they are generally very complicated and very expensive and are therefore usually not the best answer.

Typically, small business owners have two types of debt—business debt and personal debt.  For instance, a small business owner may have personal credit card debt and medical bills in addition to business credit cards, business vendor debts and business lease obligations.  What some business owners may not realize is that the business owner probably signed a personal guarantee for most, if not all, of the business debt.  This means that not only does the business owe the debt, but the individual business owner owes it personally as well.  If a business owner defaults on business debt that has been personally guaranteed, the creditor may collect against the business and the individual personally.

Often, business owners can find debt relief by filing a personal Chapter 7 bankruptcy or a personal Chapter 13 bankruptcy.  A personal bankruptcy will discharge or eliminate all of the personal debt as well as the personal obligation for any of the business debt that has been personally guaranteed.  This means that the debtor will not individually or personally owe the personal or business debt.  Even so, remember that certain debts cannot be discharged, including certain tax obligations.

SHOULD I FILE A BANKRUPTCY MYSELF, WORK WITH A PETITION PREPARER OR HIRE A BANKRUPTCY ATTORNEY?

When someone files a bankruptcy without an attorney it is called filing the case pro se.  The main reason people file bankruptcies pro se is to try and save money by not paying attorney fees. Filing a bankruptcy is a very difficult process.  There are many different forms and documents that need to be filed with the Court in order to successfully complete a bankruptcy case.  Also there are many hard deadlines that need to be met.  If all of the necessary forms and documents are not filed in time or if the deadlines are not met in a case, the case could be dismissed.

Some people choose to use a non-attorney bankruptcy petition preparer to help them file bankruptcy cases.  These are individuals who are not attorneys who offer a service of preparing the bankruptcy paperwork for the debtor.  Typically petition preparers charge a fee for their services.  Usually this fee is less than what attorneys charge.  There are some distinct differences between petition preparers and bankruptcy attorneys.  First, petition preparers cannot give any legal advice whatsoever.  This means they are prohibited from answering any legal questions that a debtor may have.  They are only able to assist the debtor in preparing all of the paper work that will be filed with the Bankruptcy court.  After the paper work and documents are prepared, the individual files the paperwork.  The petition preparer cannot represent the debtor at the Meeting of Creditors or in any capacity at all.  In dealing with the trustee and the Bankruptcy court, the debtor is entirely on his or her own.

The third option available to a debtor is to file the bankruptcy case with a bankruptcy attorney.  Many bankruptcy attorneys have years of experience and some have filed thousands of bankruptcy cases.  Bankruptcy attorneys are usually well acquainted with the Bankruptcy laws and understand how these laws work.  Bankruptcy attorneys can recommend which type of bankruptcy an individual should file depending on that person’s unique circumstances.  A bankruptcy attorney also represents the client throughout the entire process.  The attorney assists the client in preparing the paper work.  Then the attorney files the case for the client and can help the client deal with difficult creditors.  The attorney also attends the Meeting of Creditors with the client and any court hearings in front of the judge with the client.  If there are issues that  need to be resolved with the trustee or the Bankruptcy court, the attorney assists the client in working through these issues.  An attorney can tell the client exactly what to expect at every step in the process.

Bankruptcy attorneys are relatively cheap.  Usually the amount of debt one is discharging is massive when compared to the cost of hiring a bankruptcy attorney.  It is important that the debtor file the bankruptcy correctly.  If the debtor fails to do so, the bankruptcy case could be dismissed or worse yet the debtor could get into a lot of trouble with the Bankruptcy court and the trustee.  The main reason not to hire a bankruptcy attorney is because of the cost.  However, when compared with trying to navigate this process without a legal advocate, the cost of hiring an attorney is worthwhile.

BANKRUPTCY DISCHARGE

A discharge in a bankruptcy case releases the debtor from personal liability for certain debt obligations.  Legally, the debtor is no longer required to pay all the debts that have been properly discharged.  The discharge order issued by the bankruptcy court judge is an order permanently preventing and barring the debtor’s creditors from taking any form of collection action on debts that have been discharged, including all legal action and communications with the debtor, such as harassing telephone calls, letters, and personal contacts.

After a bankruptcy discharge is granted by the bankruptcy court, debtors are not personally liable for any of the discharged debts through the bankruptcy.  However, if the creditor has a validly secured lien that has not been avoided or stripped in the bankruptcy, the creditor will still have a valid lien against the secured property.  This usually occurs with homes that have mortgage loans and vehicles where there are secured vehicle loans.  These creditors may still enforce their liens, meaning they can recover the property if payments are not made to these creditors.  However, if these secured creditors repossess or foreclose the secured property this is the creditors’ only recourse.  These creditors cannot take the property back and then sue the debtor for any shortfall or deficiency after the property is sold and the proceeds are applied to the loan balance.  Because of the discharge, the debtor is protected personally from further collection action in these situations.

MANDATORY CREDIT COUNSELING CLASS

In order to file either a Chapter 7 or a Chapter 13 bankruptcy, one must take a credit counseling class before filing for bankruptcy.  This class is often referred to as the “pre-filing counseling course.”  If a couple is filing a joint bankruptcy, both spouses must take this class prior to filing their bankruptcy case.  There are numerous organizations that offer this class.  It can be done in person or over the phone but is usually done online.  This class takes about one hour to complete.  There is a small cost associated with taking this class (usually between $25 and $50).  Fortunately, if a joint couple signs up for the class together, many class providers charge the same fee for single class takers.

This class must be taken within 180 days before filing for bankruptcy.  Once the class is completed, a certificate of completion is faxed or emailed to the individual.  This certificate of completion is time stamped with the date and time that the class was completed.  This certificate needs to be filed with the Bankruptcy court when one files bankruptcy.  The time stamp on the certificate needs to show a time and date that is prior to filing of the case or the case will be dismissed.

After the debtor files the bankruptcy case, the debtor is required to take a second class in order to get a discharge in the bankruptcy case.  This class is often referred to as a “pre-discharge” class or the “Personal Financial Management Course.”  This class usually takes about two hours and can usually be taken through the same providers who offer the pre-filing class.

In Chapter 7 cases, this class needs to be taken (1) after the debtor files the bankruptcy petition and (2) within 45 days of the Meeting of Creditors (the 341 Meeting).  In Chapter 13 cases, this pre-discharge class needs to be taken (1) after the debtor files the bankruptcy petition and (2) no later than the last payment that the debtor is required to make under the individual Chapter 13 plan.

If the debtor fails to take this class on time and file the certificate of completion with the Court, the debtor will not get a discharge in the bankruptcy case.  This means that the case will be closed and the debtor will not get any relief from the debtor’s creditors.  Some judges allow Chapter 7 cases to be re-opened in order to file this certificate, but this is a costly endeavor as there is a separate filing fee to file this type of motion.  Taking this second class is essential to getting the debtor’s discharge and is a very easy step that should not be overlooked.

TAXES AND BANKRUPTCY

Dealing with taxes and bankruptcy, as a rule, is complicated and confusing.  First, there are many different types of taxes such as income taxes, payroll taxes, business taxes and property taxes.

Each different type of tax is treated differently in the context of a bankruptcy.  Even so, the type of tax that most people owe to the government is income tax.  The question on most peoples’ minds who file for bankruptcy and who owe taxes is, “Are my taxes dischargeable in my bankruptcy?”

The answer to this question is complicated.  There are five basic rules that must be satisfied in order for income taxes to be dischargeable in a bankruptcy.  However, satisfying these five rules is just the beginning, because additional factors could play into whether a tax debt is dischargeable or not.

1)      The due date for filing the tax return must be at least three years prior to filing the bankruptcy.

2)      The tax return must have been actually filed at least two years prior to filing the bankruptcy.

3)      The tax assessment must have occurred at least 240 days prior to filing.

4)      The tax return must not be fraudulent.

5)      The taxpayer must not be guilty of tax evasion.

Tax Return Due Date at Least Three Years Prior to Bankruptcy Filing

The due date of income taxes must have been at least three years prior to filing of the bankruptcy in order for that tax to be considered for discharge.  Generally, the due date for federal income tax (and most state income taxes) is on April 15th of the year following the tax year.  However, if April 15th lands on a weekend, then the due date may actually be on April 16th or April 17th for any given tax year.  It is important to check this date for each individual tax year.  Furthermore, if the tax payer filed an extension in any given tax year, then this extension pushes out the tax due date as well.

Tax Return Must Have Been filed at Least Two Years Prior to Bankruptcy Filing

This is pretty straight forward.  The taxpayer must have actually filed the tax return at least two years prior to the filing date of the bankruptcy.  If a taxpayer never filed the return and the government just assessed a tax then this condition is not met.

Tax Assessment at Least 240 Days Prior to Bankruptcy Filing

The taxing authority must assess the tax at least 240 days prior to the bankruptcy filing in order for them to be considered for discharge.  This assessment may occur from a self-reported balance due, from a final determination in a tax audit or from a proposed assessment which has become final.

Tax Return Must Not be Fraudulent

The tax return that is filed by the tax payer must not be fraudulent or frivolous in order for the tax to be considered for discharge.

Taxpayer Must Not Be Guilty of Tax Evasion

In order for the tax to be dischargeable, the taxpayer must not be guilty of evading the tax laws.

Further Considerations

If all five of these conditions are met, then the tax may be dischargeable.  One factor that often complicates matters is if the taxing authority has filed a tax lien.  Sometimes, tax liens prevent taxes that would otherwise be dischargeable from being discharged in bankruptcy.

When tax liens have been filed, the debtor will need to sit down with an attorney and thoroughly review each tax year to determine whether the taxes can be discharged.

In Chapter 7 cases, the taxing authorities need to be listed as creditors.  Typically, in Chapter 7 cases, debtors will need to speak with the taxing authorities after the Chapter 7 discharge has been granted to find out if their taxes have been discharged.

In Chapter 13 cases, the taxes that cannot be discharged (which include secured and priority taxes) will need to be paid back through the Chapter 13 bankruptcy plan.  Taxes that can be discharged are typically included with the other general unsecured creditors and are paid back with this group of creditors.

Once again, when it comes to taxes and bankruptcy, it can get messy and complicated.  For this reason it is important to meet with a bankruptcy attorney who can help the debtor through this process.

BEING HONEST AND FORTHCOMING

Many debtors feel like they can get away with lying about their assets or about other items they are required to disclose in full their bankruptcy schedules, such as failing to disclose money given or repaid to family members.  When a debtor files the bankruptcy statements and schedules the debtor is required to sign those statements and schedules.  By signing these documents debtors are swearing and attesting to the accuracy of all the information contained therein.

Furthermore, at the 341 Meeting debtors are put under oath and are again asked if their schedules are accurate and correct.  They are also asked if they have listed all their assets on their bankruptcy schedules.

If a debtor is later found to knowingly lie or if a debtor knowingly fails to disclose all of the debtor’s assets and other relevant information, there can be some extremely harsh consequences.  One of the consequences is that the trustee or a creditor may file a motion or adversary action against the debtor requesting that the debtor’s discharge be revoked or denied.  If a debtor loses his or her discharge, then all of the debtor’s creditors can continue to collect against the debtor.  Most bankruptcy courts have held that if a debtor loses his or her discharge, then the debtor is prohibited from ever filing bankruptcy again on those debts that were included in the bankruptcy case where the discharge was lost.

A debtor can also lose a discharge if the debtor fails to supply the trustee with all of the information that the trustee has requested or if the debtor fails to turn over assets.  Often times, debtors are ordered to turn over all or a part of their tax refunds in Chapter 7 cases.  Usually, these refunds are only a few thousand dollars.  If a debtor fails to turn over a $3,000 refund because the debtor spent it on an emergency, the trustee will likely file a motion requesting that the debtor’s discharge be revoked.  If the debtor has $100,000 in debt the debtor could potentially lose debt relief on a large amount of debt for failing to turn over a relatively small amount of money.

If a debtor’s failure to disclose assets or list information is serious enough the debtor could also be referred to the Department of Justice for criminal prosecution.  Bankruptcy fraud is a crime and those who commit bankruptcy fraud could go to prison.  A debtor who fails to list a $4,000 Rolex watch could go to prison.

For the above mentioned reasons, it is very important that debtors be entirely forthcoming and honest in completing their statements and schedules and in dealing with the trustee.  A debtor should never try to hide property or information.  Full disclosure is the very important when it comes to filing bankruptcy.

CHAPTER 7 VS. CHAPTER 13

It is sometimes difficult for debtors when they have to decide between filing a Chapter 7 bankruptcy and a Chapter 13 bankruptcy.  Below is a quick comparison between the two that is meant to illustrate some of the pros and cons to each type of case.

Chapter 7 Bankruptcy Chapter 13 Bankruptcy
The case can often be discharged and closed in as little as three to four months after filing the case. The case generally will last three to five years (36-60 months).
The Chapter 7 trustee may take and sell property that is not completely covered by an exemption (although in the majority of cases the debtor keeps all of his or her property). The debtor generally keeps all of his property but must make a monthly payment to the Chapter 13 trustee that lasts 36-60 months.
Most of the debtor’s general unsecured debts are usually completely eliminated (discharged). The debtor is usually required to pay back something to general unsecured creditors (although it is often pennies on the dollar).
Priority tax debt is not discharged and the debtor will be required to deal with the IRS and other taxing authorities after the case is filed. The debtor’s priority tax debt is not discharged but is paid back through the bankruptcy plan and once the case is filed interest and penalties stop accruing.
If a debtor is behind on mortgage payments and wants to keep the house the debtor must get caught up on the debt or make arrangements to do so with the bank.  If the debtor can’t get caught up the bank may foreclose. The debtor pays all of the mortgage back payments (arrears) through the bankruptcy plan and usually makes ongoing payments directly to the bank so by the end of the Chapter 13 plan the debtor is all caught up with the mortgage payments.
A debtor may NOT strip a second mortgage from the home but a debtor may still strip judgment liens from a home. A debtor may be able to strip a second mortgage lien under certain conditions and a debtor may strip judgment liens from a home.
Chapter 7 cases generally cost less money in attorney fees than Chapter 13 cases. Chapter 13 cases cost more generally than Chapter 7 cases but most of the attorney fees are usually paid through the Chapter 13 plan over time.
Debtors must earn less than the median income for their states or must pass the Means Test in order to be able to file.  There is not debt limit when filing a Chapter 7 case. There is no income limit in filing a Chapter 13 case (although the debtor’s income may affect the payment amount).  In order to file a Chapter 13 case, a debtor must have less than $360,475 of unsecured debt and $1,081,400 of secured debt as of April 1, 2010.  This figure is adjusted every three years.
The debtor will usually be stuck with the same terms on secured debt (like car loans) when it comes to interest rate, principle amount and car payment if the debtor wants to keep the property secured by the debt. Under certain circumstances a debtor may pay a secured debt through the Chapter 13 plan and may be able to “cram down” the interest rate and principle amount and thereby lower the payment.

 

GLOSSARY

Adversary Action (Adversary Proceeding): An action (or lawsuit) where the petitioner files a formal complaint and formally serves the party being sued.  In a bankruptcy case, these types of actions are often brought by trustees or creditors against a debtor or another party to determine the dischargeability of a debt or to recover property.  The actions are tied to the main bankruptcy case but are generally given a separate case number in the bankruptcy court.

Asset: Property to which value can be assigned.

Automatic Stay: An injunction issued by the bankruptcy court that automatically suspends all debt collection activities from proceeding against the debtor immediately after the bankruptcy case is filed.  The “automatic stay” prevents all creditors from any communication regarding the collection of a debt with the debtor including phones calls, letters and any in person communication.  The automatic stay also prevents creditors from proceeding with foreclosure sales, repossessions, sheriff sales, law suits, and garnishments.  If creditors violate the automatic stay they can be sanctioned by the bankruptcy court.

Bankruptcy Code: The set of federal laws that governs bankruptcy court and that establishes bankruptcy procedures, laws, rules and guidelines.

Bankruptcy Estate: All of the property that the debtor owns when the bankruptcy case is filed.  The trustee technically takes control of the bankruptcy estate for the duration of the bankruptcy case.

Bankruptcy Lawyer or Attorney: An attorney whose practice is primarily focused on filing and working on bankruptcy cases.

Bankruptcy Petition Preparer: A non-attorney who assists others in preparing bankruptcy petition, schedules and other paper work.  Petition preparers are limited in what they can do on behalf of clients.  They are prohibited from attending hearings, meetings or even giving legal advice.

Chapter 7 Bankruptcy: The most common type of bankruptcy case filed, often referred to as a “liquidation” bankruptcy.  In Chapter 7 a trustee can take and sell non-exempt assets or property that belongs to the debtor in order to pay the debtor’s creditors.  Most debtors who file under this chapter end up keeping most if not all of their property because they are allowed to claim property exemptions.  Businesses and individuals are allowed to file under this chapter.  At the end of a successful Chapter 7 case, the debtor’s dischargeable debts are eliminated (not all debts can be discharged).

Chapter 13 Bankruptcy: A type of bankruptcy only available to individuals wherein the debtor pays a monthly payment to the Chapter 13 trustee who then distributes the money to the debtor’s creditors according to debtor’s Chapter 13 plan.  This chapter allows the debtor to restructure his debts into an organized plan.  This type of case typically lasts three to five years.  In most cases the debtor only pays back a portion of his debts to the unsecured creditors.

Chapter 13 Plan: This is an official document that a debtor files in a Chapter 13 bankruptcy case wherein she sets forth a repayment schedule for her debts.  Plan payments are made to the Chapter 13 trustee who administers the plan and the plan typically lasts three to five years. The bankruptcy judge needs to confirm Chapter 13 plans.

Codebtors: Debtors who are co-signers on a debt obligation and who are equally liable for the debt.

Confirmation Hearing: A bankruptcy court hearing where the judge determines whether to confirm the debtor’s proposed Chapter 13 plan.  If the Chapter 13 trustee or any creditor has filed an objection to the confirmation of the debtor’s plan, the judge will hear the objections at this hearing and decide whether to sustain the objection and reject the plan or to allow the plan to be confirmed.

Creditor: A person, entity, business or institution to whom money is owed.

Debt: An obligation of any kind that is owed by someone including a loan, credit, lease, contract or promise of any kind to pay.

Debtor: In general the term “debtor” refers to someone who owes another person or business money.  In the bankruptcy world the term “debtor” refers to the person or entity who files for bankruptcy.

Discharge: A court order issued in successful Chapter 7 and Chapter 13 cases wherein the debtor is legally relieved of liability for certain debts that are allowed to be discharged or eliminated under bankruptcy law.

Dismissal: Where the bankruptcy judge orders a case to be closed without a discharge being granted.  Chapter 13 cases are commonly dismissed when debtors fail to make their plan payments.

Disposable Monthly Income: The difference between the debtor’s gross monthly income and the debtor’s allowable monthly expenses.  In Chapter 13 cases this is the amount that the debtor is required to contribute towards her Chapter 13 plan.

Exemptions: Federal and individual state law specify certain property that the trustee is not entitled to take and sell in order to satisfy the debtor’s creditors.  The debtor is generally allowed to keep exempt property.

Filing Date: In a bankruptcy case, the filing date is the date the bankruptcy petition is filed with the court.

Filing Fee: A fee paid to the court as soon as a bankruptcy case is filed.

Foreclosure: The process wherein the secured creditor who holds real property (such as a home) as collateral takes the collateral back through a legal process generally because the debtor failed to abide by terms of the loan.

Fraudulent Transfer: In a bankruptcy case, a fraudulent transfer is where a debtor transfers property to another for less than the property is worth with the intent to hide the property from the bankruptcy trustee.  An example of this would be if a debtor transferred a boat into his mother’s name in order to avoid surrendering the boat to a trustee in a Chapter 7 bankruptcy.

General Unsecured Creditor: See “Unsecured Creditor.”

Homestead Exemption: A state or federal exemption that a debtor claims in her personal residence when she files for bankruptcy.

Insider Creditor: A creditor with whom the debtor has a personal relationship, usually a relative or business partner.

Joint Debtors: Debtors who are married and who file a single bankruptcy case together.

Lien Avoidance (Strip): A procedure wherein a debtor can remove or strip certain secured liens that are attached to certain property.  Liens that are not avoided or stripped in bankruptcy survive the bankruptcy and are still attached to the property after the case has closed.  Second mortgages, third mortgages and judgment liens are often stripped or avoided in Chapter 13 bankruptcy cases if certain conditions are met.

Loan Modification: Where a creditor agrees to modify the original terms of the loan usually by lowering the interest rate, principle balance or length of the loan in order to assist the debtor in making her payments.

Means Test: A test used in Chapter 7 cases to determine if a debtor who earns more than the median income of her state is eligible to file for Chapter 7 bankruptcy.  The debtor’s gross average monthly income (using the six months prior to filing) and then allows the debtor to deduct certain allowable expenses.

Meeting of Creditors (341 Meeting): This is a meeting that all debtors who file for Chapter 7 or Chapter 13 are required to attend.  It is conducted by the trustee and is an opportunity for the trustee and creditors to ask the debtor questions about the bankruptcy case.

Median Family Income: The actual income figure for the debtor’s state where there are an equal number of household’s above the income figure as there are below the figure.  This number is based on household size and is used in Chapter 7 cases and Chapter 13 cases.

Motion: A formal legal action (document) filed by a party where the party asks the judge to rule on a certain issue.  The party files the motion with the court and must outline the details of the relief that the party is asking the court to decide.  The motion is usually served (usually by mail) on all other parties who are affected or who are required to receive the notice.  Opposing parties have an opportunity to object to the motion and then the court may hold a hearing on the issue.

Nondischareable Debt: Debts that a debtor cannot discharge in a bankruptcy.  This debt survives the bankruptcy and the debtor will still owe it after the case is closed.  This debt includes many taxes, child support, alimony and most student loans.

Nonexempt Asset: In bankruptcy cases, a nonexempt asset is an asset of the debtor that is not exempt (meaning there is no allowable state or federal exemption that covers it).  In Chapter 7 cases, the trustee is allowed to take and sell assets of the debtor that are nonexempt and use the proceeds to pay the debtor’s creditors.

Objection: A legal document that a party files in order to oppose a motion or other relief that another party is seeking from the court.

Personal Financial Responsibility Counseling: This is a second debt counseling class that must be taken by the debtor AFTER the case is filed but before the discharge is awarded in both Chapter 7 and Chapter 13 cases.

Personal Property: All property that is not real property.  Personal property includes all tangible and intangible items including cash, vehicles, jewelry, stocks, and furniture.

Petition: This is a legal document that the debtor files to officially begin a bankruptcy.  This is the first document filed in a bankruptcy case at the start of a bankruptcy case.

Preference: A payment made to a creditor within a set amount of time before the bankruptcy petition is filed (usually three months for ordinary creditors and one year for insider creditors).  A trustee has the legal right to recover preferences in order to more equitably distribute the money to all of the debtor’s creditors.

Prepetition Counseling: This is a debt counseling class that a debtor must take BEFORE the debtor’s bankruptcy case is filed.  This class must be taken by both Chapter 7 and Chapter 13 debtors.

Priority Unsecured Creditors: See “Unsecured Creditor.”

Proof of Claim: A formal legal document filed in a bankruptcy court where a creditor’s debt is outlined and where the creditor’s claim is asserted.  This claim needs to be filed before a trustee can pay the creditor.

Purchase-Money Security Interest: A secured interest (secured debt) in property where the loan was used to acquire the property.  An example is a vehicle loan where the loan was used to buy the car).

Reaffirmation: An agreement between the debtor and a creditor after the bankruptcy was filed where the debtor agrees to repay the obligation after the bankruptcy is over.  The debtor is fully legally responsible for all reaffirmed debts after the bankruptcy discharge is awarded and the case is closed.

Real Property: Real estate (including land, condos, residential homes and buildings).

Repossession: Where a creditor takes that property that is secured by the loan that the creditor owns.  The creditor generally only repossesses property if the debtor defaults on the secured obligation.

Secured Creditor: The owner or holder of a secured claim.

Secured Debt: Debt that is secured by collateral.  Common secured debt includes vehicle loans where the debt is secured by the vehicle and mortgages where the debt is secured by real property.  This debt is generally secured by written agreement (such as vehicle loans or mortgages) or by operation of law (such as a judgment lien or tax lien).

Short sale: Generally refers to a real estate sale where the seller’s mortgage company agrees to a sale wherein it accepts less than the full amount that it is owed.

Trustee: An official who is appointed by the bankruptcy court to carry out the administrative tasks associated with the bankruptcy.  In Chapter 7 cases, the trustee may take or seize property from the debtor in order to sell and distribute to creditors.  In Chapter 13 cases, the trustee administers Chapter 13 plans.  Trustees are appointed in every Chapter 7 and Chapter 13 bankruptcy case that is filed.

U.S. Trustee: An official that is officially employed by the U.S. Department of Justice through the Office of the U.S. Trustee.  The U.S. Trustee is responsible for overseeing the actions of the Chapter 7 and Chapter 13 trustees, regulating the credit and personal finance classes and auditing bankruptcy cases.

Unsecured Creditor: A creditor that does not have a collateral security interest in property.  In bankruptcy unsecured creditors are grouped into two categories: priority unsecured creditors and general unsecured creditors.  Priority unsecured creditors are unsecured creditors who enjoy priority (meaning they are usually paid first) over general unsecured creditors.  The most common priority unsecured creditors include most taxes and child support and alimony.  General unsecured creditors include all other unsecured creditors that are not included in the group of priority unsecured creditors.  Some examples of general unsecured creditors include credit card debt and medical debt.

UTAH EXEMPTION STATUTES

Below are several laws related to Utah exemptions that can be claimed in bankruptcy.  These have been included for the reader’s reference.  It is important to contact a Utah bankruptcy attorney in order to understand how these exemptions can be or have been applied in Utah.

78B-5-505. Property exempt from execution.
(1) (a) An individual is entitled to exemption of the following property:
(i) a burial plot for the individual and the individual’s family;
(ii) health aids reasonably necessary to enable the individual or a dependent to work or sustain health;
(iii) benefits the individual or the individual’s dependent have received or are entitled to receive from any source because of:
(A) disability;
(B) illness; or
(C) unemployment;
(iv) benefits paid or payable for medical, surgical, or hospital care to the extent they are used by an individual or the individual’s dependent to pay for that care;
(v) veterans benefits;
(vi) money or property received, and rights to receive money or property for child support;
(vii) money or property received, and rights to receive money or property for alimony or separate maintenance, to the extent reasonably necessary for the support of the individual and the individual’s dependents;
(viii) (A) one:
(I) clothes washer and dryer;
(II) refrigerator;
(III) freezer;
(IV) stove;
(V) microwave oven; and
(VI) sewing machine;
(B) all carpets in use;
(C) provisions sufficient for 12 months actually provided for individual or family use;
(D) all wearing apparel of every individual and dependent, not including jewelry or furs; and
(E) all beds and bedding for every individual or dependent;
(ix) except for works of art held by the debtor as part of a trade or business, works of art:
(A) depicting the debtor or the debtor and his resident family; or
(B) produced by the debtor or the debtor and his resident family;
(x) proceeds of insurance, a judgment, or a settlement, or other rights accruing as a result of bodily injury of the individual or of the wrongful death or bodily injury of another individual of whom the individual was or is a dependent to the extent that those proceeds are compensatory;
(xi) the proceeds or benefits of any life insurance contracts or policies paid or payable to the debtor or any trust of which the debtor is a beneficiary upon the death of the spouse or children of the debtor, provided that the contract or policy has been owned by the debtor for a continuous unexpired period of one year;
(xii) the proceeds or benefits of any life insurance contracts or policies paid or payable to the spouse or children of the debtor or any trust of which the spouse or children are beneficiaries upon the death of the debtor, provided that the contract or policy has been in existence for a continuous unexpired period of one year;
(xiii) proceeds and avails of any unmatured life insurance contracts owned by the debtor or any revocable grantor trust created by the debtor, excluding any payments made on the contract during the one year immediately preceding a creditor’s levy or execution;
(xiv) except as provided in Subsection (1)(b), any money or other assets held for or payable to the individual as a participant or beneficiary from or an interest of the individual as a participant or beneficiary in a retirement plan or arrangement that is described in Section 401(a), 401(h), 401(k), 403(a), 403(b), 408, 408A, 409, 414(d), or 414(e), Internal Revenue Code; and
(xv) the interest of or any money or other assets payable to an alternate payee under a qualified domestic relations order as those terms are defined in Section 414(p), Internal Revenue Code.
(b) The exemption granted by Subsection (1)(a)(xiv) does not apply to:
(i) an alternate payee under a qualified domestic relations order, as those terms are defined in Section 414(p), Internal Revenue Code; or
(ii) amounts contributed or benefits accrued by or on behalf of a debtor within one year before the debtor files for bankruptcy. This may not include amounts directly rolled over from other funds which are exempt from attachment under this section.
(2) The exemptions in Subsections (1)(a)(xi), (xii), and (xiii) do not apply to proceeds and avails of any matured or unmatured life insurance contract assigned or pledged as collateral for repayment of a loan or other legal obligation.
(3) Exemptions under this section do not limit items that may be claimed as exempt under Section 78B-5-506.
78B-5-506. Value of exempt property — Exemption of implements, professional books, tools, and motor vehicle.
(1) An individual is entitled to exemption of the following property up to an aggregate value of items in each subsection of $500:
(a) sofas, chairs, and related furnishings reasonably necessary for one household;
(b) dining and kitchen tables and chairs reasonably necessary for one household;
(c) animals, books, and musical instruments, if reasonably held for the personal use of the individual or his dependents; and
(d) heirlooms or other items of particular sentimental value to the individual.
(2) An individual is entitled to an exemption, not exceeding $3,500 in aggregate value, of implements, professional books, or tools of his trade.
(3) (a) As used in this Subsection (3), “motor vehicle” does not include any motor vehicle designed for or used primarily for recreational purposes, such as:
(i) an off-highway vehicle as defined in Section 41-22-2, except a motorcycle the individual regularly uses for daily transportation; or
(ii) a recreational vehicle as defined in Section 13-14-102, except a van the individual regularly uses for daily transportation.
(b) An individual is entitled to an exemption, not exceeding $2,500 in value, of one motor vehicle.
(4) This section does not affect property exempt under Section 78B-5-505.

78B-5-503. Homestead exemption — Definitions — Excepted obligations — Water rights and interests — Conveyance — Sale and disposition — Property right for federal tax purposes.
(1) For purposes of this section:
(a) “Household” means a group of persons related by blood or marriage living together in the same dwelling as an economic unit, sharing furnishings, facilities, accommodations, and expenses.
(b) “Mobile home” is as defined in Section 57-16-3.
(c) “Primary personal residence” means a dwelling or mobile home, and the land surrounding it, not exceeding one acre, as is reasonably necessary for the use of the dwelling or mobile home, in which the individual and the individual’s household reside.
(d) “Property” means:
(i) a primary personal residence;
(ii) real property; or
(iii) an equitable interest in real property awarded to a person in a divorce decree by a court.
(2) (a) An individual is entitled to a homestead exemption consisting of property in this state in an amount not exceeding:
(i) $5,000 in value if the property consists in whole or in part of property which is not the primary personal residence of the individual; or
(ii) $20,000 in value if the property claimed is the primary personal residence of the individual.
(b) If the property claimed as exempt is jointly owned, each joint owner is entitled to a homestead exemption; however
(i) for property exempt under Subsection (2)(a)(i), the maximum exemption may not exceed $10,000 per household; or
(ii) for property exempt under Subsection (2)(a)(ii), the maximum exemption may not exceed $40,000 per household.
(c) A person may claim a homestead exemption in either or both of the following:
(i) one or more parcels of real property together with appurtenances and improvements; or
(ii) a mobile home in which the claimant resides.
(d) A person may not claim a homestead exemption for property that the person acquired as a result of criminal activity.
(3) A homestead is exempt from judicial lien and from levy, execution, or forced sale except for:
(a) statutory liens for property taxes and assessments on the property;
(b) security interests in the property and judicial liens for debts created for the purchase price of the property;
(c) judicial liens obtained on debts created by failure to provide support or maintenance for dependent children; and
(d) consensual liens obtained on debts created by mutual contract.
(4) (a) Except as provided in Subsection (4)(b), water rights and interests, either in the form of corporate stock or otherwise, owned by the homestead claimant are exempt from execution to the extent that those rights and interests are necessarily employed in supplying water

to the homestead for domestic and irrigating purposes.
(b) Those water rights and interests are not exempt from calls or assessments and sale by the corporations issuing the stock.
(5) (a) When a homestead is conveyed by the owner of the property, the conveyance may not subject the property to any lien to which it would not be subject in the hands of the owner.
(b) The proceeds of any sale, to the amount of the exemption existing at the time of sale, is exempt from levy, execution, or other process for one year after the receipt of the proceeds by the person entitled to the exemption.
(6) The sale and disposition of one homestead does not prevent the selection or purchase of another.
(7) For purposes of any claim or action for taxes brought by the United States Internal Revenue Service, a homestead exemption claimed on real property in this state is considered to be a property right.

DISCLOSURES

11 U.S.C. § 527 (B) DISCLOSURE

IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER.

If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to represent you, or you can get help from a bankruptcy petition preparer who is not an attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN CONTRACT SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST. Ask to see the contract before you hire anyone.

The following information helps you understand what must be done in a routine bankruptcy case to help you evaluate how much service you need. Although bankruptcy can be complex, many cases are routine.

Before filing a bankruptcy case, either you or your attorney should analyze your eligibility for different forms of debt relief available under the Bankruptcy Code and which form of relief is most likely to be beneficial for you. Be sure you understand the relief you can obtain and its limitations. To file a bankruptcy case, documents called a Petition, Schedules and Statement of Financial Affairs, as well as in some cases a Statement of Intention need to be prepared correctly and filed with the bankruptcy court. You will have to pay a filing fee to the bankruptcy court. Once your case starts, you will have to attend the required first meeting of creditors where you may be questioned by a court official called a “trustee” and by creditors.

If you choose to file a Chapter 7 case, you may be asked by a creditor to reaffirm a debt. You may want help deciding whether to do so. A creditor is not permitted to coerce you into reaffirming your debts.

If you choose to file a Chapter 13 case in which you repay your creditors what you can afford over 3 to 5 years, you may also want help with preparing your Chapter 13 plan and with the confirmation hearing on your plan which will be before a bankruptcy judge.

If you select another type of relief under the Bankruptcy Code other than Chapter 7 or Chapter 13, you will want to find out what should be done from someone familiar with that type of relief.

Your bankruptcy case may also involve litigation. You are generally permitted to represent yourself in litigation in bankruptcy court, but only attorneys, not bankruptcy petition preparers, can give you legal advice.

The undersigned acknowledges receipt of this disclosure required by 11 U.S.C. § 527(b).

11 U.S.C. § 527(a)(2) DISCLOSURE

You, as an assisted person filing bankruptcy, must know and understand that:

(A) All information that you are required to provide with a petition and thereafter during a case under this title is required to be complete, accurate, and truthful;
(B) All assets and all liabilities are required to be completely and accurately disclosed in the documents filed to commence the case, and the replacement value of each asset as defined in section 506 must be stated in those documents where requested after reasonable inquiry to establish such value;
(C) Current monthly income, the amounts specified in section 707(b)(2), and, in a case under Chapter 13 of this title, disposable income (determined in accordance with section 707(b)(2)), are required to be stated after reasonable inquiry; and
(D) Information that an assisted person provides during their case may be audited pursuant to this title, and that failure to provide such information may result in dismissal of the case under this title or other sanction, including criminal sanction.

 

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