 Bankruptcy is one option to consider in order giving yourself a "fresh start," when you have more debts than you have assets
There are in fact many types of bankruptcy
provided under the law but the most common is Chapter 7 bankruptcy,
which is also known as liquidation.
When filing under Chapter 7 bankruptcy, all your
assets, excluding those that are exempt under the law of your state,
are dissolved and liquidated. Generally, the person tasked to do this
is the court-appointed official, called a trustee.
The trustee has many responsibilities, including the following:
- Prepare the documents required for declaration of bankruptcy
- Review the file and check if there are any fraudulent preferences or reviewable transactions made
- Any available assets should be sold by them
- Chair meetings with creditors
- Serve as counsels for the debtors (Therefore, you need not hire a bankruptcy lawyer when filing under Chapter 7 bankruptcy)
- Recommend whether the person applying for bankruptcy should be discharged or not
All in all, the vital task of the trustee is
selling your properties and using the proceeds to pay your creditors.
After doing such, the court will then cancel many of your remaining
debts, thus affording you a "fresh start" to life.
Here is a step-by-step guide to filing a bankruptcy under Chapter 7 bankruptcy:
Step #1: Decide whether you should file bankruptcy or not.
Filing bankruptcy is a personal decision,
influenced by many factors, such as the amount of serious debts and
your ability to meet the original payments or pay the full amount.
For starters, when you are broke, it is never a
nice experience getting harassed by creditors for debts incurred. For
another, your decision to file should not be made for the sole purpose
of putting a stop to your demanding creditors. This is a significant
point as secured creditors may apply for "relief from stay," thus
allowing them to continue their efforts to repossess or foreclose even
though you already filed for bankruptcy.
And lastly, there are particular debts that you
will not be able to get rid of even after filing for Chapter 7
bankruptcy. These debts that cannot be discharge include the following:
- Taxes and tax liens
- Student loans
- Domestic support obligations (including child support and alimony)
- Luxury goods over $500 purchased within 90 days of filing
- Fines or penalties of government agencies
- Cash advances of more than $750 taken within 70 days of filing
- Fraudulent debts
- Willful or malicious injury to another
- Death
or personal injury from the operation of a motor vehicle, aircraft or
vessel while intoxicated - i.e., injury due to drunk-driving or driving
under the influence
- Condominium or cooperative association fees
- Debts not listed on your schedules (That is why it is important to disclose all dischargeable debts upon filing).
Step #2: Get an attorney
While the law on Chapter 7 bankruptcy does not
need individual consumers to hire an attorney who would represent them
in court, it is still advisable to ask for legal help, particularly
concerning critical decisions involved in bankruptcy.
Here are some helpful hints to aid you in choosing the right legal representation:
- Experience is an
important consideration: An experienced bankruptcy attorney understands
the many intricate details involved in bankruptcy proceedings and will
be able to assist you in dealing with the finer aspects of bankruptcy
law, such as local rules, the Trustees' preferences, the local judge's
rulings, and how to work with the local creditor attorneys.
- Hire
a reputable bankruptcy attorney: This does not only mean an attorney
who has a record of success but also someone who has earned the respect
of his colleagues. Remember that bankruptcy will impact your future in
more ways than you can count. Hiring an attorney with a good record of
successful filings only makes sense.
- Choose
an attorney with reasonable fees: Money, of course, is a vital issue.
Perhaps, even more so. Attorney fees run the table from affordable to
cost-prohibitive. Be sure to choose an attorney who charges fair and
reasonable fees and provides you with a flexible payment plan.
- Choose
an attorney who is willing to answer questions: You may have questions
that you want to ask. You want to understand more about the bankruptcy
procedure. There is no better person who can answer these questions
than your attorney. That is why his receptiveness to such questions is
a significant consideration.
It's time for you to move on to step 3 of the process once you have chosen your legal representation.
Step #3: Comply with the legal requirements.
File your petition with the bankruptcy court
serving in your area. If you are a business debtor, then file with the
bankruptcy court in the place where the business was organized or has
its principal place of business or principal assets.
Additionally to the petition for bankruptcy, you are also required to submit the following:
- Sworn list of creditors
- Schedule of assets and liabilities
- List of exempt property
- Schedule of current income and expenditures
- Statement of financial affairs
- A schedule of executory contracts and unexpired leases.
Additionally to submitting the above documents,
you will also be required to surrender all your properties to the
trustee, including a copy of the tax return or transcripts of the most
recent tax year as well as tax returns filed during the case (including
tax returns for prior years that had not been filed when the case
began). (11 U.S.C. 521)
There are additional filing requirements if you are an individual debtor with primarily consumer debts, such as:
- Certificate of credit counseling
- Copy of any debt repayment plan developed through credit counseling
- Evidence of payment from employers, if any, received 60 days before filing
- Statement of monthly net income and any anticipated increase in income or expenses after filing
- Record of any interest the debtor has in federal or state qualified education or tuition accounts
Your attorney should be able to advise you on how
to deal with these required legal forms. All Official Forms may be
purchased at legal stationery stores or downloaded from the Internet at
USCourts.gov/bkforms/index.html . They are not available from the court.
Step #4: Pay the necessary fees.
As with any other court cases, there are certain fees required, such as:
- Case filing fee (around $245)
- Miscellaneous administrative fee ($39)
- Trustee surcharge ($15)
Upon filing, you are usually asked to pay these
fees to the clerk of court. However, you may ask the court's permission
to pay in installments. (28 U.S.C. 1930(a); Fed. R. Bankr. P. 1006(b);
Bankruptcy Court Miscellaneous Fee Schedule, Item 8).
Note that the number of installments is limited
only to four. Additionally to that, you are also required to make the
final installment no later than 120 days after filing the petition
(Fed. R. Bankr. P. 1006). The court may, still, extend the time of any
installment, provided that cause is shown and that the last installment
is paid not later than 180 days after filing the petition (Id.).
Payment of these fees is an absolute must. If you
fail to do so, it may result in the dismissal of your case (11 U.S.C.
707(a)). But there is an exception to this stringent rule. For
instance, if the debtor's income is less than 150% of the poverty level
(as defined in the Bankruptcy Code), and the debtor is unable to pay
the Chapter 7 fees even in installments, the court may waive the
requirement that the fees be paid. (28 U.S.C. 1930(f)).
Step #5: Notice to the creditors and meeting.
After filing your petition for bankruptcy under
Chapter 7, paying the necessary fees, and complying with the legal
requirements, an "automatic stay" is granted to you by operation of
law. This stay will efficiently stop most collection actions against
you and your properties (11 U.S.C. 362). This means that as long as the
stay is in effect, creditors cannot initiate or continue lawsuits, wage
garnishments, or even telephone calls demanding payments.
But note that there are certain types of actions
listed under 11 U.S.C. 362(b) that are not stayed when you file the
petition. In some situations even, the stay is only for a short period
of time. So this should serve as warning.
After the bankruptcy case has been filed, the
bankruptcy clerk will give notice to all creditors whose names and
addresses you provided. Then, the case trustee will hold a meeting of
creditors between 20 and 40 days after you filed your petition. This
meeting is also known as the 343 meeting, after the codal provision 11
U.S.C. 343 that provides for such.
In a 343, the debtor will be put under oath and
both the trustee and the creditors will ask questions regarding your
financial affairs and property. Your attendance is a must. Within 10
days of the creditors' meeting, the trustee will then report to the
court whether the case should be presumed to be an abuse under the
means test described in 11 U.S.C. 704(b).
Step #6: Cooperate with the trustee.
The case trustee has a vital role in a bankruptcy
case. His primary responsibility is to liquidate your nonexempt assets
in a manner that maximizes the return to your unsecured creditors. He
does this by selling your property, if it is free and clear of liens
and as long as it is not exempt, or if it worth more than any security
interest or lien attached to the property and any exemption that the
debtor holds in the property.
In addition to having the authority to sell your
nonexempt property, he also has the power to recovery money or
property. This is called the trustee's "avoiding powers," which
essentially includes the power to:
- Set aside preferential transfers made to creditors made within 90 days before the petition
- Undo
security interests and other prepetition transfers of property that
were not properly perfected under nonbankruptcy law at the time of the
petition
- Pursue nonbankuptcy claims such as fraudulent conveyance and bulk transfer remedies available under state law
In view of the broadness of a trustee's power, it
is significant therefore that you cooperate with the trustee. Provide
any financial records or documents that the trustee requests and answer
questions, which the trustee is necessary to ask at the meeting of
creditors under the Bankruptcy Code.
This is to make sure that you are aware of the
potential consequences of seeking a discharge in bankruptcy such as the
effect on your credit history, the ability to file a petition under a
different chapter, the effect of receiving a discharge, and the effect
of reaffirming a debt.
Step #7: After the discharge...
If all goes well with your Chapter 7 bankruptcy
case - that is, no one files a complaint objecting to the discharge or
a motion to extend the time to object - the bankruptcy court will issue
a discharge order relatively early in the case, about 60 to 90 days
after the date first set for the meeting of creditors (Fed. R. Bankr.
P. 4004(c)).
A discharge order is an order issued by the
bankruptcy court, releasing you from personal liability for most debts
and preventing your creditors from taking any collection actions
against you. As previously mentioned, there are particular types of
debts that will never be discharged (see Step #1). As a rule, excluding
cases that are dismissed or converted, individual debtors receive a
discharge in more than 99 percent of Chapter 7 bankruptcy cases.
For someone filing under Chapter 7 bankruptcy, a
discharge of almost all of your debts is the ultimate goal. With the
release of all your debts and creditors stopped from pursuing any
further collection actions against you, the opportunity for a fresh
start is apparent.
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