Bankruptcy FAQ

What are the options I have to relieve me from my debt?
The formal option accepted from the federal government is filing Bankruptcy. Keep in mind that bankruptcy is a right you have.

What is Bankruptcy?
Bankruptcy is a federal legal process for debtors seeking to eliminate or repay their debts. It is a federal process provided for people who have difficulties paying money they owe. In simple words it is a way to swipe off the debt.
It allows individuals or businesses (the debtors) who owe others (the creditors) more money than they’re able to pay to either work out a plan to repay the money over time or completely eliminate most of the debt.

What are my alternatives regarding fixing my debt?
Individuals must study the bankruptcy option. The choice of a particular chapter will depend upon the financial circumstances of the debtor, the amount and nature of the debts to be dealt with in the bankruptcy, the exemptions available, and the types of assets owned by the debtor.

What do I need to file for bankruptcy ?
You will require a list of past and present debts, a statement of financial affairs and to pay the filing fee.

How can a bankruptcy attorney help me?
A bankruptcy attorney will be able to ensure for which bankruptcy chapter you qualify. The bankruptcy attorney will guide you through the process step-by-step until you reach the so desired “fresh start” moment.

What type of bankruptcy should I file?
To decide under which chapter to file, we recommend you follow the guidance of an experienced bankruptcy attorney. It is not a decision you can make unless you qualify. Studying the case will determine for which bankruptcy chapter you qualify.

How often can I file for Bankruptcy?
There are time limitations when a person can file. A seasoned bankruptcy attorney can explain your options. They will explain the differences between the two chapters you can file in order to eliminate debt.

How long do the records stay on file?
A chapter 7 bankruptcy will remain on an individual’s credit for ten (10) years from the date of filing. A chapter 13 bankruptcy only remains on an individual’s credit for seven (7) years.

How can I stop creditors from calling me?
Give them your case number and by law they must immediately cease communicating with you.

Are my payments to the trustee refundable?
If you attend your 341 Meeting of Creditors the first time it is scheduled, and you dismiss your case before your first confirmation meeting, then the trustee will return what you paid minus the administrative fees.

What Bankruptcy options do I have?
There are two (2) bankruptcy options for individuals and businesses:
Chapter 7
Chapter 13

What is Chapter 7?
Chapter 7 bankruptcy is a liquidation proceeding in which the debtor’s non-exempt assets include an organized discharge of all unsecured debts, such as credit cards, repossessions, signature loans and personal loans. One is able to retain most assets including the home.

What are the advantages of filing Chapter 7?

• The debtor receives a “fresh start.” The goal of Chapter 7 bankruptcy is to give the debtor a new start. The elimination of certain debt frees the debtor from personal liability for the discharged debt. However, some types of debt are not dischargeable, including student loans (unless the court rules otherwise), child support and alimony, certain taxes, and debts incurred by fraud. Certain liens on property, such as a mortgage, a tax lien, or a mechanic’s lien, remain after the completion of Chapter 7 bankruptcy.
• The debtor keeps future income. in general, the property a debtor acquires or will acquire after filing for Chapter 7 is not included in the bankruptcy estate. However, certain property a debtor acquires within 180 days after filing for Chapter 7 will become part of the bankruptcy estate. This rule applies to inherited property, property from a divorce decree or settlement agreement, death benefits, or the proceeds from a life insurance policy.
• No limitations on the amount of debt. Unlike Chapter 13 bankruptcy, Chapter 7 bankruptcy rules do not impose a limit on the amount of debt a filer may have. Under Chapter 13, a debtor is ineligible if secured or unsecured debt exceeds debt limits.
• No repayment plan. Under Chapter 7, the debtor does not have to repay debt in a court-approved repayment plan, unlike a Chapter 13 bankruptcy. The debtor is no longer responsible for repaying the debt after its discharge in Chapter 7.
• The discharge of debts occurs quickly. In a typical case, the discharge of debt may occur in as little as three months. The court will issue a discharge order about 60 to 90 days after the debtor files for bankruptcy. The bankruptcy court will close the case after the trustee distributes a debtor’s property to unsecured creditors.

Who is eligible for Chapter 7?
Eligibility to file Chapter 7 is determined by the means test instituted with the 2005 amendments to the bankruptcy code. In many consumer cases, the majority of the assets are exempt, and therefore there are no assets to liquidate and there is no dividend to creditors. Chapter 7 is generally the simplest and quickest form of bankruptcy and is available to individuals, married couples, corporations and partnerships> However, a debtor must qualify by meeting an income limitation.

What is Chapter 13?
Chapter 13 is a court mandated Mortgage Modification Mediation program that gives debtors who qualify a streamlined and successful mediation process which could result in a mortgage modification. A chapter 13 bankruptcy allows one to make up the overdue payments over time and to reinstate the original agreement. Where a debtor has valuable nonexempt property and wants to keep it, a chapter 13 may be a better option.
Chapter 13 Entitled Adjustment of Debts of an Individual with Regular Income is designed for an individual debtor who has a regular source of income. Chapter 13 enables the debtor to keep a valuable asset, such as a house, and because it allows the debtor to propose a “plan” to repay creditors over time – usually three to five years. Chapter 13 is also used by consumer debtors who do not qualify for chapter 7 relief under the means test. At a confirmation hearing, the court either approves or disapproves the debtor’s repayment plan, depending on whether it meets the Bankruptcy Code’s requirements for confirmation.

What are my responsibilities as a Chapter 13 Debtor?
Be honest with the attorney and his staff about all debts, assets, transfers and other information before filing and during the process.
Provide all documents in a timely fashion when requested by the attorney or his staff.

Attend the 341 Meeting of Creditors on time.
Attend any hearing where your attendance is required

What happens at the 341 Meeting of Creditor?
The trustee or representative from the trustee’s office will ask you a series of questions regarding your assets, debts and intention with your case. BE HONEST.

What does the Mortgage Mediation Modification (MMM) program refer to?
It is a Court mandated program that gives debtors who qualify a streamlined and successful mediation process which could result in a mortgage modification.

How do you calculate the MMM payment to the bank?
You take your full gross monthly household income and multiply it by .31 to obtain your 31% income payment. Math is math and this number cannot be manipulated. it is based on your provable income.

If a bankruptcy applicant is ineligible for filing under Chapter 7 based on the “means test,” he or she must file under Chapter 13 instead. There are a number of major differences. The below overview follows:

• The main distinction is that under Chapter 13, the debtor enters into a three or five-year repayment plan in which he or she must pay a certain amount of money to creditors, based on a strict expenses-to-income formula. A chapter 13 bankruptcy allows one to make up the overdue payments over time and to reinstate the original agreement. Where a debtor has valuable nonexempt property and wants to keep it, a chapter 13 may be a better option.
• Chapter 13 bankruptcy is a re-organization whereas Chapter 7 bankruptcy is a liquidation.
• Chapter 13 is very different from chapter 7 since the chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor’s anticipated income over the life of the plan. Unlike chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect. The discharge is also somewhat broader (i.e., more debts are eliminated) under chapter 13 than the discharge under chapter 7.

What is a discharge in bankruptcy?
A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.

When does the discharge occur?
The timing of the discharge varies, depending on the chapter under which the case is filed.
In a chapter 7 or liquidation for example, the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse, 60 days following the first date set for the 341 meeting. Typically, this occurs about four months after the date the debtor files the petition with the clerk of the bankruptcy court.
In an individual chapter 13 or adjustment of debts of an individual with regular income, the court generally grants the discharge as soon as practicable after the debtor completes all payments under the plan. Since the chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs about four years after the date of filing.
The court may deny an individual debtor’s discharge in a chapter 7 or 13 case if the debtor fails to complete “an instructional course concerning financial management.” The Bankruptcy Code provides limited exceptions to the “financial management” requirement if the U.S. trustee or bankruptcy administrator determines there are inadequate educational programs available, or if the debtor is disabled or incapacitated or on active military duty in a combat zone.

How does the debtor get a discharge?
Unless there is litigation involving objections to the discharge, the debtor will usually automatically receive a discharge. The Federal Rules of Bankruptcy Procedure provide for the clerk of the bankruptcy court to mail a copy of the order of discharge to all creditors, the U.S. trustee, the trustee in the case, and the trustee’s attorney, if any. The debtor and the debtor’s attorney also receive copies of the discharge order.

Are all of the debtor’s debts discharged or only some?
Not all debts are discharged. The debts discharged vary under each chapter of the Bankruptcy Code. Section 523(a) of the Code specifically excepts various categories of debts from the discharge granted to individual debtors. Therefore, the debtor must still repay those debts after bankruptcy. Congress has determined that these types of debts are not dischargeable for public policy reasons, based either on the nature of the debt or the fact that the debts were incurred due to improper behavior of the debtor, such as the debtor’s drunken driving.
There are 19 categories of debt excepted from discharge under chapters 7. A more limited list of exceptions applies to cases under chapter 13. Generally speaking, the exceptions to discharge apply automatically if the language prescribed by section 523(a) applies.