Bankruptcy

GENERAL CHAPTER 7 BANKRUPTCY INFORMATION; NOT INTENDED LEGAL ADVICE

1. What is Chapter 7 bankruptcy? Under Chapter 7 bankruptcy guidelines, those debtors who qualify can discharge most unsecured debts, including but not limited to credit card bills, hospital and medical bills, most judgments (except where punative damages are have been awarded, unsecured portions of promisory notes, etc. Once filed, a debtor's creditors are notified by the CH 7 Bankruptcy Trustee and all further collection efforts agains tthese debtors are "stayed". In addition, pending law suits are stayed, including foreclosure actions, pending the completion fo the CH 7 Bankruptcy proceeding, unless a creditor goes to court and files pleading to "lift the Automatic Stay". Once completed a debtor, who obtains a "CH 7 Bankruptcy Discharge," is relieved from any unsecured debt listed in the debtor's bankrurptcy petition creditor. ONCE DEBTOR DISCHARGED BY BANKRUPTCY TRUSTEE. DEBTOR IS NO LONGER RESPONSIBLE FOR ALL UNSECURED DEBTS LISTED IN THE CHAPTER 7 BANKRUPTCY PETITION. DEBTOR GETS FRESH START. CALL ATTORNEY FORREST FREEDMAN @ 954 714 1037 TO SEE IF YOU QUALIFY FOR A CH 7 BANKRUPTCY

2. DOES the filing a Chapter 7 petition stop creditor telephone calls and letters?

Immediately after a Chapter 7 bankruptcy petition is filed, the Court notifies creditors listed on the petition of the debtor's bankruptcy, and upon receipt of this notice by creditors, an "automatic stay" takes effect pursuant to 11 U.S.C. § 362. The stay prevents creditors listed in the petition from taking further steps to collect debt, without first getting permission from the bankruptcy court. Prohibited conduct includes making phone calls, sending collection letters, filing a lawsuit, pursuing a lawsuit in progress, repossessing property, garnishing wages, attaching bank accounts, evicting tenants, and foreclosing on real property. The automatic stay lasts until the bankruptcy process is completed, unless the creditor files a motion asking the court to lift the stay, and only if that motion is granted by the Court. When the debtor is discharged in bankruptcy court, ALL LISTED UNSECURED DEBTS, THAT HAVE NOT BEEN EXCLUDED, ARE DISCHARGED.

3. What kind of debts can be discharged?

CH 7 BANKRUPTCY LAW ALLOWS FOR MOST UNSECURED DEBTS TO BE DISCHARGED. Unsecured debts include including medical bills, loans, credit card purchases and cash advances(certain time periods applys) , and many judgments. However there are exceptions (see below).

4. What kind of debts cannot be discharged?

As a general rule, certain debts (specified in 11 U.S.C.A. §523[a]) cannot be discharged. These include taxes (in many cases), alimony, child support, student loans, criminal fines, debts related to drunk driving, debts not listed in the bankruptcy petition, and certain debts incurred within 60 days of filing the petition.

A few exceptions to the general rule of nondischargeability exist, but they are difficult to establish and typically require the debtor to file with the Court, in addition to the Chapter 7 petition, a Complaint to Determine Dischargeability. For example, 11 U.S.C.A. §523(a)(8) allows a student loan to be discharged if it is (1) not "insured or guaranteed by a governmental unit," and not "made under any program funded in whole or in part by a governmental unit or nonprofit institution." A student loan may also be discharged if repaying it will "impose an undue hardship on debtor and the debtor's dependents." This is very difficulet to prove. Please feel free to call attorney Forrest Freedman at 954 714 1037 to discuss your student loan repayment problems. Generally student loans cannot be discharged in either a Chapter 7 or Chapte 13 Bankruptcy Petition.

The debts discussed above are nondischargeable as a general rule and place the burden on the debtor to establish exceptions. Other debts, however, are assumed to be dischargeable unless a creditor objects and proves otherwise. 11 U.S.C.A. §523(a). These are debts arising from any of the following: fraud, willful and malicious injury, embezzlement, larceny, or a marital settlement agreement or divorce decree. Rule 2004 EXAMINATION. If the trustee or the Court believe a petitioner is abusing the bankruptcy system, any one of them may move to dismiss the bankruptcy petition pursuant to 11 U.S.C.A. §707(b). Dismissal of a petition lifts the Court's protection thereby allowing creditors once again to take action such as filing suits, obtaining judgments, and collecting judgments by garnishment of wages. A debtor contemplating bankruptcy should avoid purchasing luxury items worth more than $1000.00 or taking cash advances on a credit card of more than $1000.00 within 60 days of filing a petition. 11 U.S.C.A. § 523(a)(2)(C). Incurring debt well beyond one's ability to repay is a factor to be considered by a court in determining whether to dismiss a case for substantial abuse. In re Farrell, 150 B.R. 116 (1992). Credit card debt is dischargeable under the bankruptcy code, even where the debt is significant. But gross violation of credit card privileges might lead to dismissal of the petition and nondischargeability not only of the credit card debt in question but of all other debts too.

5. What property may I keep?

Debtors keep any property which is considered exempt in most Chapter 7 cases. Contact Attorney Forrest Freedman to discuss which types of possessions and property the debtor is allowed to keep. The Bankruptcy Code allows must debtors to keep certain property which is under certain values. Most furniture, appliances, television sets, old cars, and computer equipment will remain in the debtor's possession. Only when the debtor's assets exceed in value what the debtor may legally keep will property (the excess) be subject to confiscation and distribution by the trustee. That which the debtor may keep is known as exempt property or "exemptions." These are set forth in 11 U.S.C.A. § 522. Other property need not be exempt because it is not owned in the first place. A leased car is not part of the petitioner's estate. Payments on leased personal and real property should simply be continued if the debtor wishes to keep possession. If not, the property should be given back to the lessor, and money owed on the lease should be declared as a debt in the petition.

Chapter 11 USC § 522 lists "Exempt Property"

If property is not exempt, the trustee will only take possession of non exempt property, if it will be profitable. Because the trustee earns a commission based upon the size of the estate, the trustee will collect, sell, and distribute only non-exempt assets of significant value. The trustee's commission may reach 25% on the first $5000.00 or less; 10% on recoveries greater than $5000.00 but less than $50,000.00; and 5% on assets greater than $50,000 up to $1,000,000.00. 11 U.S.C.A. §326(a). Commissions, however, are based solely upon money distributed to creditors and do not necessarily reflect the amount of time and effort expended by the trustee. In re Lan Associates, 192 F. 3d 109 (1999). A trustee will not earn a commission on the full value of a house sold for $150,000.00 if the unpaid loan is $100,000, the real estate commission is $9000.00, and the homestead exemption totals $34,850.00. This leaves $6150.00 to be distributed, out of which the trustee would receive at most $1365.00. When the value of a house prior to sale is uncertain, the trustee (as in the situation described) risks undertaking much work for possibly no commission at all.

6. Is it possible to lose the protection of the automatic stay?

It is possible but unlikely, and unless the debtor is guilty of fraud, the consequences tend to be minimal. The automatic stay lasts throughout the proceedings unless a creditor has grounds for lifting it, and then files a motion that is granted by the Court. The main basis for creditor relief arises when the petitioner has given a creditor a security interest in property that is rapidly losing value. A security interest is a right to property that a creditor can, by way of contractual agreement, repossess if the debtor defaults on payments. Examples include leased cars, houses, and, in some cases, furniture and jewelry. Lifting the stay only entitles one creditor to possession of secured property, not to other remedies. The majority of bankruptcy debt involves credit cards and medical bills, which are, for the most part, unsecured. Only credit cards issued subject to a purchase money security interest (some department store cards) are secured. And even if secured property is devaluing, often it will not be worth a creditor's time and effort to set aside the stay.

7. How do I deal with consensual security interests?

A consensual security interest is a right to property voluntarily given to a creditor by a debtor. There are two types: (1) purchase money and (2) non-purchase money. A purchase money security interest is created when a debtor takes goods on credit (such as furniture or a car) and agrees to relinquish them if there is a default. A non-purchase money security interest arises when property owned by the debtor is pledged as collateral for a loan, as when a diamond ring is pledged as collateral for a $5000.00 loan. A security interest amounts to a "lien" on property, which, in some cases, gives the creditor additional rights in bankruptcy.

A purchase money security interest, IF PROPERLY RECORDED, cannot be eliminated in bankruptcy. For example, assume a debtor buys furniture for $5000.00 giving the seller a purchase money security interest. One year later, the debtor files for bankruptcy still owing $3500.00 on the furniture now worth $1000.00. The debtor, in this instance, may surrender the furniture, "reaffirm" the contract and continue making payments, or "redeem" the property. When property is redeemed, it is purchased at its current value ($1000.00) rather than the amount left on the contract of sale ($3500.00). Reaffirmation is a poor choice in this example when the property can be kept for so much less. To redeem property, however, the debtor must pay everything up front.

Non-purchase money liens often may be eliminated if the property pledged stays in the debtor's possession. Assume that a debtor pledges a $5000.00 ring for a loan of the same amount, defaults one year later owing $3500.00, and files for bankruptcy. If the ring stayed in his possession, he may keep it so long as it may otherwise be exempt under the wild card exemption. The $3500.00 debt will be fully discharged in bankruptcy. But if the ring already is in the creditor's possession, it will remain there.


8. What can be done about judgment liens?

A judgment lien is a lien obtained as a result of a money judgment and recorded against property such as a house or a car. If the lien applies to exempt property, it may be eliminated. To avoid a judgment lien, a motion must be filed in addition to the Chapter 7 petition. Liens related to child and spousal support judgments may not be avoided.

9. What information is needed to file a Chapter 7 Petition?

A Chapter 7 petition requires a broad variety of information about the petitioner's financial status. A complete list of the names and addresses of all creditors, along with account numbers where applicable, will be required. If collection agencies are involved, information about the original creditor still must be included. TO INSURE THAT ALL DEBTS ARE INCLUDED, DEBTORS MUST GET A COPY OF THEIR CREDIT REPORT FROM THE THREE MAJOR CREDIT REPORTING BUREAUS, EQUIFAX, TRANSUNION AND EXPERIAN. Debts are listed in various categories called 'schedules" on the petition: unsecured claims (credit cards, medical bills, certain loans); secured claims (mortgages, liens, security interests, judgments); unsecured priority claims (including alimony and taxes); unexpired contracts and leases (apartment leases, car leases, and other contracts still in the process of being performed).

A prospective Chapter 7 petitioner must also prepare a list of his ownership interest in real estate. Information must be provided about the location of the property, the nature of the interest involved (sole ownership, co-ownership, etc.), the amount of any secured claims such as mortgages, and fair market value. A Debtor must provide information regarding the value and location of personal property including bank accounts, household goods and furnishings, furs, jewelry, cars, pensions, IRAs, stocks, and the cash value of life insurance policies. 

10. WHAT IF I DO NOT QUALIFY FOR A CHAPTER 7 BANKRUPTCY?

Financial information is required to determine which type of bankruptcy is right for you! If you make too much money, but are still drowning in debt a chapter 13 bankruptcy may be an option to consider. The law Offices of Forrest Freedman will review your debts and use federal guidelines to determines if the debtor can pay some or all of what is owed in a Chapter 13 Bankruptcy Plan. 

Chapter 13 is available to some debtors for whom Chapter 7 may not be appropriate because, for example, they stand to lose a house, or they owe taxes or money on debts that cannot be discharged in Chapter 7. Under Chapter 13, the debtor submits a plan to pay off a percentage of debt over the course of three to five years. However only debtors who have a regular source of income (as from a steady job) and money left over after expenses may qualify. Money to repay debt can be taken from existing assets such as the real and personal property items discussed above. A debtor's ability to pay can also be based on future earnings over and above living expenses. Hence the petition also requires a compilation of monthly income and expenses. If monthly income substantially exceeds monthly expenses, the trustee may recommend that the debts be paid.

Certain debtors find neither Chapter 13 nor chapter 7 appropriate to their circumstances. For instance, an individual with an unsteady work history who filed a Chapter 7 petition three years prior will not be able to file a Chapter 7 petition again for three years. Or a debtor with more cash in the bank than can be exempted may not want to turn it over to the trustee. For such debtors, one option is negotiation with creditors. A good negotiator often can reach agreements with creditors to reduce the amount owed in return for the security of payments. Another option is simply to do nothing.

11. WHAT IS A STATEMENT OF FINANCIAL AFFAIRS AND WHY IS IT INCLUDE DIN BOTH CH7 AND CH 13 BANKRUTPCIES?

Both types of bankruptcy petitions (Ch7 and CH13) contains a Statement of Financial Affairs: a set of 25 questions about personal and business finances. Only some questions may not be applicable to each debtor, but each question must be answered. Each debtor must specify income and sources of income for the year the petition is filed and the two preceding years. 2 years tax returns are the best source for this inforamtion plus a current pay stub. Employment, the operation of a business, and governmental assistance all constitute sources of income. The Statement of Financial Affairs requests information about payments to creditors of more than $600.00 made within 90 days of the filing of the petition, and about payments to family members within the past year. The trustee can set aside preferential payments. For instance, a debtor repays a $10,000.00 loan to her brother four months before filing a petition but pays nothing to various credit card companies owed a total of $25,000.00. The trustee will likely proceed against the brother to recover the $10,000.00 payment and distribute it proportionally among the creditors. Similarly a large payment to any one of the credit card companies two months before the petition is filed might also prompt the trustee to set it aside. The Statement of Financial Affairs additionally asks about lawsuits or potential lawsuits. If the debtor possesses a legal right to collect a large sum of non-exempt assets, the trustee may intervene & collect it for the benefit of creditors. Not all lawsuit recoveries, however, are subject to appropriation by the trustee. Workers' compensation awards are fully exempt under 11 U.S.C.A. §§ 522(d)(10)(c) and (d)(11)(E). Evans v. Casarow, 29 B.R. 336 (1983). And personal injury recoveries may be exempt too under 11 U.S.C.A. §§ 522(d)(5), (d)(11)(D) and (d)(11)(E). In the Matter of R. Scotti, 245 B.R. 17. These exemptions stem from a general policy that a debtor should be allowed to keep enough money for her own support. Pursuant to this policy, awards for injury or disability are deemed compensate for the loss of ability to support oneself.


12. Will Chapter 7 affect my spouse or ex-spouse?

A spouse or former spouse can & will be affected if he or she is also liable for joint or marital debts or debts distribute dto both parties as a result of a divorce. If a spouse guarantees payment on a loan or cosigns on a credit card, the creditor will look to that spouse for payment when a petition is filed. Where the parties are divorced but jointly liable on obligations, the bankruptcy of one may compel the other to file too. If married partners are liable on debts, a joint bankruptcy petition may be the best solution for both parties. Afterall, It would be unwise for a husband to ge this debts discharged by filing for bankruptcy protection as an individual, if his creditors can still legally chase his wife for joint marital debts.

Alimony and child support are not dischargeable. Where one spouse agrees at the time of divorce to pay a greater share of marital debt in exchange for lesser support payments, the obligation to pay marital debt will be considered non dischargeable support. 

13. How will bankruptcy affect my credit?

Though bankruptcy will stay on your credit report for 7 - 10 years, the overall effect of it can be less harmful than a record of debts and/or judgments that cannot be paid. Many individuals discharged in bankruptcy obtain (or are offered in the mail) new credit cards shortly after discharge. A person has no debt after bankruptcy and may not file again for another six years. 11 U.S.C.A.

14. Should I stop paying credit card, medical bills & other unsecured debts other than normal household bills once a CH 7 Bankruptcy is filed?

Yes. Debts that can be discharged in bankruptcy such as credit card and medical obligations should not be paid once an informed decision is made to file a Chapter 7 petition. Monthly bills such as rent, mortgage payments, telephone, and utilities, however, still must be paid.


15. WILL I HAVE TO GO TO BANKRUPTCY COURT "341 HEARING"?

Yes. Upon the filing of a Chapter 7 petition, a Meeting of Creditors "341 HEARING" is scheduled by the Court, which takes place four to eight after the petition is filed. The Meeting of Creditors is conducted by the trustee at the Federal Court where the bankruptcy is filed. Attorney Forrest Freedman or one of his staff atttorneys will sit next to the petitioner and provide assistance when needed. The trustee turns on a tape recorder, swears in the debtor, and asks if the debtor read the petition before signing it and if the signature on the petition belongs to the debtor. Additional questions may ALSO be asked:

How did you get into financial trouble? Medical problem, hospital stay Do you expect to receive any money in the near future from tax returns, an inheritance, or any other source?

Have you transferred and real or personal property to others within the last year?
The answers to these questions help the trustee determine if the debtor possesses assets that can be distributed to creditors and if the debtor is telling the truth and has filed the petition in good faith. Creditors may appear at the meeting too and ask questions, but this rarely happens. Usually, this hearing takes about ten minutes to complete. In the vast majority of cases, these meetings are simple, perfunctory, and painless.

16. What Happens after the Meeting of Creditors?

In "no asset" cases (the usual Chapter 7 where all assets are exempt), between three - sicx months(approximately) after the Meeting of Creditors, the Court grants a discharge. The case at this point ends with the debtor free and clear of dischargeable obligations listed in the petition. HOWEVER, THE BANKRUPTCY TRUSTEE IS ALLOWED TO REEAXAMINE THE BANKRUPTCY PETITION FOR UP TO 6 YEARS FROM DATE OF DISCHARGE IF BANKRUTPYC FRAUD IS SUSPECTED OR LATER REPORTED.

17. What problems can arise after the petition is filed?

Problems can arise if information on the petition is inaccurate or if material information is withheld. Submitting false information to the court or withholding material information can lead to dismissal of the petition, or even to criminal prosecution.

Problems can also crop up if creditors or the trustee suspect fraud. This can occur where debtor living at poverty level runs up large debt on luxury goods or an expensive vacation shortly prior to filing for bankruptcy. Suspicion may also arise if the debtor transfers assets to relatives or friends in the days leading up to filing. A creditor suspecting fraud may commence an adversary proceeding, which can lead to full-blown and costly litigation. Prior to filing a petition, the debtor should make sure there are no signs of fraud that would likely trigger a denial of the petition or an adversary proceeding.
CALL ATTORNEY FORREST FREEDMAN @ 954 714 1037 TO DISCUSS
DON'T GO IT ALONE. IF YOU SCREW IT UP, YOUR RIGHTS IN BANKRUPTCY COURT MAY BE PREJUDICED AND YOU MAY SUBJECT YOURSELF TO CRIMINAL PROSCEUTION FOR BANKRUPTCY FRAUD. The bankruptcy petition must be filled out accurately and completely. Debtor's inexperienced in bankruptcy law can prepare & file a Chapter 7 petition but debtors with assets can lose they make wrong decisions. 

ATTORNEY FORREST FREEDMAN WILL HELP YOU FILE THE BANKRUPTCY PETITION THAT IS RIGHT FOR YOU. CALL 954 714 1037Please be further advised that the information above is not legal advice or state specific. While CH 7 Bankruptcy Law is based on federal Law, individual states may use their own exemptions instead of following federal law. Exemptions vary from state to state. Also note that local bankruptcy rules and interpretationt hereof variy from district to district.