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WHAT IS BANKRUPTCY?
Bankruptcy is a way for people and businesses who owe more money than they can pay right now (“debtors”) to either wipe out (‘discharge’) most of their bills in a chapter 7 case or work out a plan to repay the money over time in a case under chapter 11, chapter 12 or chapter 13. The filing of a bankruptcy petition immediately stops most actions to collect debts which were due at the time of filing, including law suits, repossessions, and foreclosures. Based upon the circumstances, the court may, however, permit some eviction, repossession and foreclosure actions to continue even after the case is filed.
What chapter you choose to file under, what bills can be eliminated, how long payments can be stretched out, and other details are controlled by the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure. These are laws are Federal, which means they apply all over the United States. The Code and Rules are found in Title 11 of the United States Code. The various sections of the Bankruptcy Code are referred to on this site as "11 U.S.C. §.” In addition to the Bankruptcy Code and Rules, what property you can keep will be affected by sections 703 and 704 of the California Code of Civil Procedure or other exemption laws.
WHO CAN START A BANKRUPTCY?
Any person, partnership, corporation, or business trust may file a bankruptcy. If the person or entity who owes the money, referred to as the debtor, files a petition and starts the bankruptcy, it is called a voluntary bankruptcy. For people and small businesses, cases are usually filed under Chapter 7 or Chapter 13.
A business that is NOT a partnership, corporation or business trust, cannot file a separate bankruptcy on its own. Those assets and debts would be included in the personal bankruptcy of the owner(s). Only a business that is a separate legal entity may file on its own. If a natural person owes the debt, a business filing bankruptcy in which that person owns stock, is a partner or a Limited Liability member, does not ordinarily have any effect on that person and the person will still owe the debt.
CAN I FILE BANKRUPTCY WITHOUT AN ATTORNEY?
Current law permits individuals to file their own cases and to represent their own interests in bankruptcy proceedings. However, it may not be wise for you to do so. Any bankruptcy case can become a complicated matter requiring both knowledge of the law and experience in front of the court to successfully complete. In order to file a case, you will need to know (among hundreds of other things) the differences between the types of bankruptcies which can be filed, what kind of entity is filing, the types of exemptions which can be taken and the differences between secured and unsecured debts. As your case progresses, many other areas of law and knowledge may be involved. Decisions made without an understanding of basic bankruptcy law can have serious consequences including the loss of property and legal rights. Only an attorney may file a bankruptcy for a partnership or corporation. Even if an individual is the sole shareholder or the managing partner, that person may not represent the corporation or partnership before the bankruptcy court.
WHAT CHANGES HAVE BEEN MADE TO BANKRUPTCY LAW IN RECENT YEARS?
Part I. The biggest change to the current bankruptcy law occurred about 10 years ago, in 2005. A law was passed by Congress called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. That law made significant changes to the Bankruptcy Code which affects all debtors to this day. Here are some of the major changes:
1. Waiting periods if previous filing: A debtor who has previously filed a bankruptcy and obtained a discharge, may not receive another discharge unless there has been sufficient time between the two cases. There is an 8 year period [calculated from the filing date of the first case and the filing date of the second case] for persons who have received a discharge in a chapter 7 and wish to file another chapter 7 case, and 6 years if the first case was a chapter 13. To receive a chapter 13 discharge, the period is 4 years if the first case was a chapter 7, and 2 years if the first case was a chapter 13 case.
2. Mandatory Pre-Bankruptcy Credit Counseling: All individual debtors who file bankruptcy on or after October 17, 2005, must undergo credit counseling from an approved counseling agency within 180 days before filing for bankruptcy. A statement concerning compliance with the credit counseling requirement must be completed and filed by the debtor.
3. Mandatory Debtor Education Course after Filing: Every individual debtor in a chapter 7 case or chapter 13 case must complete a personal financial management (or debtor education) course before they will be granted a discharge. This debtor education course is separate from and required in addition to pre-bankruptcy credit counseling. To comply with the debtor education requirement, the course must be completed after the filing of the petition. In chapter 7 cases, Official Form 23 should be filed within 45 days of the first date set for the Meeting of Creditors. In chapter 13 cases, the form should be filed no later than the date of the last payment made by the debtor under the plan or the date of the filing of a motion for a discharge prior to completion of the plan. If the debtor fails to file Official Form 23, their case can be closed without discharge.
4. Tax Returns – Individual debtors must provide a copy of their most recent tax return (or a transcript of the return) to the trustee and any creditor who requests a copy no later than seven days before the date first set for the Meeting of Creditors.
5. Wage Statements – Copies of all wage statements, payment advices, or other evidence of payment from an employer provided to the debtor within 60 days before the date of filing of the case must be provided by the debtor to the trustee not later than seven days before the date first set for the Meeting of Creditors.
6. Means Test – To provide for the reporting and calculation of “current monthly income” and for the completion of the means test where required, three separate official forms (22A, 22B, and 22C, plus subparts) have been created — a set for chapter 7, a set for chapter 11 and a set for chapter 13. In chapter 7 cases the means test is used to determine whether a debtor’s filing represents an abuse of the bankruptcy process. Some debtors may be prohibited from filing a chapter 7 case if their income would permit them to make payments to their creditors. In chapter 13 cases, the test is used to determine “current monthly income”. The result is used to determine the disposable income that must be paid to payment of unsecured creditors.
Part II. Another significant change went into effect on December 1, 2015. The forms that have been used for decades have been replaced by new forms. The information that is required to file bankruptcy is being dramatically expanded. More detail must be provided to meet the requirements of the new standard forms. While the purpose of the new forms was to make things simpler and easier to understand, what has really happened is that the change has made it much more difficult for a person to file bankruptcy without legal assistance.
Part III. Exemption laws are continuously being updated. It is extremely important that the proper exemption laws are used to avoid loss of assets in a chapter 7 case or overpayment of creditors in a chapter 13 case.
WHAT IS A JOINT PETITION?
A single petition filed by an individual and the individual’s spouse is called a ‘joint petition.’ Only people who are married on the date they file may file a joint petition. Unmarried persons, corporations, and partnerships must each file a separate case. If you are an individual and have a business which is not a partnership, corporation or business trust, you should list the name of the business as an alias (“doing business as,” or “dba”) on your petition. A petition filed in this manner, however, will not be considered a joint petition because the business is not an independently recognized legal entity.
WHAT ARE THE TWO MAIN ``CHAPTERS`` IN BANKRUPTCY?
Chapter 7 is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases are commonly referred to as “straight bankruptcy” or “liquidation” cases, and may be filed by an individual, husband and wife, a corporation, or a partnership. Under chapter 7, a trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. Most Chapter 7 Debtors DO NOT have assets over the exemption amounts that are provided for and their assets will not get taken by the Trustee and sold for liquidation purposes. In the case of an individual or husband and wife, the debtor is allowed to claim certain property as exempt. Property that is no exempt is taken by the trustee, sold and the money used to pay creditors. In exchange for this, the debtor gets a discharge, which means that the debtor does not have to ever pay back most types of debts. Corporations and partnerships do not receive discharges. Consequently, any individuals legally liable for the partnership’s or corporation’s debts will remain liable. If a person is also liable for a corporation’s debts, an individual bankruptcy may be required as well as the corporation or partnership bankruptcy to protect the individual person.
Chapter 13 is the debt repayment chapter for individuals with regular income whose debts do not exceed $1.578.925 total ($394,725 in unsecured debts and $1,184,200 in secured debts), including individuals who operate businesses as sole proprietorships. It is not available to corporations or partnerships. Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future income. Each chapter 13 debtor proposes a repayment plan which must be approved by the court. The amounts set forth in the plan must be paid to the chapter 13 trustee who distributes the funds for a percentage fee. Many debts that cannot be discharged can still be paid over time in a chapter 13 plan. After completion of payments under the plan, chapter 13 debtors receive a discharge of most debts.
7. WHAT CHAPTER IS RIGHT FOR ME?
You normally have a choice in deciding which chapter of the Bankruptcy Code will best suit your needs. The decision whether to file a bankruptcy, and under which chapter to file depends on the particular circumstances of the debtor. In general, chapter 7 is appropriate when the debtor has insufficient income to pay all or most of his/her debts and who qualifies under the current Monthly Income and Means Test. Otherwise, if the debtor has an income or property and can afford to pay all or a substantial portion of his/her debts, chapter 13 may be appropriate or even required.
These are only a few of the factors to consider, however. There is no way that a short explanation such as this, can spell out all the different things to be considered. Also, considering your personal facts, comparing them to each chapter’s requirements, and deciding which chapter to select, would be giving legal advice. Clerk’s Office staff, bankruptcy petition preparers, typing services and paralegals are prohibited by law from giving you legal advice. Only a lawyer can give you legal advice. United Law Center will give you a free consultation, during which we will go over your circumstances and needs and tell you what you should do and how much it will cost.
The decision whether to file a bankruptcy and under what chapter is an extremely important decision and should be made only with competent legal advice from an experienced bankruptcy attorney after a review of all of the relevant facts of the debtor’s case.
HOW DO I KNOW IF A DEBT IS SECURED, UNSECURED OR PRIORITY?
a. Secured Debt
A secured debt is a debt that is backed by property. A creditor whose debt is “secured” has a right to take property to satisfy the claim. For example, most homes are burdened by a “secured mortgage”. This means that the lender has the right to take the home if the borrower fails to make payments on the loan. Most people who buy new cars give the lender a “security interest” in the car. This means that the debt is a “secured debt” and that the lender can take the car if the borrower fails to make payments on the car loan. There are other types of secured debt also. An experienced bankruptcy attorney can help determine if a creditor is secured.
b. Unsecured Debt
A debt is unsecured if you have simply promised to pay someone a sum of money at a particular time, and you have not pledged any real or personal property to secure that debt.
c. Priority Debt
A priority debt is a debt entitled to priority in payment, ahead of most other debts, in a bankruptcy case. A listing of priority debts is given, in general terms, in 11 U.S.C. § 507 of the Bankruptcy Code. Examples of priority debts are some taxes, wage claims of employees, debts related to goods and services provided to a debtor’s estate during the pendency of a bankruptcy case, and alimony, maintenance or support of a spouse, former spouse, or child. If you have questions deciding which of your debts are entitled to priority status, you should consult an attorney.
d. Is Consumer Debt Secured, Unsecured or Priority?
Consumer debt is either secured or unsecured debt incurred by an individual primarily for a personal, family or household purpose. The mortgage on your personal residence is considered consumer debt, however income taxes are not. Debts which are incurred in pursuit of a business would also not be consumer debt. Consumers can also owe debt this is considered priority debt, usually for recent taxes or support payments.
WHAT ARE EXEMPTIONS?
Exemptions are laws that protect your assets. First, consider what assets are. Assets are every possible thing that you own or that you might have a right to. Of course, people know that their real estate is an “asset”, but many other things are also assets, such as a possible claim against someone or a company, future tax refunds, a paycheck and almost any other thing that you can own. It is vital that all assets are listed and protected with exemptions.
11 U.S.C. § 522(b) allows an individual debtor to exempt real, personal, or intangible property from the property of the estate. That law allows states to require a person filing bankruptcy to use state exemption laws instead of those provided for by bankruptcy law.
In California, a person filing bankruptcy must normally use state law exemptions to protect his/her assets. There are complicated exceptions to this rule, so consult an attorney before selecting exemptions. In California, exempt assets are protected by state law from distribution to your creditors. Typically, exempt assets include some jewelry, vehicles up to a certain dollar amount, the equity in your home up to a certain amount, retirement, bank accounts and tools of the trade.
Under bankruptcy law, you are entitled to list the assets set forth in California Code of Civil Procedure § 703 or § 704 of the California Code of Civil Procedure as exempt. Deciding which assets are exempt and how and if you can protect these assets from the trustee and your creditors can be one of the more important and difficult aspects of your bankruptcy case. It is extremely important to consult an attorney if you have any questions regarding the issue of exempt assets.
If assets are not exempt, they are usually turned over to the trustee in a Chapter 7. In a Chapter 13, assets may be the determining factor in how much creditors must be paid.
WHAT HAPPENS AFTER I FILE BANKRUPTCY?
Upon filing the original petition with the Clerk’s Office, the “Automatic Stay” immediately takes effect and prohibits all creditors from taking certain collection actions against the debtor or the debtor’s property. Although the stay is automatic, creditors need to be advised of the stay. The court issues a notice to all creditors advising them of the filing of the bankruptcy, the case number, the Automatic Stay, the name of the trustee assigned to the case (if filed under chapter 7, 12, or 13), the date set for the Meeting of Creditors (called the “341 meeting”), the deadline, if any, set for filing objections to the discharge of the debtor and/or the dischargeability of specific debts, and whether and where to file claims. The exact information in the notice differs depending on the chapter under which the case is filed.
There are many exceptions to the Automatic Stay. Several more recent limitations on the imposition of the Automatic Stay, especially for repeat filers, were included in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The most prominent of these exceptions relates to the termination of the stay against the debtor on the 30 th day after the filing of a new case if the debtor had a prior case pending within one year of filing the present case. The stay can be extended by the Court with a showing of good cause. In addition, there is an exception allowing the commencement of a civil proceeding regarding child custody or visitation, domestic violence or the dissolution of marriage, but not division of property. Other new exceptions include the continuation of an eviction or unlawful detainer action involving a residential lease. Because this is a very complex area of the law, you may wish to seek legal assistance before proceeding legally against a party who has filed for bankruptcy protection.
In a chapter 7 case involving an individual debtor, the creditors generally have sixty (60) days from the first date set for the Meeting of Creditors to object to the dischargeability of a specific debt involving fraud or a willful or malicious action. If the deadline passes without any objections to the debtor’s discharge being filed, the court will issue the discharge order. If any objections to the dischargeability of specific debts are filed, they will be heard by the court, but will not delay the granting of a discharge with respect to other debts. An objection to discharge or to the dischargeability of certain debts is considered a separate lawsuit (an adversary proceeding) within the bankruptcy and may result in a trial before the judge assigned to the case. Corporate and partnership chapter 7 debtors do not receive a discharge. If there are no assets from which a dividend can be paid, the trustee will prepare a report of no distribution and the case will be closed. If there are assets that are not exempt, funds will be available for distribution to creditors. The court will set claims deadlines and notify all creditors to file their claims. The trustee will proceed to collect the assets, liquidate them and distribute the proceeds to creditors. When the assets have been completely administered, the court will close the case. To obtain a discharge, the debtor must complete a personal financial management course. If the certification of completion of an approved personal financial education course is not filed within 45 days of the Meeting of Creditors, the court will simply close the case without entering a discharge.
In a chapter 13 case, creditors are given an opportunity to object to the plan filed by the debtor. If no objection is filed by creditors or by the trustee, the plan may be confirmed as filed. Once the plan is confirmed, the trustee will distribute the proceeds of the debtor’s plan payments to creditors until the debtor completes the plan or the court dismisses or converts the case. Upon completion of the chapter 13 plan, the court will issue a discharge order, the trustee will prepare a final report, and the case will be closed. To obtain a discharge, the debtor must complete a personal financial management course.
WHAT IS A BANKRUPTCY TRUSTEE? WHO IS THE UNITED STATES TRUSTEE? WHAT IS THE DIFFERENCE?
In all chapter 7 and 13 cases, a case trustee is assigned. In chapter 7 cases they are called “Panel Trustees.” In chapter 13 cases they are called “Standing Trustees.” The trustee’s job is to administer the bankruptcy estate, to make sure creditors get as much money as possible, and to preside over the first Meeting of Creditors, (also called the “341 meeting”, because 11 U.S.C. § 341 of the Bankruptcy Code requires that the meeting be held). The trustee either collects and sells non-exempt estate property, as in the case of a chapter 7, or collects and pays out money on a repayment plan, as in the case of a chapter 13. The trustee can require that you provide, under penalty of perjury, information and documents, either before, after, or at the meeting. You must also provide positive identification and verification of your social security number to the meeting. You should always cooperate with the trustee, since failure to cooperate with the trustee could be grounds to have your discharge denied. Trustees are not necessarily lawyers, and they are not paid by the court. They are appointed by the United States Trustee. The trustees report to the court, but their fees come out of the bankruptcy filing fees or as a percentage of the money distributed to creditors in the bankruptcy.
The United States Trustee’s Office is part of the U.S. Department of Justice, and is separate from the court. The United States Trustee’s Office is a watchdog agency, charged with monitoring all bankruptcies, appointing and supervising all trustees, and identifying fraud in bankruptcy cases. The United States Trustee’s Office cannot give you legal advice, but they can give you information about the status of a case, and you can contact them if you are having a problem with a trustee, or if you have evidence of any fraudulent activity. In monitoring cases, the United States Trustee reviews all bankruptcy petitions and pleadings filed in cases, and participates in many proceedings affecting the case, but they do not administer the case themselves. They can bring motions in the bankruptcy, such as ones to dismiss the case, or to deny the debtor’s discharge. The United States Trustee is the agency which certifies credit counseling and debtor education providers.
WHAT IS THE CREDITORS' MEETING? WHAT CAN I EXPECT WILL HAPPEN AT IT?
A “Meeting of Creditors” is the hearing all debtors must attend in any bankruptcy case. It is held outside the presence of the judge and usually occurs between twenty (20) and forty (40) days from the date the original petition is filed with the court. In chapter 7, and chapter 13 cases, the trustee assigned to the case conducts the meeting on behalf of the United States Trustee. In chapter 11 cases where the debtor is in possession and no trustee is assigned, a representative of the United States Trustee’s office conducts the meeting.
Before the meeting occurs each individual debtor is required to provide the trustee with a copy or transcript of his/her most recently filed income tax return and copies of pay advices covering the 60 days prior to filing. These documents, plus any others requested by the trustee, should be provided at least 7 days before the date of the creditor’s meeting. Failure to do so can result in a motion to dismiss the case or a continued meeting date. Many trustees require additional information either under Local Rules or otherwise to allow them to investigate the facts of the case.
The meeting permits the trustee or representative of the United States Trustee’s Office to review the debtor’s petition and schedules with the debtor face-to-face. The debtor is required to answer questions under penalty of perjury concerning the debtor’s acts, conduct, property, liabilities, financial condition and any matter that may affect administration of the estate or the debtor’s right to discharge. This information enables the trustee or representative of the United States Trustee’s Office to understand the debtor’s circumstances and facilitates efficient administration of the case. Additionally, the trustee or representative of the United States Trustee’s Office will ask questions to ensure that the debtor understands the positive and negative aspects of filing for bankruptcy. Finally, individual debtors must provide government-issued photo identification and proof of Social Security number to the trustee or representative of the United States Trustee’s Office at the meeting.6
The meeting is referred to as the “Meeting of Creditors” because creditors are notified that they may attend and question the debtor about the location and disposition of assets and any other matter relevant to the administration of the case. However, creditors rarely attend these meetings and, in general, are not considered to have waived any of their rights by failing to appear. The meeting usually lasts only a few minutes but may be continued to a later date if the trustee or representative of the United States Trustee’s Office is not satisfied with the information provided by the debtor. If the debtor fails to appear and provide the information requested at the meeting, the trustee or representative of the United States Trustee’s Office may request that the bankruptcy case be dismissed or that the debtor be ordered by the court to cooperate or be held in contempt of court for willful failure to cooperate.
Positive government-issued identification is required at the Meeting as well as proof of the debtor’s Social Security number.
WHAT IS A DISCHARGE?
The discharge order is issued by the court and permanently prohibits creditors from taking action to collect DISCHARGEABLE debts against the debtor personally; this does not prevent secured creditors from seizing collateral if payments are not kept up, or other creditors from pursuing property of the estate. Some debts are not dischargeable, and others may be found to be non-dischargeable depending on particular circumstances.
In a chapter 7 case, the bankruptcy court will order that the debtor be discharged of all dischargeable debts once the time for filing complaints objecting to discharge has expired unless any of the following apply:
- The debtor is not an individual
- A complaint objecting to the debtor’s discharge has been filed
- A motion to extend the time for filing a complaint objecting to the debtor’s discharge is pending
- The debtor has filed a waiver of discharge
- A motion to dismiss the case for substantial abuse is pending
- A motion to extend the time for filing a motion to dismiss the case for substantial abuse, is pending
- The debtor has not paid in full the court fees connected with the filing of the case
- The debtor has not filed the Debtor’s Certification of Completion of Instructional Course Concerning Personal Financial Management.
In chapter 13 cases, generally the completion of a confirmed plan of reorganization discharges the debtor from dischargeable debts that arose before the date of the order of relief unless any of the following apply:
- The plan or order confirming plan provides otherwise
- The plan is a liquidating plan and the debtor would be denied a discharge in a chapter 7 case under 11 U.S.C. § 727.
The granting of a discharge does not automatically result in the closing of a case. All contested matters, adversary proceedings, and appeals must be resolved and the appointed trustee or debtor-in-possession must file a final report and account and request entry of a final decree before the Clerk’s Office will close the case.
WHAT IS THE DIFFERENCE BETWEEN A DENIAL OF DISCHARGE AND A DEBT BEING NON-DISCHARGEABLE?
A discharge can be denied by the court either for one particular debt or for all debts. For a discharge to be denied, either as to a particular debt or as to all debts, someone must file an adversary proceeding (lawsuit) with the court. The descriptions below are general. Anyone that wants to find out more should look at the descriptions and definitions found in the Bankruptcy Code and should review the procedures in the Rules of Federal Bankruptcy Procedure and Local Rules for their jurisdiction.
In a lawsuit to deny the discharge as to all debts, the person who brings the action must prove to the court that the debtor did one of the following:
(1) transferred, concealed, removed, destroyed or mutilated property of the debtor within one year before the bankruptcy was filed, or after the bankruptcy was filed, or
(2) concealed, destroyed, mutilated, falsified, or failed to keep and preserve books and records about the debtor’s financial condition or business transactions, or
(3) the debtor made a false statement while under oath, in writing or orally, or
(4) failed to turn over books and records, or
(5) failed to explain the loss of assets, or
(6) had received a previous bankruptcy discharge within eight (8) years.
There are 19 types of debts that are not individually dischargeable. Some of these require a creditor to take action, others do no. For the ones that require creditor action during the bankruptcy case, in order to deny the discharge as to one debt only (dischargeability of a debt), the creditor must usually prove that the debtor
(1) got the money or thing by making false representations, false pretenses or committed actual fraud, or
(2) used a materially false statement about his/her financial condition on which the creditor reasonably relied, or
(3) committed fraud or defalcation while acting in a fiduciary capacity, committed embezzlement, or committed larceny, or
(4) for willful and malicious injury by the debtor to another entity or to the property of another entity.
WHAT DOES IT MEAN IF A CASE IS DISMISSED?
A dismissal order ends the case. Upon dismissal the “Automatic Stay” ends and creditors may start to collect debts, unless a discharge is entered before the dismissal and is not revoked. An order of dismissal itself will not free the debtor from any debt. Often, a case is dismissed when the debtor fails to do something he/she must do (such as show up for the creditors’ meeting, answer the trustee’s questions honestly, produce books and records the trustee requests), or if it is in the best interests of the creditors.
Unless the debtor appeals the order or seeks reconsideration of the order within ten (10) days after entry of the order, the Clerk will automatically close the case.
WHAT IS A REAFFIRMATION AGREEMENT?
Secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. Depending on individual circumstances, if a debtor wishes to keep certain secured property (such as an automobile), he or she may decide to “reaffirm” the debt. A reaffirmation agreement is an agreement by which a bankruptcy debtor becomes legally obligated to pay all or a portion of an otherwise dischargeable debt. Such an agreement must generally be filed within sixty (60) days after the first date set for the Meeting of Creditors, but before the discharge is entered.
The Bankruptcy Code requires that reaffirmation agreements contain an extensive set of disclosures described in 11 U.S.C. § 524(k). Among other things, the disclosures must advise the debtor of the amount of the debt being reaffirmed and how it is calculated, and that reaffirmation means the debtor’s personal liability for that debt will not be discharged in the bankruptcy.
If the reaffirming debtor is represented by an attorney, the agreement is filed with an affidavit of the attorney which complies with 11 U.S.C. § 524(c)(3). If the reaffirming debtor is not represented by an attorney, the debtor or creditor must file an application for approval of the agreement, along with a request for hearing. An order approving the agreement should be brought to the hearing. You must appear in person at the hearing. The judge will ask questions to determine whether the reaffirmation agreement imposes an undue burden on you or your dependents and whether it is in your best interests. Since reaffirmed debts are not discharged, the bankruptcy court will normally only reaffirm secured debts where the collateral is important to your daily activities.
Reaffirmation agreements are strictly voluntary. They are not required by the Bankruptcy Code or other state or federal law. However, if the debtor does not either reaffirm or redeem secured personal property, such as a vehicle, the protections of the Automatic Stay are terminated.
Since a reaffirmation agreement takes away some of the effectiveness of your discharge, legal counsel is advisable before agreeing to a reaffirmation. Even if you sign a reaffirmation agreement, you have a minimum of sixty (60) days after the agreement is filed with the court to change your mind. If your discharge date is more than sixty (60) days after the agreement is filed with the court, you have until your discharge date to change your mind. If you reaffirm a debt and fail to make the payments as agreed, the creditor can take action against you to recover any property that was given as security for the loan and you will usually remain personally liable for any remaining debt. That means that the property can be repossessed and you may be sued for the balance.
WHAT IS REDEMPTION?
Redemption allows an individual debtor (not a partnership or a corporation) to keep tangible, personal property intended primarily for personal, family, or household use by paying the holder of a lien on the property the amount of the allowed secured claim on the property, which typically means the value of the property. Otherwise, in order to retain the property, the debtor would have to pay the entire amount of the secured creditor’s debt, do a reaffirmation agreement and become legally obligated on the debt again. The property redeemed must be claimed as exempt or abandoned.
With redemption, a debtor can often get liens released on personal household possessions for much less than the underlying debt on those secured possessions. Unless the creditor consents to periodic payments, redemption must generally be made in one lump sum payment to the creditor. If the debtor and creditor agree to the redemption, just a consent order of redemption is required. If the redemption is opposed, a motion for redemption and a request for hearing should be filed.
WHAT ARE CLAIMS AND CLAIMS OBJECTIONS? HOW ARE CLAIMS FILED?
In the broadest sense, a claim is any right to payment held by a person or company against you and your bankruptcy estate. A claim does not have to be a past due amount but can include an anticipated sum of money which will come due in the future. In filling out your Schedules, you should include any past, present or future debts as potential claims.
b. Claim Objections
You are entitled to object to any claim filed in your bankruptcy case if you believe the debt is not owed or if you believe the claim misrepresents the amount or kind of debt (e.g. secured or priority) which you owe In some circumstances, an objection to claim can be initiated by filing a forma Objection to Claim and setting a hearing in the bankruptcy court; in other circumstances, it must be initiated by filing an adversary proceeding (like a lawsuit in your bankruptcy case). If you anticipate objecting to claims, you should seek the advice of an attorney as soon as possible since the objection process can be complicated and time sensitive.
c. Filing Claims
The proof of claim should include a copy of the obligation giving rise to the claim as well as evidence of the secured status of the debt if the debt is secured. Under the Federal Rules of Bankruptcy Procedure, with limited exceptions, claims filed by creditors, except governmental units, in chapter 7 and 13 cases must be filed within ninety (90) days after the first date set for the Meeting of Creditors. Claims of governmental units must be filed within one hundred eighty (180) days of the date the petition was filed. In the Eastern District of California, the ninety (90) day and one hundred eighty (180) day deadlines also apply, by local rule, to the filing of claims by creditors in chapter 11 cases. If a creditor files a claim after the specified deadline, you may object to the claim as being untimely filed. Under the Federal Rules of Bankruptcy Procedure, you (or in chapter 7 cases, the trustee) may file a proof of claim on behalf of a creditor within thirty (30) days after the last day for filing claims.
WHAT CAN I DO IF A CREDITOR KEEPS TRYING TO COLLECT MONEY AFTER I HAVE FILED BANKRUPTCY?
If a creditor continues to attempt to collect a debt after the bankruptcy is filed in violation of the Automatic Stay, you should immediately notify the creditor in writing that you have filed bankruptcy, and provide them with either the case name, number and filing date or a copy of the petition that shows it was filed. If the creditor still continues to collect, the debtor may be entitled to take legal action against the creditor to obtain a specific order from the court prohibiting the creditor from taking further collection action and, if the creditor is willfully violating the Automatic Stay, the court can hold the creditor in contempt of court and punish the creditor by fine or incarceration. Any such legal action brought against the creditor will be complex and will normally require representation by a qualified bankruptcy attorney.
WHAT SHOULD I DO IF I CANNOT MAKE MY CHAPTER 13 PAYMENT?
If the debtor cannot make a chapter 13 payment on time according to the terms of the confirmed plan, the debtor should contact the trustee by phone and by letter advising the trustee of the problem and whether it is temporary or permanent. If it is a temporary problem and the payments can be made up, the debtor should advise the trustee of the time and manner in which the debtor will make up the payments. Please note that all plan payments should be mailed to the payment address provided by the chapter 13 trustee or delivered to the trustee’s office. Taking or sending payments to the Clerk’s Office, or the Office of the U.S. Trustee will delay processing and further delay the crediting of late payments to your chapter 13 account.
Significant changes in the debtor’s circumstances may require that the plan be formally modified. If the problem is permanent and the debtor is no longer able to make payments to the plan, the trustee will request that the case be dismissed or converted to another chapter. The determination of whether to modify, dismiss or convert a case requires the same kind of analysis as is needed for the initial decision whether to file bankruptcy and under what chapter. Therefore, the debtor should seek counsel from a qualified bankruptcy attorney before attempting to make such a decision. If the debtor delays making a voluntary decision and cannot make the plan payments, the court may dismiss the case.
HOW MANY YEARS WILL A BANKRUPTCY SHOW ON MY CREDIT REPORT? HOW LONG WILL IT TAKE BEFORE I CAN GET CREDIT?
The bankruptcy petition, schedules and plan are public documents and are available to the general public for viewing. Credit reporting agencies regularly collect information from the petitions filed and report the information on their credit reporting services. Bankruptcies normally will remain on your credit report for up to ten (10) years and may be taken into consideration by any person reviewing a credit report for the purpose of extending credit in the future. The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor depending on the type of credit requested.
There is no law which prevents anyone from extending credit to you immediately after the filing of a bankruptcy, nor are creditors required to extend you credit. The best way for you to obtain credit in the future is to generate an adequate and regular income and pay all of your financial obligations, such as rent or a mortgage, in a timely and responsible manner. Many creditors will not deal with you in the future unless you have already established credit with someone else and demonstrate that you are a reliable debtor. In general it is recommended that, after the filing of a bankruptcy, one learns to live within his/her income and not request credit which is not absolutely necessary. A Financial Management course if required prior to receiving a discharge in a bankruptcy case that is designed to help people with their future budget.
MY EX-SPOUSE HAS FILED BANKRUPTCY. HE/SHE HAS LISTED ME AS A COSIGNER ON A SCHEDULED DEBT. WHAT CAN I DO? DOES MY DIVORCE DECREE PROTECT ME?
If you are a co-obligor with your ex-spouse on a debt, the creditor can require the entire payment of that debt from your share of the community property even though the divorce decree assigns the debt to your ex-spouse. Depending on the terms of your divorce decree, you may be able to have certain support obligations under it determined to be non-dischargeable by the bankruptcy court or in state court. You should seek legal advice for a thorough explanation of your rights and obligations in this area as soon as you find out that your ex-spouse has filed a bankruptcy.
Under the proper circumstances, obligations in a divorce decree that are owed to the other spouse are not discharged in a chapter 7 bankruptcy case. Support obligations are also not discharged in a chapter 7 or chapter 13 case.