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Bankruptcy Law



Understanding a Chapter 7 Bankruptcy

What is a Creditor?
A person, business, or entity that is collecting a debt.

What is a Debtor?
A debtor is a party who owes a debt to one or multiple people.

What is a Bankruptcy Trustee? 
A bankruptcy trustee is a person appointed by the federal government to administer a bankruptcy proceeding and represent the creditors’ collective interests.

What are Exempt Assets? 
Exempt assets are assets that a legislative body has determined are necessary for a debtor to get a “fresh start”. The idea behind having assets which are exempt is that leaving a debtor with absolutely nothing will cause a debtor to require outside assistance to sustain a minimal standard of living. Thus, the exempted assets will not leave a debtor destitute, but they will not allow the debtor to be wealthy either.

The Chapter 7 Process in a Nutshell

In a Chapter 7 bankruptcy, after determining which of the debtor’s assets are exempt, a bankruptcy trustee gathers and liquidates the debtor’s non-exempt assets. The proceeds from these assets, if any, are paid toward the debts owed to creditors per the federal Bankruptcy Code. Assets subject to a lien or another encumbrance may be retained by a debtor provided there is no non-exempt equity in the asset and the debtor is able to remain current on regular monthly installment payments.

Can I File a Chapter 7 Bankruptcy?

Qualifying for a Chapter 7 bankruptcy is not determined by whether you are able to pay your debts, or even the amount of debt you may have. What matters is the type of debt you have and the amount of income you have received within the six months prior to the filing of your bankruptcy.

Debtors who have primarily consumer debt must take the “Means Test” to determine whether they qualify for a Chapter 7 bankruptcy. Section 707(b)(2) of the Bankruptcy Code contains the “Means Test” which uses a debtor’s average income from the six month period prior to the filing of a bankruptcy and certain standardized monthly expenses to determine if the debtor has the means to repay a significant amount of his or her debts. If the debtor does have the means to pay a significant portion of his or her debts, the debtor may not file a Chapter 7 bankruptcy but must seek relief under a different Chapter of the Bankruptcy Code.

A person may also be prohibited from filing a bankruptcy if the person seeks to file within 180 days of filing a previous bankruptcy which was dismissed.

The Purpose of Filing a Chapter 7 Bankruptcy

The primary purpose of filing a Chapter 7 Bankruptcy is to receive a “Fresh Start.” The debtor’s debts are “discharged” and there is no further liability for the discharged debts. Prior to filing a bankruptcy, the debtor must be aware that certain debts are not dischargeable. Common examples of non-dischargeable debts include: school loans, spousal support, child support, some home owners fees, and most taxes.

What is the Chapter 7 Process?

Step 1:   Schedule a free initial consultation with one of our experienced attorneys where we discuss whether or not bankruptcy is the best option for you.
     
Step 2:   Retain our firm and receive a comprehensive bankruptcy questionnaire and document checklist.
     
Step 3:  

Return the completed questionnaire and necessary documents to Holland Law Group.
***Married individuals must gather information from their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. ***

     
Step 4:   Our experienced attorneys will prepare a Petition for Voluntary Bankruptcy to be reviewed and signed by the client prior to being filed with the United States Bankruptcy Court for the District of Arizona.
     
Step 5:   The documents filed with the Bankruptcy Court must include “schedules” listing the debtor’s assets and liabilities, current income and expenditures, executory contracts and unexpired leases and a statement of financial affairs.
     
Step 6   Debtors with primarily consumer debts must file a certificate of credit counseling, a copy of their debt repayment plan constructed while in counseling, evidence of payment from employers, if any, a statement of monthly net income, any anticipated increase/decrease of income, and a record of any interest the debtor has in federal or state qualified education or tuition accounts.
     
Step 7:   Approximately four to six weeks after the case is filed, debtors must attend a “Meeting of the Creditors” pursuant to Section 341 of the Bankruptcy Code. During this meeting the trustee will ask you questions about your debt. There is no judge at this meeting. You are required to attend this meeting. In most cases this meeting lasts no longer than 10 minutes and your attorney will be with you.
     
Step 8:   Provided there are no complications or issues in the bankruptcy, the debtors will receive a discharge approximately sixty days after the “Meeting of the Creditors”. However, the case may remain open until the bankruptcy trustee has finished administering the case.

 

Finally it's Discharged; How did that Happen?

A discharge releases individual debtors from personal liability for most debts and prevents creditors owed these debts from taking any collection actions against the debtor. There are some exceptions to this rule; however, excluding dismissed cases, individual debtors receive a discharge about 99% of the time in Chapter 7 cases. The discharge can be stopped by someone filing a complaint or a motion to extend time. A discharge is usually issued by the court within 60 to 90 days after the first date set for the “Meeting of the Creditors”.

How does a discharge get denied?

If the debtor:
  1. Failed to keep or produce adequate books or financial records requested by the bankruptcy trustee.
  2. Failed to satisfactorily explain loss of assets.
  3. Committed a bankruptcy crime such as perjury.
  4. Failed to obey an order of the Bankruptcy Court.
  5. Fraudulently transferred, concealed, or destroyed property that would have become property of the estate.
  6. Failed to complete an approved credit counseling course concerning financial management.
  7. Or has a debt of the kind identified in Section 523 of the Bankruptcy Code.


  8. Discharge Notes:

    1. Secured creditors may retain some rights to seize property securing an underlying debt even after discharge is granted.
    2. If the debtor wishes to keep property which is subject to a lien or mortgage, the debtor may REAFFIRM the debt. This is an agreement which provides that the debtor will pay the debt owed and the debt will not be discharged in bankruptcy.
    3.  

Understanding a Chapter 13 Bankruptcy

A Chapter 13 Bankruptcy enables individuals with regular income to develop a plan to repay all or part of their debts. This means the debtor proposes a repayment plan to make monthly installments to creditors over a three to five year period, depending upon the debtor’s disposable monthly income. In no case is there allowed to be a longer repayment period.

Advantages of a Chapter 13 Bankruptcy

Can I file a Chapter 13 Bankruptcy?
An individual (even if self-employed or operating an unincorporated business) is eligible for Chapter 13 bankruptcy relief as long as the individual’s unsecured debts are less than $336,900.00 and secured debts are less than $1,010,650.00. These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation, partnership, or limited liability company (LLC) may not file a Chapter 13 bankruptcy. Individuals cannot file a Chapter 13 bankruptcy if within 180 days prior to filing the Chapter 13 a prior bankruptcy case was dismissed due to failure to appear before the court or comply with documentation filing requirements. The debtor must also have received credit counseling within the proceeding 180 days of filing your initial bankruptcy.

What is the Chapter 13 Process?
The Chapter 13 preparation and filing process is nearly identical to the Chapter 7 process outlined above. Yet, in addition to the Chapter 7 process, a debtor must also prepare and file a Chapter 13 plan that complies with Sections 1322 and 1325 of the Bankruptcy Code. Namely, the debtor must provide “treatment” for each creditor according to the mandates of the Bankruptcy Code.

What happens next? The filing of any bankruptcy creates an “automatic stay”. This means most collection actions against the debtor or the debtor’s property are stopped. As long as this stay is in effect creditors may not initiate or continue lawsuits for collection of consumer debts. Consumer debts are those acquired for personal, family, or household purposes.

Chapter 13 also contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, creditors may not seek repayment from any co-signer or responsible individual that shares liability for a consumer debt with the debtor.

The most powerful tool in a Chapter 13 bankruptcy is the ability to save your home from foreclosure. Once the automatic stay is in place all proceedings of foreclosure must stop. The debtor then has the option to bring the past due payments current through the Chapter 13 plan. If you are BEHIND ON YOUR MORTGAGE, and want to save your home you should contact our office immediately. A Chapter 13 bankruptcy must be filed before the foreclosure.

The Chapter 13 Plan and Confirmation Hearing
Unless the court grants an extension you must file a repayment plan within 15 days after your petition was filed. This plan must be submitted for court approval and must provide payments and fixed amounts to the trustee on a regular basis typically monthly.

There are three types of claims: 1) priority, 2) secured, and 3) unsecured.

  1. 1. Priority claims are those granted special status by the law such as most taxes, child support, alimony, and bankruptcy administrative fees. Secured claims are those in which the creditor has a lien or mortgage and the right to take back property through foreclosure or repossession. Unsecured claims are those which the creditor has no special rights to collect against particular property that the debtor owns. Priority claims must be paid in full.
  2. 2. To keep secured property the creditor must at least receive the value of the property and in certain situations, be paid the full debt amount.
  3. 3. The plan need not pay unsecured claims in full as long as it provides the debtor will pay all “projected disposable income” (e.g. monthly net income) over an “applicable commitment period”. The unsecured creditors must also receive at least as much under the plan as they would receive if the debtor’s assets were liquidated in a Chapter 7 bankruptcy.

  1. Within 30 days of filing a bankruptcy, even if the plan has not yet been approved by the court, the debtor must begin making monthly plan payments to the trustee.
  2. Within 60 days of the “Meeting of the Creditors” the Chapter 13 trustee must issue an evaluation/recommendation of the debtor’s proposed payment plan.
  3. A response to the trustee’s evaluation/recommendation must be submitted to the trustee within 30 days of the filing of the evaluation/recommendation. The response must include a proposed stipulated order confirming the Chapter 13 plan signed by all appropriate parties.
  4. If the trustee or another party refuses to stipulate to the confirmation of the debtor’s plan but the plan still meets the requirements of the bankruptcy code the court will hold a “contested confirmation hearing” to determine whether to the confirm the plan.
  5. Following confirmation of the plan, the trustee will distribute funds under the plan as soon as practicable.

A Chapter 13 Discharge
A discharge under Chapter 13 bankruptcy is received when application is made by the debtor following the completion of the plan payments/requirements and the issuance of a certificate of eligibility of discharge is provided by the trustee.

A Hardship Discharge
After confirmation of a plan, a debtor may experience financial hardship or other significant change of circumstance. When this happens, a debtor may ask the court to grant a “hardship discharge.” To be eligible for a “hardship discharge”, a debtor must show that their current circumstances resulted from forces beyond their control and that the unsecured creditors have received at least what they would have received in a Chapter 7 bankruptcy.