Bankruptcy MEMO. Notifications from Federal Court

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1 Notifications from Federal Court Bankruptcy MEMO Federal, not state, law governs bankruptcy. Expect all correspondence to come from federal court to arrive by regular first class mail to the address you listed in your bankruptcy petition. Don t expect certified mail when receiving important papers from the bankruptcy court, so make sure to open and read everything you receive from the court, the trustee, and my office. If your address changes, contact me immediately, so I can notify the bankruptcy court to update your records and prevent your missing anything important. If you have moved from out-of-state, please tell me so that I can determine if you are eligible to file in North Carolina. BEFORE YOU FILE A BANKRUPTCY PETITION: You must take a court-approved credit counseling class and receive a certificate; All your taxes must have been filed for previous years; You must present at least 6 months worth of pay stubs or show why you cannot do so. (Let me know if this is impossible, and we may substitute an affidavit of employment.) Please obtain a recent credit report. Try Don t pay for a score. We just need the creditors listed. If you are unable to do so, please let us know so that we can get one, but there will be a separate fee. Before you receive your discharge, you must attend a FINANCIAL MANAGEMENT CLASS, which is also available online for a small fee. If you can go online at home, try the website: which is Hummingbird Credit Counseling and Education. Banks, Credit Unions and You If your income is directly deposited into your checking or savings account at any bank or credit union, and you also owe a debt there, which we are attempting to have discharged in bankruptcy, STOP THE DIRECT DEPOSIT NOW and withdraw all the money from that account. If you fail to do this and then fall behind in payments, or if you tell them you are going to file bankruptcy, they can FREEZE your pre-petition funds. Credit unions are especially aggressive at doing this. Open a new account with a different bank where you do not owe other debts, prior to filing for bankruptcy. After filing, your name may be entered into a national check systems data base, and it can be very difficult to get a new checking account for several years BR memo, revised Page 1

2 Debts You Must Continue to Pay During our conferences, we will determine which debts to continue to pay and which ones to immediately stop paying. You should ALWAYS continue making payments on real estate, cars, furniture or other secured property that you intend to keep. These are generally secured debts, and if you fall behind in payments, the creditor can file a motion to lift the automatic stay and proceed with taking the collateral despite the bankruptcy filing. Inform me of all loans you have, and bring me a copy of your contract, if you have one. If the loan is secured, to keep the collateral, your payments must remain on time and in full. After filing for bankruptcy, you MUST stay current with payments on secured debts, even if you don t continue to receive monthly statements from the creditor. Keep making each payment and retain your receipts, unless it is being paid through your bankruptcy plan. Mark on your calendar when the payment is due, and pay it to the lender, whether or not you get a bill. Most lenders, after receiving notice of a bankruptcy filing, will stop sending you a monthly statement, with the excuse that it is an attempt to collect a debt, and to send a statement violates federal law. Then, when you get behind, they will file a motion to lift stay to take the property. Your credit cards should no longer be used after you have decided to file bankruptcy. In fact, the use of any credit card within 90 days immediately following the filing of bankruptcy is presumed to be fraudulent and you may be required to pay back any amount charged during that time. Inform me of any large cash withdrawals or purchases (over $600.00) that were made on your credit cards in the last 6 to 8 months before you filed bankruptcy, especially if little or no payments have been made since the transaction. Do not take cash advances or transfer credit card balances prior to filing for bankruptcy. Your regular household expenses, such as mortgage, rent, electric, cable, telephone, etc., should always be paid. However, further payments should NOT be made on credit cards, unsecured loans and other debts, since they may be discharged in bankruptcy. There are several exceptions: DPP, which is a special military charge account. This must be paid or your paycheck can be seized once you are 30 days behind. This applies only to military personnel. Also, unless you are permanently disabled, continue to make payments on student loans. Courtordered child support payments and alimony also must remain current, because these obligations are not dischargeable in bankruptcy. REMEMBER: No personal loans should be taken out in the 90 days prior to filing bankruptcy, including family members. Please tell me if you have already done so, so that I may negotiate with that lender BR memo, revised Page 2

3 Loan Company Liens Against Your Belongings Loans received from loan companies such as American General Finance (now Springleaf ), Beneficial, Southern Loans and Citifinancial (now One Main ) are often secured by your household goods and furnishings that you already owned prior to applying for the loan. When signing their contract, if you listed personal belongings to secure the loan, such as stereos, bicycles, TV s, computers, CD s, furniture and so forth, a lien was created. To avoid the lien on these things (in order to get rid of the debt and keep the items) YOU MUST EITHER LIST THEM ON A SHEET OF PAPER OR BRING YOUR COPY OF THE CONTRACT TO ME. If you fail to do this, the motion that is filed to avoid the lien may be denied by the judge and you will have to pay the loan or give up the items. Non-dischargeable Debts Student loans are discharged only for permanent hardship reasons. The legal standard for hardship to discharge a student loan is extremely high. Unless it can be shown that there is absolutely no possibility anytime in the future that you will be able to earn any income to make payments, you will be required to pay off student loans in spite of a bankruptcy. Child support obligations and alimony are not dischargeable in bankruptcy. In Chapter 13 plans, we may be able to help catch up arrears, but the debt will remain enforceable. If you get behind in support payments during your plan repayment period, your bankruptcy case could be in jeopardy. Tax obligations are generally not dischargeable and are considered priority debts if three years old or less. Failure to file income taxes is not a defense to the timeline. If you have not filed for a particular year, no matter how old it is, for bankruptcy purposes it is considered a priority debt and could affect your ability to get a discharge. A tax lien attached to real estate you have owned is generally nondischargeable. Caution: file your income taxes and continue to do so throughout the proceedings. If you are required to file tax returns and have failed to do so, you will not be eligible to get a bankruptcy discharge, in accordance with the new laws. If you fail to file your tax returns while your bankruptcy is pending, your discharge could be denied. Also, please keep in mind that the trustee has look-forward powers regarding any non-exempt cash or property you may be entitled to for six months after filing a Chapter 7 petition. If you receive an inheritance, tax refund or court award, or property, the trustee will be able to seize the non-exempt portion to pay back 2014 BR memo, revised Page 3

4 creditors. You are required to report it to the trustee if you become entitled to receive property during this timeline. Once you file for bankruptcy, you are under a duty not to dispose or transfer any of your property that is considered part of the bankruptcy estate, i.e., property the trustee may be able to seize and sell. This is not the time to sell your car, cash in a tax refund that you get after filing, or have property transferred in or out of your name. If you need to sell real estate after you have filed for bankruptcy, please tell me, so that we can file a motion for private sale, in order to get court permission. If you have an estranged spouse or ex-business partner, he or she may be especially glad to tattle to the trustee about your personal assets, debts, and what they think you could be hiding. Be forewarned that you may be required to defend yourself against accusations. Creditor Harassment Over the Telephone If you are behind on your bills, creditors are beginning to call you asking and demanding, with increasing hostility, that you make your payment. You should refer all of the creditors to your attorney. Tell them that you have hired an attorney, Janice Panza, at (252) and she will be filing a bankruptcy petition on your behalf. Tell the creditors to ask for my bankruptcy assistant. If creditors continue to call after you have clearly told them to call my office, please let me know what is happening. We will follow-up and attempt to get them to stop. REMEMBER to get their name, company and phone number of the person who is calling, and write down the date and time they called. It is none of their business how much you have paid to my office. Without this creditor information, it is difficult to get the phone calls stopped. Most creditors will cooperate and stop calling you as soon as they know that you are represented by an attorney. If you Own a Home If you are a homeowner, including making house or trailer payments toward owning it, the trustee will question you about its value. If tax value is used for your home and land, the trustee may presume that the tax value is lower than the actual selling value or fair market value. That is not always true, but it is often the case. I will need a copy of your deed, deed of trust (mortgage) settlement statement, and tax card. The trustee will ask how you valued your land and home. If tax value is answered, then the trustee may ask more questions to better understand its true value. For example, if you put your home on the market, what do you think you could get for it? This question is designed to have you state a higher price than the 2014 BR memo, revised Page 4

5 tax value. Prior to the trustee asking you these questions, if you believe the home is worth more than tax value, please tell me, so that I can file the correct exemption. Do not assume that a potential lender s appraisal value is accurate, because it could have been artificially inflated to approve your loan. We do not want to report nonexistent equity to the trustee! Caution: If you have recently sold your home and have received a profit, this retained money is no longer protected by the homestead exemption. This could have a crucial bearing on whether to file at this time, so please let me know BR memo, revised Page 5

6 Chapter 7 Bankruptcy Chapter 7 bankruptcy is designed to give you relief from unsecured debts and a fresh financial start. Basically, unless you own more than the exemption amounts, you will be able to keep all of your things, and your unsecured debts will be eliminated (such as credit cards, personal unsecured loans, medical and legal bills). Caution: The bankruptcy will remain on your credit report for seven to ten years and could affect your ability to get new loans. Under Chapter 7, you keep property that is protected by North Carolina exemption laws, but surrender or redeem property not covered by exemptions. If you stop making payments on secured property, the creditor can repossess it after your discharge is granted and the automatic stay is lifted. Most people can keep what they have, unless they have excess property, such as a third car, second home, or expensive recreational toys. Caution: if your residence has more equity than $35,000 per debtor, the trustee could seize and sell your home, give you your exemption money, and use the remainder to pay your creditors. Equity is the amount of money you would have left after paying off the mortgage(s). The amount of equity you have in a possession is the value that remains after its lien is subtracted. Example: if you own a car which is worth $4,000 and you still owe the lender $3,000, your equity is $1,000. This is below your $3,500 motor vehicle exemption limit and your car is safe from the trustee s seizure. North Carolina exemptions: Per debtor: you may keep $35,000 in real estate equity, $3,500 in one vehicle, $5,000 wild card (anything of your choosing, unless the homestead exemption is used), $1,000 per dependent (up to four dependents), and up to $5,000 value on household items. There are other exemptions that will be covered in your petition, and if you are past age sixty-five, some of these exemptions will be treated differently. If you intend to keep a credit card after filing, this can be attempted through a reaffirmation agreement with the creditor in a Chapter 7. It is NOT guaranteed that you will be able to keep any particular credit card. Each company has its own policy and may refuse to keep the account open, but most companies are willing to let you keep their cards if you are current in payments. REMEMBER, in keeping a car, house or any other secured property under a Chapter 7 Bankruptcy, the payments MUST be current when we go to the creditors meeting and the payments must continue to be paid on time. Failure to remain current with payments could result in the creditor filing a motion to reclaim property. You must make payments promptly on secured property that you intend to keep. The new laws may require for you to reaffirm a debt on secured property BR memo, revised Page 6

7 This means that the debt will survive bankruptcy unless you rescind the reaffirmation within 60 days signing it or your discharge is granted, whichever is later. In a Chapter 7, you CANNOT catch up with post-petition arrears through the bankruptcy plan, because in Chapter 7, there is no repayment plan through the trustee. That means that after the bankruptcy is filed, you must make all regular monthly payments on secured merchandise to the lender yourself, and not through a trustee. If you have recently written any checks of significant amounts and you know it has not yet been deposited, you could STOP payment on the check. Stopping payment on a check costs about $30, but may be worthwhile paying for a large amount. HOWEVER, DO NOT remove funds from the bank, to cause the check to bounce. TO DO THAT IS A CRIME and you could be prosecuted in spite of the bankruptcy. Chapter 13 Bankruptcy In a Chapter 13 bankruptcy, you are able to stop a foreclosure or repossession of property, and then you catch up the past-due amounts with a repayment plan through the trustee. Also, you must repay a portion of your unsecured debts and pay the trustee and what is owed to your lawyer. The Chapter 13 trustee does not seize your property, but will establish a value on your assets to determine what is non-exempt. Your unsecured creditors will then be entitled to at least that much pay-back. This payment plan must be approved by the Court ( confirmed ) and you then make payments to the trustee for three to five years. Throughout the plan, the trustee has supervisory powers over your transactions. You are restricted from purchasing anything worth more than $5,000, or taking on new debt, or substituting collateral, without court approval. Eligibility: The amount paid to the trustee and then distributed to your creditors is based on your disposable income and what unsecured creditors would get if you were in a Chapter 7. This means that you must be an individual with regular income and have some money left over after meeting your basic living needs, based on standards set by the IRS. The new laws require us to use a formula to determine how much the unsecured creditors are entitled to, and that will be explained in more detail once your questionnaire has been submitted. This bankruptcy filing will remain on your credit report for at least 7 years after completion of the plan payments. If you have a second mortgage secured by your home, and there is no equity left after satisfying the first mortgage, the court may classify the second mortgage as unsecured and cancel the deed of trust upon the successful completion of your plan BR memo, revised Page 7

8 However, I must file a Motion to Value Collateral. To do so, I must receive specific information from you: the market value of your home, and the pay-off needed for each mortgage. Be prepared to testify to the judge why you think your property has a certain value, so we can prove that the junior lien has no security and should be treated as an unsecured debt. In a close case, you could be required to have an appraisal done on your home. Chapter 13 Payments to the Trustee Make your first proposed plan payment to the Trustee s office by the first of the month immediately following the month that your bankruptcy petition is filed, which will probably be before you go to court. For instance: If your bankruptcy petition is filed with the court April 30, then your first payment is due in the Trustee s office on May 1. If paperwork is filed April 1, then your payment is due May 1. Don t wait to pay until you attend the meeting with the trustee, because you would already be behind. If this Chapter 13 has been filed so you can save your house or car because you are behind on payments and facing foreclosure or repossession, you MUST pay both the underlying mortgage or car payment to the creditor AND the MONTHLY payment to the Trustee (unless the regular payments are also included in the plan). If you fall behind on your regular monthly payments after your case has been filed, your house or car can be taken away from you if the creditor gets court permission, called a lift of automatic stay. When you sign your petition, the repayment amount that we propose to the Chapter 13 trustee is only an estimate. The trustee may require the payments to be larger, due to such factors such as: payments on any vehicle to be made through the plan instead of direct from you to the lender, or a proof of claim coming in higher than we estimated, or assets which we considered to be exempt are considered nonexempt. If you bring your plan payment to my office so that we must deposit it and then mail it to the trustee, there will be a service charge of $10.00 per payment. The trustee will assume that your income and expense information is accurate. He does not like these numbers changing, except for a substantial change in circumstances, so please make sure your expenses and income are as accurate as possible when submitted to the trustee. You will sign the petition under penalty of perjury that your submissions are true and accurate. If you fail to make timely, complete payments to the trustee, he will file a motion to dismiss your case, and if granted, will result in the loss of all your bankruptcy protection and your debts will survive. The new laws make it more difficult to refile a bankruptcy, and the automatic stay is not guaranteed 30 days after filing. If your Chapter 13 case is dismissed and you file a new case, a presumption 2014 BR memo, revised Page 8

9 of abuse arises. This means that we must convince the court that you have filed the new case in good faith, that the automatic stay should remain in place throughout the plan, and that you have experienced a change in circumstances since the previous filing, such that your new plan has a good chance of being successful BR memo, revised Page 9

10 Your Responsibilities to the Court, Trustee and Creditors It is mandatory that you attend the scheduled creditors meeting, which will be held about a month after you file your petition. This is held with a group of debtors on prescheduled days, conducted by the trustee while you are under oath. If you are housebound, very ill or preparing to move far away, in limited circumstances we may be able to have you answer the trustee s questions through written interrogatories. That means that we must get court permission for you to answer in writing instead of attending the mandatory creditors meeting. In Chapter 7 cases, when about 75 days have passed from your bankruptcy hearing ( 341 meeting), you have completed the financial management class, and if no creditors or the trustee has objected, you will receive a document called your discharge by regular mail from the bankruptcy court. This Order is your proof that the debts reported in your bankruptcy petition are canceled forever, i.e., unsecured debts and secured debts for which you surrendered the property. Keep this document with your copy of the petition for reference or to defend challenges from creditors about discharged debts. If you surrender secured property, and the creditor sells it and there is still money left owing after the sale, the remaining debt is called a deficiency. If you do not have bankruptcy protection, the creditor can demand that you pay this deficiency even after the property has been given up or repossessed. However, with bankruptcy protection and proper notification of that creditor, you can no longer be held liable for the deficiency after the property has been sold. You must keep your address updated, so that the courts, the trustee, and I can reach you when necessary. If you move, notify my office of your new address as soon as possible, so that we can contact those who need to know. Payment of Attorney s Fees, Repossessions, Creditor Calls We will work with you on payments to my office and filing fees. We can generally hold off creditor calls for about three months prior to receiving a file number. If your bankruptcy has not been filed, eventually creditors may begin calling you again. We can t absolutely keep a creditor from calling or attempting to reclaim secured merchandise after a three month period if you have not filed by then. If your payments are behind (especially on a car), and you don t have a file number, the creditor CAN and often WILL repossess your car. Creditors calling this office instead of calling you is a courtesy that they observe so long as the period of being informed about a pending bankruptcy and the actual filing does not seem unreasonably delayed. It is important to pay my office the agreed upon retainer and filing fee and to submit all paperwork promptly so that 2014 BR memo, revised Page 10

11 we can get you a file number and officially keep creditors from contacting you. I want to help you by removing as much your debt load as possible and the resulting burdens weighing upon you. Failure to make agreed-upon payments to my office will result in a reminder call or letter sent to you. If you choose not to pay me we will simply drop the bankruptcy proceeding after an unexplained failure to keep your payment arrangement with me. After non-response to our call and letter, we will then answer creditor inquiries that we no longer represent you and they may contact you instead. Office and Filing Fees There is no fee for the initial bankruptcy consultation. For a Chapter 7, my fee is $1, plus a $ filing fee for the clerk. The online credit counseling class charges $39, and there will be a small fee for the financial management class prior to your discharge. Total: $1, Exceptions: If you have more than thirty creditors or a business to liquidate, the fee is $100 extra. I realize that this fee feels like a burden to pay all at once, so it is ok to put me on layaway, i.e., make regular payments to my office until the office and filing fees are paid. Once you have paid the $1,589.00, we will then be able to file your petition. Please don t stretch out the payments farther than six months, though. Your credit counseling certificate will expire 180 days after taking the class, so you should file prior to its expiration. If you must sign a reaffirmation agreement, there will be a $200 charge per reaffirmation filed. For a Chapter 13, my office fee is $3,700 (negotiable, based on the complexity of your case) plus $ filing fee for the clerk. I require at least: $200 at the time the completed questionnaire is delivered to my office; then $39 for the online credit counseling fee, due when you take the class; $200 due at signing (which includes the filing fee to the clerk); this amounts to $749 up-front, then the remaining $3,300 will be paid through your Chapter 13 plan. When the creditors receive a monthly payment, the trustee will also pay me a portion. Total: $4, If you are a repeat Chapter 13 filer, and you require a motion to extend the automatic stay, an additional $400 fee is due at the signing of the motion, which will then be deducted from the $3, office fee. Services included in the Chapter 13 base fee are set up to properly represent you before the Bankruptcy Court during the first twelve (12) months after filing of the case, excluding non-base fee matters, which are approved by the court as follows: (A) Motion to use interrogatories $ BR memo, revised Page 11

12 (B) Motion for turnover $ (C) Adversary proceeding for turnover $ (D) Uncontested adversary lien stripping $ (E) Motion avoid judicial lien $ (F) Motion to modify plan post confirmation $ (G) Motion to substitute collateral $ (H) Motion for authority to sell property $ (I) Application to incur debt $ (J) Defense of Motion for relief from stay $ (K) Handling of an insurance inquiry received more than 12 months after the Chapter 13 case is filed $ (L) Defense of motion to dismiss $ (M) Motion for hardship discharge $ (N) Objection to claim $ (O) Notice to abandon property $ (P) Motion to value collateral and avoid mortgage $ (Q) Filing of proof of claim $ (R) Mortgage to deem mortgage current (to be paid directly by debtor $ (S) Amendment to schedules or statements of financial affairs $ (T) Objection to confirmation $ (U) Motion to extend or impose the automatic stay for repeat filers $ (V) Motion to set aside dismissal $ If, after I have transcribed your questionnaire into a petition draft and then you change your mind about filing for bankruptcy through my office, the up-front fee of $200 is non-refundable. Also, please note my limitations on representation, which does not include adversarial proceedings, judicial lien avoidances, or more than one defense of a motion for relief from stay in a Chapter 7. If you receive more than one motion for relief from stay and wish to fight it, I charge $200 to defend you in this particular matter. A motion to set aside a judicial lien is also $200. Office Procedures for Handling Bankruptcy At your initial conference, you will be given a disclosure package, questionnaire, memo and privacy statement to read, understand and sign. Before your next appointment, please fill out the questionnaire and bring it back to me (with your $200 deposit) so we can analyze and draft your petition. If you have any questions or problems, call my office and we will gladly assist you BR memo, revised Page 12

13 When your draft of the bankruptcy petition is ready for signing, you must carefully review it. When you sign the petition, your information must be as thorough and accurate as possible, because you will be required to affirm under penalty of perjury that it is true and accurate to the best of your knowledge and ability. Although we use our best efforts to provide notice to your creditors of the filing of bankruptcy through the clerk of bankruptcy court, you are ultimately responsible for the names, addresses account numbers and amounts owed to your creditors. A creditor s defense to the extinguishment of debt is that they were not notified in time to defend themselves, and their debt should survive past the discharge. If a creditor is successful here, you could be required to pay that debt after your discharge and it will continue to surface on your credit report. Please call my office during the hours of 8:30 a.m. to 4:30 p.m., Monday through Friday. During non-business hours, leave a message, and my legal assistant or I will return your call as promptly as possible. If you need to speak to me in person, please respect my other clients, staff, and me by making an appointment beforehand, so that we may talk without distractions. This memo is meant to give you a general understanding of the bankruptcy process and does not encompass every possibility that could occur. Please write down questions and we will go over them at our next meeting. I wish you much luck in the future and hope that we can work together to make this process as successful and painless as possible. Sincerely, Janice Joyner Panza Date:. I (we) have read and understand the terms of this memo, consisting of a total of eleven pages. (Date.. ) Client (Date.) Client Client questions (attach additional sheets if necessary) 2014 BR memo, revised Page 13