Individual Bankruptcy A Client's Guide to the Language and Procedure

Transcription

1 Individual Bankruptcy A Client's Guide to the Language and Procedure BAKKE NORMAN L A W O F F I C E S

2 Welcome Thank you for considering Bakke Norman, S.C. to represent your interests. This booklet will give you a basic overview of bankruptcy in Wisconsin and has been written to give you general information about how we handle cases like yours. We hope it will be helpful to you. Your satisfaction is very important to us and forms the basis for our formal quality pledge: To provide the highest quality legal service to the clients we serve, To develop and maintain the highest personal and professional standards and reputation, and To provide a quality professional work opportunity for attorneys and staff. We welcome your feedback at all times. BAKKE NORMAN LAW OFFICES Bakke Norman represents clients who file for relief under the Bankruptcy Code. Under federal law, Bakke Norman is a debtrelief agency.

3 Bankruptcy Attorneys: Who are they? What do they do? How much will they charge? At Bakke Norman, S.C., we have attorneys experienced in handling bankruptcy matters. We employ skilled legal assistants and paralegals to help you and your attorney with your file and to assure you of the best professional representation. You are encouraged to contact the legal assistant or paralegal regarding any questions about your case if the attorney is not available. A legal assistant or paralegal is not an attorney and is not permitted to give legal advice. However, there are many questions that the legal assistant or paralegal can answer regarding your case. Questions calling for legal advice will be referred to your attorney by the legal assistant or paralegal. What Do Bankruptcy Attorneys Do? Bankruptcy laws, like most other laws, are complex and detailed. Your attorney will advise you about the law and help prepare the documents necessary for your case. We will keep you informed about the status of your bankruptcy case and give you our advice regarding any options you have. Through careful planning concerning the content of your bankruptcy schedules and the timing of the actual filing, bankruptcy attorneys seek to maximize the benefits of a bankruptcy filing for their clients. This booklet is designed to provide a very broad, general orientation to the subject of bankruptcy and is not intended to substitute for professional legal advice. Our bankruptcy clients' financial affairs deserve careful analysis and professional attention more attention than can be provided in this short booklet. What Will It Cost? We are committed to providing our clients with a clear understanding of their potential legal fees before beginning representation. Bakke Norman, S.C. generally handles Chapter 7 and Chapter 13 cases on a flat fee basis. Chapter 7 fees are required to be paid in full prior to filing and Chapter 13 fees may be paid as part of the Chapter 13 plan. The cost to file for bankruptcy can vary considerably depending on your circumstances, and fees are subject to change to get a fee estimate, please call Bakke Norman. Before beginning work on your file, we will enter into a fee agreement which will include specific information regarding the amount of our fees and scope of our services. In addition, there is a filing fee which must be paid to the Court at the time of filing. Clients are also required to complete sessions for credit counseling and personal financial management. These fees are in addition to the legal fees charged by Bakke Norman, S.C. Telephone Calls and s We welcome your telephone calls and messages with questions about your case or with new information that we need. When your attorney is in court or meeting with another client, your call may be referred to the legal assistant or paralegal assisting on your file. We will make every effort to respond to your inquiries promptly.

4 What Is Bankruptcy? Bankruptcy is a legal process that protects debtors from legal collection action by creditors. Bankruptcy can prevent or stop garnishments, attachments and foreclosures. This protection is available to individuals, sole proprietorships, partnerships and corporations. You may be eligible for bankruptcy if you have debts that exceed the value of your assets and if, for other reasons, you cannot pay all of your bills as they come due. Bankruptcy laws were passed to provide a fresh start to those who have tried and been unable to pay their debts. The bankruptcy process can release an individual from debts incurred in a business venture as well as consumer debts. However, the bankruptcy code also contains provisions which are designed to prevent abuse by individuals who recklessly incur consumer debt. Bankruptcy protection is provided by federal law, not state law. Therefore, all bankruptcy proceedings are conducted at a federal courthouse and not at a local county courthouse. For residents of west central Wisconsin, almost all proceedings are held at the federal courthouse in Eau Claire. Although protection from creditors is available under the bankruptcy process, one of the most important things we can do for a client is to consider alternate solutions before recommending bankruptcy. Alternate options may include the refinancing of some debts, a negotiated debt reduction or a restructured payment plan. Creditors are frequently willing to accept a reasonable payment plan that avoids the expense and inconvenience of a formal bankruptcy filing. There are several different sections of the bankruptcy code which apply to different types of debtors: Chapter 7 is used by individuals and businesses to liquidate their remaining assets, discharge their debt and obtain a fresh start. Chapter 11 is used by businesses and individuals engaged in business to reorganize their operations and restructure their debts. Chapter 12 is used by family farmers to reorganize their farm operation and restructure their debt. Chapter 13 is used by individuals to reorganize their finances and pay off a portion of their debts pursuant to a three or five-year repayment plan. Liquidation Under Chapter 7 Chapter 7 is frequently referred to as liquidation or straight bankruptcy and is available to individuals, corporations or partnerships. The goal of a Chapter 7 filing is to obtain total and permanent relief from as much debt as possible the dischargeable debts. After a successful Chapter 7 proceeding, the debtor will no longer have any legal obligation to make payment to most creditors. Although there is no personal obligation to repay secured debts, a creditor holding security for its debt may foreclose on the debt and obtain possession of the collateral even if that debt has been discharged by the Bankruptcy Court. For instance, a bank with a mortgage on a house may foreclose its mortgage and obtain possession of the house if the mortgage note is not paid. It is therefore common to continue to pay, or "reaffirm," certain secured debts even after filing bankruptcy. In exchange for a discharge of debts, the bankruptcy debtor must turn over all nonexempt property to the bankruptcy trustee. Exempt property may be retained by the debtor. The law provides an extensive list of exempt property that a debtor may keep. Exemptions are discussed in more detail later in this booklet.

5 Under the bankruptcy law some debts are not discharged. Non-dischargeable debts include most child support, spousal maintenance (alimony), most student loans, most taxes, certain fines or penalties payable to a governmental unit, and debts resulting from injuries to another person due to driving while intoxicated. In addition, debts incurred by fraud or as a result of willful or malicious injury to another or another's property are generally nondischargeable. These are only examples; there are other categories of non-dischargeable debt which are applicable in special circumstances. Wage Earner Plan Under Chapter 13 Individuals may also choose to file pursuant to Chapter 13 of the Bankruptcy Code. This chapter is not available to corporations or partnerships. Unlike a Chapter 7 bankruptcy, a person filing under Chapter 13 is required to pay adjusted debts according to a plan of repayment that is approved by the Court. Chapter 13 offers legal protection from collection actions and is normally used to cure defaults on home mortgages and car loans. Chapter 13 debtors contribute all of their disposable income to the bankruptcy trustee for a three or five-year period in repayment of their secured and unsecured debts. Upon successful completion of the Chapter 13 plan, the balances remaining on most of the debts are discharged. An advantage of a Chapter 13 bankruptcy is that certain debts which are non-dischargeable in a Chapter 7 (such as debts based on fraud and debts arising from a divorce that are not for maintenance or support), are dischargeable in a Chapter 13. Financial Disclosures When we prepare a petition asking the court to grant bankruptcy protection for our client, we must also file specific schedules giving detailed information about our client s current financial status and financial history. This required information can be lumped into the following four broad categories. Debts We must provide a list of the names and addresses of all creditors, the amount owed, the reason for the debt and a description of any mortgage or security held by the creditor. Assets We must provide a description and a stated value of all real estate, vehicles, bank accounts, retirement accounts, accounts receivable, tax refunds, personal property and any other property owned by the bankrupt. A debtor s claims against another are also considered an asset and must be disclosed. Statement of Affairs We must give detailed information about any voluntary payment of money or transfers of property made within the last twelve months, as well as information about any involuntary payments or transfers made as a result of a creditor s legal action. We must also provide information about the existence and location of the bankrupt s financial books and records. Income and Expenses We must give the Court details of all debtor income, including income tax returns, and a detailed list of monthly living expenses. If the debtor owns a business, we must also report the business' income and expenses. Accuracy, completeness and total honesty is required in all dealings with the Court. All written and oral information must be given under oath. Any failure to give complete and accurate information is subject to the

6 perjury laws and can also result in the loss of some or all of the valuable protections under the Bankruptcy Code. The Bankruptcy Code provides many advantageous rights to debtors; however, it also imposes many responsibilities upon them. Debtors seeking to benefit from the protections offered by the bankruptcy process must, in turn, strictly comply with the disclosure requirements and other responsibilities imposed by that process. All assets and all debts must be listed on the schedules and disclosed to the Court. Bankruptcy fraud is a federal crime with very serious consequences. Exemptions Exemptions are a vital part of ensuring that one of the fundamental purposes of the Bankruptcy Code providing the debtor a fresh start is fulfilled. A fresh start would be impossible if the bankruptcy process stripped debtors of all of their property. Some states, including Wisconsin, have laws which protect certain debtor property from being taken by creditors to satisfy a debt. Federal law also provides specific exemptions for use by individuals filing bankruptcy. Wisconsin residents may select either the federal or the state exemptions, but not both. We assist our clients in making this selection by analyzing their property and comparing the advantages and disadvantages of both options. Under Wisconsin laws, property that may be exempt includes up to $75,000 of equity in a homestead ($150,000 for a married couple's homestead); retirement funds; some equity in a vehicle; household furniture and appliances; some livestock and farm machinery; and tools of the debtor's trade. This is only a partial list of exemptions. Your attorney will discuss all the options available. If property is exempt, it does not have to be turned over to the bankruptcy trustee. However, if the exempt property is subject to a mortgage or a security interest, the creditor holding the security may be able to foreclose and take the property even if the debt is discharged. One way to prevent such a foreclosure is to reaffirm and pay the debt. The decision to reaffirm a debt should not be made lightly; it should only be made after careful consideration and consultation with your attorney. Automatic Stay At the time a bankruptcy case is filed, an automatic stay is established. This prevents any creditor from pursuing most collection actions against a debtor without first obtaining the permission of the Bankruptcy Court. The automatic stay prohibits creditors from continuing lawsuits, garnishments or foreclosures, or from sending collection letters or making telephone calls to the debtor. Under Chapter 13, the stay also applies to cosigners or guarantors of debts which the debtor is obligated to pay. Discharge and Reaffirmation The bankruptcy law regarding the scope of the discharge is complex. As a general rule, however, individuals are discharged in more than 99 percent of Chapter 7 cases (excluding cases which are dismissed or converted). In most cases, a discharge will be granted under Chapter 7 relatively early in the case, that is, 60 to 90 days after the date of the first meeting of creditors, unless a complaint has been filed objecting to the discharge or the debtor has reaffirmed a particular debt. Grounds for denying the debtor a discharge include failure of the debtor to keep or produce adequate books or financial records; failure to satisfactorily explain any loss of assets; commission by the debtor of a bankruptcy crime (such as perjury); failure to obey a lawful order of the bankruptcy court; or fraudulent transfer, concealment or destruction of property which would have become property of the debtor s bankruptcy estate. Because secured creditors retain some rights which may permit them to seize the secured property even after a discharge is granted, a debtor wishing to keep possession of the secured property, such as an automobile or home,

7 may find it advantageous to reaffirm the debt rather than surrender the property. A reaffirmation is an agreement between the debtor and the creditor that the debtor will pay all or a portion of the money owed, even though the debtor has filed bankruptcy. In return, the creditor promises that as long as payments are made, the creditor will not repossess or take back the property. If it is necessary to reaffirm a debt, your attorney must be involved to ensure that your rights are protected and that the reaffirmation is in your best interest. Generally, the purpose of filing the bankruptcy is to discharge debt obligations. Consequently, the right to reaffirm a debt should be used sparingly and only when necessary. Credit Rating Clients are normally concerned about the effect of a bankruptcy on their credit rating. Whenever a debtor's financial picture has deteriorated to the point that bankruptcy is an option, it is likely that his or her credit rating has already suffered. A bankruptcy can be part of the debtor's credit history for up to ten years. Some banks and other lenders will deny credit on this basis, some will not. There are laws that protect the misuse of this information; and, it cannot be used to deny employment or terminate current employment. Frequently, the real issue should not be the effect on the credit rating, because the debtor s credit rating is usually very poor anyway. Rather, the real issue is whether it is realistic to improve the debtor s financial condition and credit rating through conservative spending habits and careful saving or through bankruptcy's fresh start. Either way, improved credit will take time and financial discipline. Bankruptcy Terms and Definitions Adversary Proceeding A lawsuit in the U.S. Bankruptcy Court that is related to a bankruptcy case. Adversary proceedings are typically filed by creditors seeking to have their debt declared non-dischargeable by the Bankruptcy Court. Automatic Stay An injunction, or court order, that takes effect when a bankruptcy petition is filed. An automatic stay prohibits all collection action against a debtor. It affects a broad range of activities against the debtor, property of the debtor and property of the bankruptcy estate. The automatic stay ceases when a debtor is discharged or a bankruptcy case is closed. Bankruptcy Code The body of a federal statutory law that governs the bankruptcy process. Bankruptcy Petition The legal document filed with the bankruptcy court that commences a bankruptcy proceeding. Confirmation The process by which the bankruptcy court approves the terms of a Chapter 11, 12 or 13 plan of repayment. Confirmation of a plan implements the terms of the plan. Conversion The changing of a bankruptcy case from one chapter type to another. Credit Counseling Course A single session course that must be completed within 180 days prior to filing the bankruptcy petition. The course can only be offered by organizations approved by the office of the United States Trustee. Creditor A person or entity who is owed money by the debtor. Debtor One who files the bankruptcy petition. In bankruptcy, the bankrupt individual and/or business that is under the protection of the bankruptcy court.

8 Discharge A discharge in bankruptcy relieves the debtor of the dischargeable debts incurred prior to filing. Discharge is the legal term for the elimination of debt through bankruptcy. Certain debts of an individual, such as child support, are normally non-dischargeable. Dismissal The premature termination of a bankruptcy case. The dismissal of a bankruptcy case in effect returns the debtor to the same position the debtor was in before the bankruptcy was filed. Dividend The distribution to creditors of the bankruptcy estate s assets made according to the schedule set forth in the Bankruptcy Code. No dividend in any amount less than $5 should be distributed by the trustee to any creditor unless authorized by order of the court. Exemption or Exempt Property Property of an individual debtor that the law protects from the actions of creditors, such as the debtor s residence or homestead, automobile, tools of the trade, etc. Involuntary Bankruptcy Petition The filing of a bankruptcy petition by a group of creditors against an individual (or business entity) who is indebted to them. The debtor is thereby involuntarily forced into bankruptcy. Judgment The official decision of the court regarding the rights and claims of the parties to a lawsuit. Lien A creditor's interest in property securing the repayment of a debt. Motion A request for the court to take a specified action. A motion may be filed in an adversary proceeding or bankruptcy case. Notice Information given in written form advising certain parties of some fact which they are entitled to know. The court or moving party sends notice to advise parties of a scheduled hearing, a sale to take place, etc. Parties in Interest The individuals or entities which have an interest in a particular bankruptcy case. These include, among others, the interim trustee, U.S. Trustee, debtor, debtor s attorney, creditors and moving parties. Personal Financial Management Course A single session course that must be completed within 60 days after the first meeting of creditors. The course can only be offered by organizations approved by the office of the United States Trustee. Plan of Reorganization The document filed by the debtor in a Chapter 11, 12 or 13 bankruptcy case. The plan contains the terms by which the debtor proposes to pay his/her outstanding debts. The terms of the plan are negotiated with the debtor's creditors; the plan itself is subject to court confirmation. Once confirmed, the plan constitutes a new contract between the debtor and the debtor's creditors. Property of the Estate All property of the debtor of whatever kind or nature. First Meeting of Creditors (Section 341 Meeting) Sometimes called the "341 Hearing," the first meeting of the debtor's creditors is conducted by the trustee assigned to the debtor s bankruptcy case. The debtor submits to questioning (usually very brief) by the trustee or the debtor's creditors concerning income and other assets, location and condition of collateral, recent transfers of assets, and intentions as to certain debts. The debtor is required to attend this meeting. Trustee An officer of the court appointed to take custody of the assets of a bankruptcy estate. The trustee oversees the liquidation or distribution of assets to unsecured creditors.

9 Notes Copyright ~ Bakke Norman, S.C. R2011

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