BANKRUPTCY. Information Provided by Financial Credit Network October, 2011

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1 BANKRUPTCY Information Provided by Financial Credit Network October, 2011 Disclaimer: The information provided by Financial Credit Network is not to be construed as legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult your attorney if you want professional assurance that our information, and your interpretation of it, is suitable to your particular situation.

2 Information Purposes Only This material is provided for informational purposes only and not as legal advice by Financial Credit Network. With respect to any specific information, citations, or statements in these materials, any person or agency with specific legal questions must consult with legal counsel of their choice.

3 What Exactly is Bankruptcy? Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. The primary purpose of the law of bankruptcy is to give an honest consumer a fresh start in life by relieving the consumer of most debts and to repay creditors in an orderly manner to the extent the consumer has assets available.

4 Notice of Stay Regardless of which Chapter the consumer files, they are protected from further collection efforts by the Notice of Stay. All letters, calls, and collection efforts in regard to debts listed by the consumer in the bankruptcy must stop unless relief is granted by the court.

5 Bankruptcy Terms A no-asset case is a Chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims. A preference or preferential debt payment is a payment made to a creditor in the 90-day period before a consumer files bankruptcy that gives the creditor more than the creditor would receive in the consumer's Chapter 7 case. A 341 Meeting is the meeting of creditors required by Section 341 of the Bankruptcy Code at which the consumer is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs. Also called Creditors' meeting.

6 Public Record Bankruptcy is a matter of public record and reflects on the consumer s credit report for 10 years. If a civil judgment has been secured prior to the bankruptcy filing date, it continues to credit report as an unsatisfied judgment.

7 In ,536,799 consumers filed Chapter 7 Chapter 7 In exchange for the discharge of debts, the consumer s nonexempt property is sold allowing the consumer or business to liquidate their assets and debts. 85% of consumers filing bankruptcy in 2010 chose to liquidate. Statistics at: BankruptcyStatistics/BankruptcyFilings/2010

8 What are the benefits of filing Chapter 7? Cost is much less than a Chapter 13 ($500 versus $2,500 for example). Debts may be discharged much faster (6 months instead of 5 years). Most debts are dischargeable. Most states have a reasonable list of exemptions. Bankruptcy is not designed to put consumers out on the street.

9 Examples of what you can keep when you file Chapter 7: Home If current on payments The bankruptcy code allows for equity, state laws vary Transportation Motor vehicles, if payments are current Tools, Clothes, Household Goods, Wages

10 Items you must typically give up when you file Chapter 7: Second Home Second car or truck Family Heirlooms Expensive musical instruments Stamp, coin and other collections Cash, bank accounts, stocks, bonds and other investments

11 Certain debts are not dischargeable through Chapter 7 Credit purchases for luxury goods or services made within 60 days of filing. Debts from willful or malicious injury to another person or another person s property. Debts owed under a divorce decree. Student loans or tax debts. Debts for personal injury or death caused by intoxicated driving. Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution.

12 In ,913 consumers filed for Chapter 13 Chapter 13 This type of reorganization bankruptcy allows consumers to make payments through a court appointed trustee.

13 Why would a consumer choose to file Chapter 13? Consumers may feel a moral obligation to repay their debts. If they have valuable nonexempt property. If they have received a discharge within the previous 6 years, they may not be able to file Chapter 7. If co-borrowers would be pursued for payment.

14 Secured debts Secured debt usually includes the right of the creditor to seize real property (house, car or furniture, e.g.) if there is a default, in addition to the promise or ability of the consumer to pay. A secured claim under the Bankruptcy Code is an allowed claim, secured by a lien on property of the consumer.

15 Unsecured debts A debt that is not tied to any property (medical or utility services or cash advance, for example). Creditors who have a lien need to decide whether to object to a consumer s plan within 45 days after the filing of the bankruptcy case. You cannot rely upon the Chapter 13 trustee to object to a plan that does not fairly treat a creditor s secured claim.

16 What s involved in reorganizing debt? Consumers or businesses filing Chapter 11, 12 or 13 will: File a plan with the bankruptcy court proposing how creditors will be repaid which must be approved by a judge.

17 Other Chapters: Chapter 9 allows municipalities to reorganize their debts. Chapter 11 allows businesses to reorganize their debts, but it is a complex and expensive process. Chapter 12 allows family farmers to reorganize their debts.

18 Where can I get forms and information? This site will allow you to access the 9 th Circuit which includes Northern, Southern, Eastern and Central Bankruptcy Districts of California Pacer search engine for case information Adobe Acrobat to access forms Consumer s attorney or the trustee

19 Filing deadlines In a Chapter 13 case, unsecured creditors who have claims against the consumer must file their claims with the court within 90 days after the first date set for the meeting of creditors. A proof of claim needs to be filed to receive payments and to make sure the correct amount and classification is provided to the trustee.

20 What is a discharge in bankruptcy? A discharge is a release of the consumer from personal liability for certain specified types of debts. It operates as a permanent order directed to the creditors of the consumer that they refrain from taking any form of collection action on the discharged debt.

21 Dismissal of Bankruptcy When a consumer fails to follow the rules and procedures of the bankruptcy court, the case may be dismissed. Unless the court dismisses for cause, the consumer may file again, but, until that time, the dismissal vacates any order, judgment or transfer ordered. Reinstates any proceeding suspended or lien voided. Credit counseling is generally required within 180 days before filing a case and a statement of compliance and a certificate of credit counseling must be furnished by the provider. Failure to do so may result in dismissal of the case.

22 Reaffirming A consumer may choose to reaffirm a debt by putting in writing their decision to make payment on an account. The consumer may find a benefit in making payment, such as avoiding a large deposit, keeping an established line of credit or continuing an existing business relationship.

23 Post Petition Debt When a consumer files a Chapter 7 bankruptcy, the Notice of Stay applies to accounts incurred prior to the filing date. Consumers filing a Chapter 13 bankruptcy may amend their plan or add creditors at additional cost. Post-Petition claims are for debts incurred after the filing date and may be paid at the end of the repayment plan if approved by the trustee.

24 The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was intended to decrease repeat filings. Consumers who had their debts discharged through Chapter 7 are not supposed to be granted another discharge within 4 years of the filing date. Consumers who had their debts discharged in a Chapter 13 case are not supposed to be granted another discharge within 2 years of the pending case.

25 Judges consider debt collectors notified when the original creditor receives notice of the bankruptcy filing. Financial Credit Network requests clients promptly report each new bankruptcy filing for accounts assigned to our office. U.S. consumer bankruptcies increased 9 percent in 2010 from the previous year, according to the American Bankruptcy Institute. The data showed the overall consumer filing total for the 2010 calendar year (Jan. 1 Dec. 31, 2010) reached 1,530,078, compared to the 1,407,788 total consumer filings recorded during 2009.