Frequently Asked Questions for Chapter 7 Debtors The information contained in this document is provided as a service to our clients, and does not constitute legal advice. We try to provide quality information, but we make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained herein. As legal advice must be tailored to the specific circumstances of each case, and laws are constantly changing, nothing provided herein should be used as a substitute for the advice of competent counsel.
INDEX WHAT IS BANKRUPTCY?... 3 WHAT DOCUMENTS ARE NEEDED TO START A BANKRUPTCY?... 3 WHAT HAPPENS AFTER I FILE BANKRUPTCY?... 3 WHAT IS A BANKRUPTCY TRUSTEE?... 4 WHAT ARE EXEMPTIONS?... 4 WHAT HAPPENS TO MY NON-EXEMPT ASSETS?... 5 WHAT IS THE CREDITORS MEETING? WHAT CAN I EXPECT WILL HAPPEN AT IT?... 6 WHAT IS A DISCHARGE?... 6 WHAT DEBTS ARE DISCHARGEABLE?... 7 WHAT HAPPENS IF A CREDITOR OBJECTS TO MY DISCHARGE?... 7 FOR WHAT REASONS COULD MY DISCHARGE BE DENIED?... 8 WHAT IS A REAFFIRMATION AGREEMENT... 8 HOW MANY YEARS WILL A BANKRUPTCY SHOW ON MY CREDIT REPORT? HOW LONG WILL IT TAKE BEFORE I CAN GET CREDIT?... 9 CAN I PAY DISCHARGED DEBTS AFTER THE BANKRUPTCY CASE HAS BEEN CONCLUDED?... 9 WILL MY BANKRUPTCY TERMINATE LIENS THAT HAVE BEEN ATTACHED TO MY PROPERTY?. 9 WHAT HAPPENS IF I STOP PAYING ON A SECURED CLAIM AFTER MY BANKRUPTCY HAS BEEN FILED?... 10 CAN I CHANGE INFORMATION CONTAINED IN MY SCHEDULES ONCE THEY HAVE BEEN FILED WITH THE COURT?... 11
WHAT IS BANKRUPTCY? Bankruptcy is a way for people or businesses who owe more money than they can pay right now to either work out a plan to repay the money over time (chapters 11, 12, or 13) or wipe out ( discharge ) most of their bills in a chapter 7 case. WHAT DOCUMENTS ARE NEEDED TO START A BANKRUPTCY? The documents needed to file bankruptcy are called the petition and schedules. The petition and schedules consist of approximately 12 to 15 documents. These documents disclose information regarding the debtor(s) from name, address, and social security or tax identification number, to a complete picture of the assets, liabilities, and other financial information dating as far back as six years prior to the filing of the bankruptcy. These documents take a considerable amount of time to prepare. Although Walter Law Group will be preparing these documents on behalf of our client(s), it is the client(s) who must provide all the information necessary to prepare these documents. It is very important to note that it is the client who must carefully review and sign these documents under penalty of perjury. A complete listing of information needed in order to prepare the necessary documents will be provided separately by Walter Law Group. WHAT HAPPENS AFTER I FILE BANKRUPTCY? Upon filing the original petition, the court s restraining order, called the automatic stay, immediately takes effect and prohibits all creditors from taking any collection action against the debtor or the debtor s property. Although the stay is automatic, creditors need to be advised of the stay. The court will issue 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, the date set for the meeting of creditors, 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. Creditors generally have sixty (60) days from the first date set for the meeting of creditors to object to the discharge of the debtor and/or the dischargeability of a specific debt. If the deadline passes without any objections to the debtor s discharge being filed, the court will issue the discharge order. An objection to discharge or to the 3
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 debtors do not receive discharges. 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 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. WHAT IS A BANKRUPTCY TRUSTEE? In all chapter 7 cases a case trustee is appointed at the time the original petition is filed with the court. Trustees are appointed randomly. The trustee s job is to administer the bankruptcy estate, to make sure the creditors get as much money as possible, and to run the first meeting of creditors (also called the 341(a) Meeting because 11 U.S.C. 341 of the Bankruptcy Code requires that the meeting be held). The trustee collects and sells non-exempt estate property (see WHAT ARE EXEMPTIONS? below). The trustee can require you to provide, under penalty of perjury, information and documents, either before, after, or at the meeting of creditors. Failure to cooperate with the Trustee could be grounds to have your discharge denied. WHAT ARE EXEMPTIONS? 11 U.S.C. 522(b) allows an individual to exempt real, personal, or intangible property from the property of the estate. Exempt assets are protected by state law from distribution to your creditors. There are two statutory schemes which can be applied to your assets. Walter Law Group will work with you to determine which statutory scheme will be most beneficial in your particular case. The first statutory scheme is often referred to as the Homestead Exemption Scheme. This scheme currently allows the debtor to claim as exempt anywhere from $50,000 to $125,000 worth of equity in their residential real property depending on the debtor s age and marital status. 4
The second statutory scheme is often referred to as the Grubstake or Wildcard Exemption Scheme. This scheme currently allows the debtor to claim as exempt up to $18,350.00 in any real or personal property. Each statutory scheme includes exemptions for household goods and furnishings, clothing, qualified retirement plans, interest in insurance policies, interest in a motor vehicle, and other categories, up to a specified amount. For example, using the homestead exemption scheme you may claim as exempt your interest in a motor vehicle up to $2,400. If the grubstake exemption scheme is used you may claim only $1,900 worth of interest in a motor vehicle. Examples of the most common assets which are in non-exempt categories are cash, cash on deposit, stocks, and interest in businesses or corporations. Exemption planning is a critical aspect of preparing for a chapter 7 bankruptcy and will be discussed with you in detail by the attorneys at Walter Law Group. You will be advised how best to maximize your exempt assets and minimize those that are nonexempt. WHAT HAPPENS TO MY NON-EXEMPT ASSETS? At the time a bankruptcy petition is filed all assets of the debtor become property of the bankruptcy estate. Exempt property will be protected by California state law. Nonexempt property is not protected and therefore may be liquidated for the benefit of creditors. Upon the trustee s determination that there is non-exempt property belonging to the bankruptcy estate, a letter will be sent to the debtor and the debtor s attorney outlining what property is non-exempt and requesting payment from the debtor for the value of this non-exempt property. Money received from the debtor for non-exempt property is distributed to creditors by the trustee. There are times when the trustee will dispute the value given by the debtor to a certain asset. When this occurs the trustee will notify the debtor and the debtor s attorney that the value is disputed and request the difference between the debtor s value and the value that has been determined by the trustee. To avoid this problem it is very important to supply Walter Law Group with values that can be supported by documentation. 5
WHAT IS THE CREDITORS MEETING? WHAT CAN I EXPECT WILL HAPPEN AT IT? A meeting of creditors is the single hearing all debtors must attend in any bankruptcy proceeding. 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. Individual debtors must provide government issued photo identification and proof of social security number to the trustee. Acceptable picture identification includes a valid state-issued drivers license, state issued picture identification card, passport, legal resident alien card, military identification, student or work photo identification. Acceptable proof of social security number includes a social security card, a current W2 form or tax return, health card, employer pay stub, or other document which shows the debtor s name and social security number. The meeting will be continued to the trustee s next calendar date if the debtor does not have the required identification. The meeting permits the trustee 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 the administration of the estate or the debtor s right to discharge. This information enables the trustee to understand the debtor s circumstances and facilitates efficient administration of the case. 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 and may be continued if the trustee is not satisfied with the information provided by the debtor. 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. Unless the lien is avoided during the case it survives bankruptcy. 6
The bankruptcy court will order that the debtor be discharged of all dischageable debts once the time for filing complaints objecting to discharge has expired unless: 1. The debtor is not an individual; or 2. A complaint objecting to the debtor s discharge has been filed; or 3. The debtor has filed a waiver of discharge The granting of a discharge does not automatically result in the closing of a case. Contested matters, adversary proceedings, and appeals must be resolved and the appointed trustee must file a final report and account and request entry of a final decree before the Clerk s Office will close the case. WHAT DEBTS ARE NOT DISCHARGEABLE? Non-dischargeable debts include: 1. Certain taxes and fines; 2. Debts created through fraudulent conduct or by providing false information to a creditor; 3. Debts not listed in your bankruptcy schedules; 4. Alimony, child maintenance or support, and certain debts arising out of a divorce decree or separation agreement; 5. Debts from willful and malicious injury to another; 6. Government guaranteed student loans due within seven (7) years before filing your bankruptcy; 7. Debts caused by the death or a personal injury related to the operation of a motor vehicle while you were intoxicated; and 8. Post bankruptcy condominium or cooperative owners association fees Additionally, debts that were incurred after you filed bankruptcy are not discharged. WHAT HAPPENS IF A CREDITOR OBJECTS TO MY DISCHARGE? A creditor who desires to object to the debtor s discharge must do so by filing a complaint in the bankruptcy court before the deadline set out in the notice. This complaint creates a separate lawsuit (an adversary proceeding). This adversary proceeding is separate from your chapter 7 bankruptcy, and as such requires a separate retainer and agreement with Walter Law Group, or an attorney of your choosing. 7
Should a complaint objecting to discharge be filed Walter Law Group will notify you immediately and explain your options. FOR WHAT REASONS COULD MY DISCHARGE BE DENIED? A debtor s discharge may be denied for several reasons, including the transfer or concealment of property with intent to hinder, delay, or defraud creditors; destruction or concealment of books or records; perjury and other fraudulent acts; failure to account for the loss of assets; violation of a court order; or an earlier discharge in a chapter 7 or 11 case commenced within six (6) years before the date of the petition was filed. Other grounds for denial of discharge include failure of the debtor to keep or produce adequate books or financial records; failure of the debtor to explain satisfactorily any loss of assets; the debtor s committing of a bankruptcy crime such as perjury; the debtor s failure to obey a lawful order of the bankruptcy court; or the debtor s fraudulent transfer concealment, or destruction of property that would have become property of the estate. WHAT IS A REAFFIRMATION AGREEMENT 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. Reaffirmation agreements are strictly voluntary. They are not required by the Bankruptcy Code or other state or federal law. You can voluntarily repay any debt instead of signing a reaffirmation agreement. One of the most fundamental benefits of bankruptcy is the right to discharge most debts. For this reason you should be very careful about reaffirming a debt. The bankruptcy code requires that reaffirmation agreements be approved by the attorney for the debtor and then be approved by the Court. We do not sign reaffirmation agreements and such services are specifically excluded from our retainer agreement with you. In our many years of experience it is been our observation that very few debts should be reaffirmed. 8
HOW MANY YEARS WILL A BANKRUPTCY SHOW ON MY CREDIT REPORT? HOW LONG WILL IT TAKE BEFORE I CAN GET CREDIT? The bankruptcy petition and schedules 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 in a timely and responsible manner. CAN I PAY DISCHARGED DEBTS AFTER THE BANKRUPTCY CASE HAS BEEN CONCLUDED? A debtor who has received a discharge may voluntarily repay any discharged debt. A debtor may repay a discharged debt even though it can no longer be legally enforced. Sometimes a debtor agrees to repay a debt because it is owed to a family member or because it represents an obligation to an individual for whom the debtor s reputation is important, such as a family doctor. WILL MY BANKRUPTCY TERMINATE LIENS THAT HAVE BEEN ATTACHED TO MY PROPERTY? The filing of bankruptcy does not avoid, invalidate, terminate or erase a valid lien. Liens survive bankruptcy unless avoided during the bankruptcy. There are several types of liens that can be attached to your property. For example, the lending institution who financed your home most likely has a deed of trust on that real property. This type of lien makes the lender a secured creditor, meaning that if you do not make your payments on the loan before or after bankruptcy, they have a right to foreclose on your property. 9
Another type of lien is a judgment lien. This type of lien occurs when a creditor obtains a judgement against you in a court of law, and then attaches a lien to your property as a way to secure the judgment amount. As a result of this lien the creditor would collect on their judgment should you sell your property in the future. The first type of lien referenced, the deed of trust held by the lending institution, cannot be avoided. However, the judgement lien can be avoided to the extent it impairs an exemption to which you are entitled. This is accomplished through the filing of a Motion to Avoid Lien. It is important to stress that if a lien does not impair an exemption to which you are entitled, you may not successfully be able to avoid it. Therefore, if you have no equity in your home and opt to utilize the Grubstake Exemption Scheme (see WHAT ARE EXEMPTIONS?), rather than claim the Homestead Exemption Scheme, a judgment lien attached to your residence may not be avoidable. The preparation, filing, and service of a Motion to Avoid Lien, as well as our appearance(s) at the hearing on this motion, is not included in your chapter 7 retainer. It is a separate and unrelated task, and will require a separate retainer to be pre-paid, specifically for the filing of this motion. The cost of this motion depends on several factors such as the complexity of the lien or liens, the amount of paper work you can provide to Walter Law Group regarding the liens attached to your home, and whether or not any objections are filed in response. Should you opt to have the motion filed on your behalf, you should be prepared to pay an additional retainer. WHAT HAPPENS IF I STOP PAYING ON A SECURED CLAIM AFTER MY BANKRUPTCY HAS BEEN FILED? As discussed above, liens survive bankruptcy. Due to the automatic stay creditors are prohibited from taking any action to collect on a debt. However, if the debt they are trying to collect on is secured by assets of the debtor, and payments are delinquent, the creditor may file a motion for relief from the stay with the court. This motion will likely be granted and the creditor will then be able to take steps towards foreclosure or repossession. Therefore, If you wish to retain an asset that secures a certain debt you must voluntarily send your monthly payment to the secured creditor. 10
If a Motion for Relief from Stay is filed and you wish to oppose this motion, a response will need to be filed with the court. Responses to such motions are specifically excluded from your chapter 7 retainer agreement with Walter Law Group. Should you wish for Walter Law Group to file a response to such a motion on your behalf, we would need to be retained separately to do so. CAN I CHANGE INFORMATION CONTAINED IN MY SCHEDULES ONCE THEY HAVE BEEN FILED WITH THE COURT? It is critically important that you take the time to read and verify each and every piece of information contained in your petition and schedules prior to signing them. As we have mentioned before, you will be asked to sign several declarations under penalty of perjury verifying that the information contained in your schedules is accurate and complete. Schedules can, however, be changed to add, delete, or change information contained therein. This requires the filing of an amendment with the court. Generally, Walter Law Group charges a fee for each amendment. This fee covers any applicable court costs as well as the fees generated through the preparation of the amendment. 11