Here are answers to frequently asked questions about the bankruptcy. This information will give you a general understanding of the bankruptcy process.
Please call (614.223.1444) or e-mail us to schedule a free consultation, where we can provide a comprehensive analysis of your financial situation and see whether bankruptcy is right for you.
Bankruptcy is a proceeding under federal law that allows partial or total relief from the repayment of your debt. The relief initially comes in the form of an “automatic stay†order effective immediately upon the filing of the bankruptcy petition. This automatic stay stops most creditors from commencing or continuing collection action against you. Indeed, the stay is so pervasive that it sometimes requires creditors to return recently repossessed property to you.
At the end of the case, the Court grants a discharge eliminating your responsibility to pay certain debts.
There are four types of bankruptcy proceedings available to individual debtors, each of which is highly dependent upon your financial circumstances:
- Chapter 7 Liquidations: Chapter 7 is often referred to as “straight†or “liquidation†bankruptcy. In this give-and-take process, debtors are relieved of their debt obligations in exchange for the forfeiture of any non-exempt property to the Trustee. Most cases we file involve assets that are entirely exempt such that our clients are not obligated to give up any property. These cases are called “no asset†cases because no assets are available for distribution to creditors.
- Chapter 11 Reorganizations: This Chapter is primarily reserved for large scale business debtors and is not discussed here.
- Chapter 12 Farmer Repayment Plans: This Chapter creates a special repayment plan for farmers and is not discussed here. Please consult our office with specific questions about Chapter 12 petitions.
- Chapter 13 Wage Earner Plans: Chapter 13 is often referred to as a “wage earner plan†because debtors are required to demonstrate that their gainful employment will enable them to make suitable payments under their proposed repayment plan. In addition, you must demonstrate that you have sufficient income to pay all of your current living expenses (e.g., rent, food, utilities, transportation, clothes, etc.) such that you have money left over to apply to the repayment of your debts. At the end of your plan, you will receive a discharge relieving you of your obligation to pay the unpaid balance on unsecured debts. Our office will prepare a Chapter 13 plan based on the difference between your take-home pay and necessary monthly living expenses. As simple as it may seem, determining the amount that you are required to pay to your unsecured creditors in a Chapter 13 plan is a complicated process that usually depends on a variety of factors in your case. Here are some general rules to consider:
- The term of the plan can be no more than sixty (60) months and, in some instances, can be as little as thirty-six (36) months–depending on your income.
- The amount paid over the term of the plan must be enough to pay certain debts in full. These include the following: (1) income tax debt less than three years old; (2) property tax debt less than one year old; (3) business trust fund taxes (withholding & sales taxes); and (4) back child support and alimony.
- If you are filing to stop a foreclosure, the amount necessary to bring the loan current over the plan period as well as pay the regular monthly mortgage payment.
- The payment of all secured debts, such as vehicle loans, that you proposed to pay “through the plan.â€
- Any balance on attorney’s fees not paid prior to filing the case.
Much of the decision between a Chapter 7 and Chapter 13 petition rests with your specific financial condition. Here are some factors that we consider in evaluating your case:
- Is your current monthly income such that you are eligible for a Chapter 7 discharge?
- Do you maintain gainful employment such that you are able to afford a viable Chapter 13 repayment plan?
- Do you have non-exempt assets that will be compromised through a Chapter 7 filing that could otherwise be protected in a Chapter 13 plan?
- Are you behind on your car and/or mortgage payments? If so, would you like to keep those assets or would you rather surrender them to your creditors?
- Would you benefit from a Chapter 13 repayment plan through lower interest rates and monthly payments?
- Are some of your debt obligations eligible for a “cram-down†or “strip-off†that would make a Chapter 13 case more advantageous for you?
An individual, a partnership or a corporation may file a Chapter 7 bankruptcy; however, only individuals may file under Chapter 13 of the Bankruptcy Code. The following circumstances speak to individual filings only:
- Marital Status: You may file your petition jointly with your spouse or separately regardless of marital status.
- Prior Bankruptcy Voluntarily Dismissed: If you filed a bankruptcy petition that was voluntarily dismissed by you, you may need to wait until six (6) months has elapsed to file a second petition.
- Prior Bankruptcy Discharge: If you received a Chapter 7 discharge, you may not petition the Bankruptcy Court again for relief under Chapter 7 until eight (8) years has elapsed since the prior case’s filing. You may, however, file a Chapter 13 petition after a Chapter 7 discharge within four (4) years of the prior case filing or discharge, as the case may be. Conversely, a prior Chapter 13 discharge precludes you from filing a Chapter 7 petition within six (6) years of the prior case’s filing date. Alternatively, you only need to wait two (2) years from the prior Chapter 13 filing date to seek a second Chapter 13 discharge.
- Residency: You must be a resident of the federal judicial district in which you reside for at least 180 days before that district’s Bankruptcy Court is considered the proper forum (“venueâ€) to entertain your petition.
As soon as we file your petition, the Bankruptcy Court will automatically issue an Order prohibiting your creditors from pursuing any and all collection efforts against you. Please note, however, that it takes a few days for the Court to print and mail the formal notices to your creditors such that you may still be contacted in the interim period. If this is the case, simply tell the creditor you have filed bankruptcy; provide them with your case number and our telephone number (614.223.1444); and direct all future inquiries to our office.
The Court will schedule a “341†Meeting of the Creditors within thirty (30) to forty-five (45) days after the petition is filed. For most Central Ohio residents, the hearing will be held in Suite 100 of the U.S. Bankruptcy Court, 170 North High Street, Columbus, Ohio. As you might expect, it is mandatory that you appear together with us at this meeting to be examined by the Trustee under oath about your case. These meetings usually take no longer than ten (10) minutes. We are with you during the exam to assist in any way we can. Though your creditors are welcome to attend the meeting, they usually do not. Unless objections are filed or other issues arise in the case, the 341 meeting is the usually the only time you must come to Court before receiving a discharge, which is typically issued by the Bankruptcy Court approximately seventy (70) days after the 341 meeting.
If we have filed a Chapter 13 petition on your behalf, amongst other things, you must:
- Send your first plan payment to the Chapter 13 Trustee within thirty (30) days of the petition’s filing date;
- Attend a debtor orientation course on the Monday immediately preceding your scheduled 341 Meeting of the Creditors;
- Maintain sufficient insurance coverage on all property encumbered by a creditor’s lien;
- Seek Court and Trustee approval before disposing of any non-exempt property worth more than $1,000;
- Seek Court and Trustee approval before incurring additional debt in excess of $1,000.
The Bankruptcy Code prohibits your creditors from contacting you or otherwise collecting against you as soon as they receive notice that your case has been filed with the Court. Creditors are specifically precluded from contacting you at either your home or place of work. Please note, however, that it takes some time for the Court to print and send the notices to your creditors. Simply inform any creditor that contacts you in the meantime that you have filed bankruptcy; provide them with your case number and our phone number (614.223.1444); and direct any future inquiries to our office.
Of course, creditors are always able to legally collect against you in the time before your case is filed. If you are concerned about your exposure to creditors during this time, you may wish to inform your creditors that you have retained our office in connection with a bankruptcy case. It has been our experience that most creditors will stop harassing phone calls when they verify through our office that you have in fact retained us; however, you may not inform creditors that you have retained our office until we have executed a fee agreement and formally commenced representation in your case. Moreover, your decision to inform “secured†creditors that you have retained a lawyer for bankruptcy may prompt them to quickly repossess the property before the case is commenced. Also note that a creditor bank that also maintains your checking and/or savings account may have certain rights to “set off†any debt owed to them by simply deducting the amount from your account with them. A bank’s right to “set off†requires no formal notice or court action and can be achieved swiftly. Please contact our office so we may help you decide which creditors to inform in advance.
You are not eligible to file for bankruptcy relief unless you first receive a certificate of credit counseling within 180 days of the petition’s filing date from an approved consumer debt counseling agency. For your convenience, many course providers offer counseling via internet and phone. Though the choice in course selection is yours, we refer our clients to a low-cost debt counseling agency that directly provides our office with your certificate as soon as it is completed.
You must also complete an instructional course in personal financial management after the bankruptcy petition has been filed before the Court can discharge you of your debts. Like the consumer credit counseling certificate, we are happy to provide you the names of low-cost course providers. Please note, however, that Chapter 13 debtors may attend this course free of charge through the Chapter 13 Trustee’s office.
Exempt property is simply property that you can keep and protect from your creditors in any collection case against you, including bankruptcy cases. It is important to remember that the essence of our bankruptcy laws is to allow individuals who have become overburdened with debt to relieve themselves of that burden and get a “fresh start.” Accordingly, the law allows you to keep certain necessary and essential property to facilitate your emergence from bankruptcy. Exempt property is defined by the law of the state in which you reside. Please call our office for more information pertaining to Ohio’s exemptions as well as an assessment of the exposure, if any, in bankruptcy and collection cases.
A secured debt is simply a debt obligation “secured†by a creditor’s lien on pledged collateral to guarantee repayment. The most common types of secured debts include home mortgages and automobile liens. Although Bankruptcy law prohibits a secured creditor from suing you personally on the balance of a defaulted loan that has been discharged, it does not preclude such a creditor from repossessing its collateral.
In Chapter 7 cases, you have the following four choices with respect to property pledged to secured creditors:
- The Real Estate “Be-Current-and-Stay-Current†Right to Retention – If the collateral you wish to retain is real estate and your payments are current on the date you file the Chapter 7 petition, and your equity in the collateral is covered under the exemptions, you may keep the property so long as you continue to make the monthly payments and comply with the terms of your contract. We call this the “be-current-and-stay-current†right to retention.
- Reaffirmation Agreements – Prior to Congressional changes in the Bankruptcy Code, you also had the “be-current-and-stay-current†right to retain personal property, such as automobiles. Now, to be absolutely sure you can keep the personal property that secures a debt secured by personal property, you must also sign a reaffirmation agreement. Though the new law is unclear, most experts are of the opinion that a creditor can repossess the collateral unless you enter into an agreement reaffirming the debt within sixty-five (65) to eighty-five (85) days after you file the bankruptcy. We believe it to be unlikely that a creditor will in fact repossess collateral when you are current with your payments, but there are no guarantees. Please note that a reaffirmation reinstates your personal liability on the debt obligation regardless of your bankruptcy discharge. Your decision to reaffirm a debt may well be the most important one you make in the bankruptcy case. Please be sure to consult with us on this point so that we may better assist you.
- Redemption – You may redeem the property by paying the creditor the value of the collateral. The value of a vehicle is the amount for which it would be sold at retail by a used car dealer in its current condition. For example, if you owe Huntington Bank $15,000 secured by a vehicle which has a retail value of 10,000, you can pay Huntington only $10,000 and still keep the vehicle. There are redemption loan financers who lend money to Chapter 7 debtors to redeem vehicle loans. Even though their rates are high, these financing arrangements may save you money in the long run.
- Surrender – Your final option is to give the property back to the creditor (“surrender†the property) and have the debt discharged.
- Exceptions: There are two circumstances in which you can retain property encumbered by a secured debt in a Chapter 7 case even if you do not wish to maintain your payments:
- Impairment of Exempt Interest – A creditor’s judgment or lien on property that impairs your exempt interest in the property may be retained by the debtor without exception.
- Non-possessory, Non-purchase-money Security Interests – A creditor may not obtain collateral secured by a non-possessory, non-purchase-money security interest in exempt personal household items (televisions, furniture, clothes, jewelry, tools of the trade, or professionally prescribed health aids). “Non-possessory†simply means the creditor is not physically holding the property. “Non-purchase-money†means that the creditor neither sold you the collateral, nor lent you the money with which to buy it.
In Chapter 13 cases, secured claims are handled in one of two basic ways. The first, which we call the “cure and maintain†method, requires your past due payments and future payments on secured debts to be paid from your monthly bankruptcy plan payments (“through the planâ€). When the bankruptcy plan has terminated, you remain obligated to make any payments remaining due on these secured debts. The second method is known as a “strip-down/stretch-out/cram-downâ€. This method is particularly advantageous to our clients when the collateral is worth less than the amount of the debt, or alternatively when the number of payments left on a debt is less than the length of the plan. The following example illustrates the “strip-down/stretch-out/cram-down†method. Consider a high mileage car worth $4,000 with a $6,000 secured loan set to be repaid into thirty (30) remaining $233 monthly payments at an interest of rate 12.25%. Here, you can strip-down the creditor claim to the value of its collateral ($4,000), stretch-out the payments to thirty-six (36) months and pay the present value of the claim at a reduced interest rate (“cram-downâ€) such that the monthly car payments through the plan might be $127.20. The ability to “refinance†your secured loans through this second method lets you reduce the monthly payments to an affordable amount and is sometimes only way you have enough cash flow to keep all of your property.
The 2005 Bankruptcy Reform laws imposed limitations on a Chapter 13 debtor’s ability to strip down certain secured debts. For instance, if the collateral is a motor vehicle acquired for the debtor’s personal use and was incurred within 910 days (approximately 2.5 years) prior to bankruptcy filing and the debt is a purchase money debt, then the debt cannot be stripped down to the value of the vehicle. The prohibition of strip-downs applies to other collateral if the debt was incurred within one (1) year of the bankruptcy filing. Properly treating these “910-vehicle claims†is a very important aspect of your Chapter 13 plan. It this connection, it is important to know the following:
- When you purchased the vehicle;
- Whether you purchased it for personal or business use; and
- Whether all of the debt relates to the purchase of the vehicle or whether some portion of the debt relates to paying off an old loan. Please bring a copy of your vehicle purchase agreement and loan when you come to consult with us.
If your bank or credit union maintains your checking or savings accounts and is also a creditor (i.e. bank loan, credit card account, overdraft protection, etc.), then it is possible that the bank will put an “administrative freeze†on the funds in the account on the date the bankruptcy petition is filed. Such an administrative freeze will cause checks that have not yet cleared to bounce. Therefore, you should consider opening a new bank account with a non-creditor bank and ceasing checking activity in the old account prior to filing bankruptcy. It is not necessary that you close the old account, but you may wish to remove all but a few dollars from the account to protect yourself from the creditor bank’s right of set-off. If your paycheck is automatically deposited into the account, you do not necessarily have to change the deposit; funds that are deposited into the account after you file the bankruptcy cannot be frozen.
The basic purpose of bankruptcy law is to obtain a discharge of your debts and allow you a fresh start. However, certain types of debts are not dischargeable such that you are still obligated to repay them after your case is concluded. These debts include the following:
CHAPTER 7 CASES:
- Depending on your circumstances, debts not listed in the schedules are generally not discharged. Accordingly, it is imperative that you list all of your creditors. In some limited instances, however, overlooked debts not listed in the Petition may be considered discharged if no creditors received proceeds from a liquidated asset of your bankruptcy estate. See In re Madaj, 149 F.3d 467 (6th Cir. 1998).
- Certain taxes, including funds borrowed and used to pay taxes.
- A claim based upon money, property, services, or credit obtained by fraud or false pretenses (e.g., a false financial statement used to obtain credit or charges incurred on a credit card with no intention to repay them).
- Consumer debts in excess of $600 for luxury goods or services to a single creditor, incurred within ninety (90) days of case filing.
- Cash advances in excess of $750 under an open end credit plan made within sixty (60) days of the case filing.
- Alimony, child support, and marital debts arising out of or in connection with a separation agreement or domestic court order.
- Damages for willful and malicious injury.
- Certain governmental penalties and fines.
- Educational loans, except in cases of prolonged and severe hardship. Please note, however, that undue hardship is a very difficult standard to meet.
- Any debt for death or personal injury caused by the unlawful operation of a motor vehicle, vessel or aircraft while intoxicated.
- Loans from retirement accounts and federal thrift savings accounts.
- Debts for violations of federal and state securities laws or common law fraud, deceit or manipulation in connection with the purchase or sale of a security.
- A debt for fraud or defalcation (dishonesty) while acting in a fiduciary (trust) capacity, embezzlement or larceny.
CHAPTER 13 CASES:
- Depending on your circumstances, debts not listed in the schedule of creditors will not be discharged. Accordingly, it is important to list all your creditors.
- Withholding and sales taxes.
- Tax debts in which the tax returns or tax reports were either not filed or were filed late within two (2) years of the bankruptcy filing.
- Tax debts in connection with a debtor’s fraudulent return or willfully attempt to evade taxes.
- A claim based upon money, property, services, or credit obtained by fraud or false pretenses (e.g., a false financial statement used to obtain credit or charges incurred on a credit card when the debtor had no intention to pay for the charge).
- Consumer debts in excess of $600 for luxury goods or services to a single creditor, incurred within ninety (90) days of the case filing.
- Cash advances in excess of $750 under an open end credit plan made within sixty (60) days of the case filing.
- A debt for fraud or defalcation (dishonesty) while acting in a fiduciary (trust) capacity, embezzlement or larceny.
- Educational loans, except in cases of prolonged and severe hardship. Please note, however, that undue hardship is a very difficult standard to meet.
- Any debt for death or personal injury caused by the unlawful operation of a motor vehicle, vessel or aircraft while intoxicated.
- Restitution or criminal fines in connection with a sentence upon conviction of a crime.
- Secured debts paid under the “cure and maintain†method.
- Restitution or damages awarded in a civil action against you as a result of willful, malicious, or deceitful injury to an individual.
Yes. A debtor will be denied a discharge if the Court determines that he or she has committed any of the following acts:
- The debtor has transferred, destroyed, or concealed property within one (1) year prior to filing bankruptcy or at any time after filing bankruptcy.
- The debtor conceals, destroys, falsifies, or fails to keep books, records and documentation related to the individual’s financial condition and business transactions without justification.
- The debtor, in the course of the bankruptcy proceeding, knowingly and fraudulently:
- makes a false oath, claim or account (i.e., a misstatement about property, debts, or financial affairs);
- gives or receives money for taking certain action or agreeing not to take certain action; or
- withholds books, records, documents or other records from the Bankruptcy Court;
- The debtor fails to explain satisfactorily any loss or deficiency of assets to meet the individual’s liabilities; and
- The debtor refuses to obey an Order of the Bankruptcy Court or answer a material question in connection with the proceedings.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 imposes novel income-related restrictions on individual consumer debtors seeking a Chapter 7 discharge. In the event you “flunk†the means test, you may: (1) demonstrate special circumstances entitling you to a Chapter 7 discharge despite the presumption of abuse; (2) convert your case to a Chapter 13 repayment plan; or (3) dismiss the petition entirely. The means test is also of particular importance in Chapter 13 cases in determining how much you are required to pay your unsecured creditors. Fortunately, we can accurately forecast whether a presumption of abuse will arise in your case after evaluating your financial condition at the initial consultation. We will, of course, require that you provide us with six (6) months worth of pay stubs so that we can fully determine your current monthly income under the Bankruptcy Code.
As you might expect, there are quite a few exceptions to the means test. One noteworthy exception is that the means test does not apply to individual debtors whose debts are not primarily consumer debts. For all intents and purposes, a debtor is considered a consumer debtor when at least fifty percent of all debts are consumer debts. A consumer debt is a debt incurred primarily for personal, family, or household purposes. Alternatively, business debts are primarily incurred in furtherance of a legitimate business pursuit.
Please call our office to schedule your free consultation so that we may evaluate your case to determine the full extent of relief available to you under the Bankruptcy Code.
Another person who is jointly liable on a debt with you is known as a “codebtorâ€. Unfortunately, a bankruptcy petition does not affect your codebtor’s obligation to repay the debt unless the codebtor has also received a discharge in bankruptcy. In a Chapter 7 case, the creditor is free to pursue collection from the codebtor immediately. In a Chapter 13 case, however, the creditor may be prevented from collecting from the codebtor during the term of the Chapter 13 repayment plan. If you file a Chapter 13 petition and the status of a codebtor is important to you, we will need to discuss the circumstance of the debt to determine the exposure to the codebtor. It may be possible to put the debt in a special class to be paid in full to protect the codebtor from collection activities.
Unfortunately, there is no absolute answer to this question inasmuch as the decision to lend credit rests entirely with the lender. That being said, a quick look into the lending process will help you understand how creditors weigh bankruptcy in evaluating a borrower’s creditworthiness so that you can take appropriate action to rebuild your credit. At the outset, we would like to clarify the misconception that a bankruptcy filing prohibits debtors from obtaining credit for seven years. Though it is true that the filing is usually noted on your credit report ten years, each creditor makes its own independent assessment of your financial condition in deciding whether to extend you credit. Of course, a bankruptcy filing will likely be a factor that will be taken into consideration in making such a decision. However, other factors such as income and the value of collateral pledged to secure the loan are equally important in this evaluation process. Also important is your on-time history with regular monthly installment payments.
Here are some of our own observations that you may wish to consider in deciding whether bankruptcy is right for you:
- We used to believe that a successfully completed Chapter 13 repayment plan had less negative impact on creditworthiness than a Chapter 7 liquidation case because creditors usually received some repayment on the debt obligation. However, because a debtor’s financial condition is monitored closely by the Court in Chapter 13 cases, debtors were usually unable to make a viable attempt at reestablishing credit until the case was over three (3) or five (5) years later. Alternatively, a Chapter 7 case is typically concluded within four (4) months, at which point emerging debtors can immediately begin reestablishing creditworthiness. Moreover, creditors take comfort in the fact that an emerging Chapter 7 debtor cannot file another Chapter 7 case for eight (8) years and has few remaining debt obligations after the discharge.
- In the long run, bankruptcy may also improve your ability to obtain credit. Bankruptcy allows you to wipe the slate clean and ultimately puts you in a financial position to eventually re-establish your credit. This may not otherwise be possible if your debts are so insurmountable that you are never able to repay them absent extraordinary circumstances.
Federal law prohibits the government from discriminating against you with respect to the issuance of a license or permit because you filed bankruptcy. Similarly, neither public nor private employers can terminate your employment or otherwise discriminate against you due to a bankruptcy filing. Unlike other creditors, utilities (power, gas, telephone, etc.) cannot discontinue or otherwise refuse to provide you service because you filed bankruptcy; however, they can require you to pay a reasonable security deposit for the payment of future service. Finally, a lender may not consider a bankruptcy filing as a factor in determining your eligibility in the future for student loans.
Unlike some other bankruptcy practices, our office gives each and every client a free consultation with the attorney that will be handling their case. Our services are tailored to your specific financial circumstances to ensure you are receiving the maximum relief available to you. In addition, we encourage our clients to call the attorney directly throughout the course of the representation with any questions they may have along with way. We recognized that this is a novel experience for our clients and strive to do all we can to make this complicated process as understandable as possible.
We are also mindful of the financial circumstances that brought you here in the first place. Accordingly, we do all we can to keep overhead costs as low possible. We trust that our clients are pleased with these efforts as they are ultimately passed on to them through our reasonable fees.
Our base attorneys’ fees are reasonable and depend on the complexity of your case. In any event, we cannot file your Chapter 7 case until the entire fee is paid along with the Court’s filing fees, which are currently set by the United States Judicial Conference at $335 for Chapter 7 cases and $335 for Chapter 13 cases. In certain circumstances, we may be able to offset a portion of our attorneys’ fees in Chapter 13 cases by putting the balance into the repayment plan.
Please call our office (614.223.1444) or e-mail to schedule a free consultation so that we may review your particular financial circumstance and determine the best course of action for you and your family.
Please call or e-mail to schedule an appointment if you would like to file bankruptcy or if you would simply like to schedule a free consultation for more information about your particular circumstances.
We recommend that you obtain a copy of your credit report from all three credit bureaus before coming for the appointment. You are eligible to receive a complimentary copy of your reports annually from the following website: www.annualcreditreport.com. In this connection, please note that your credit report is NOT a substitute for your own financial records inasmuch as it likely contains errors as well as insufficient information. The credit report, however, is a good way to refresh your memory about old and forgotten debts. Please also bring the following to the consultation:
- Copies of all bills and debt obligations owed by you;
- Copies of your most recent tax returns for the past two years;
- Copies of all pay stubs or other evidence of income for the past six months;
- Copies of all auto, boat, and motorcycle titles or memorandum titles, as the case may be;
- Copies of all recorded mortgages on real property owned by you;
- Copies of all recorded deeds on real property owned by you; and
- A list of your assets, including checking, savings, and IRA accounts.