A Chapter 7 bankruptcy is sometimes referred to as a "total", "full" or "straight" bankruptcy.
Chapter 7 is the liquidation chapter of the bankruptcy code. Under Chapter 7, a trustee is appointed to collect and sell, if economically feasible, all property you own that is not exempt from these actions, however, for most filers all property is exempt.
The filing of a Chapter 7 also stops proceedings against you in collection of a debt. No more nasty telephone calls, collection letters, garnishments or other harassment about debts.
In a Chapter 7 bankruptcy your objective is to obtain a discharge of your debts. This means that, with some exceptions, your debts, (for example - signature loans, car loan balances after repossession, auto accident claims, medical bills, most credit cards, past due phone bills, past due electric bills) become legally uncollectible by the creditor. Secured debts may be personally discharged but the property pledged as security still stands good for the debt. The debt goes away only if you surrender property pledged as security to your creditor, and, you may wish to reaffirm a secured debt rather than discharge it. (See section on Reaffirmation further on in this document.)
In a Chapter 7 case, the bankruptcy court appoints a trustee to examine the debtor's assets to determine if there are any assets not protected by available "exemptions". Exemptions are laws that allow a debtor to keep, and not part with, certain types and amounts of money and property. For example, exemption laws allow a debtor to protect a certain amount of equity in the debtor's residence, motor vehicle, household goods, life insurance, health aids, retirement plans, specified future earnings such as social security benefits, child support, and alimony, and certain other types of personal property. If there is any non-exempt property, it is the Trustee's job to sell it and to distribute the proceeds among the unsecured creditors. Although a liquidation case can rarely help with secured debt (the secured creditor still has the right to repossess the collateral if the debtor falls behind in the monthly payments), the debtor will be discharged from the legal obligation to pay unsecured debts such as credit card debts, medical bills and utility arrearages. However, certain types of unsecured debt are allowed special treatment and cannot be discharged. These include some student loans, alimony, child support, criminal fines, and some taxes.
If you have a secured debt (such as a car loan, furniture loan, mortgage or any other loan with collateral), you must decide how you want to treat that secured debt.
You have three options:
- Surrender the property securing the debt and there will be no balance remaining.
- Reaffirm the debt.
- Redeem the property which secures the debt.
A Chapter 13 bankruptcy is sometimes referred to as a "wage earner plan".
Chapter 13 has similarities to a loan which consolidates your debts. Chapter 13 permits individuals to keep their property by repaying their creditors out of their future income.
Each Chapter 13 debtor submits a written plan which must be approved by bankruptcy court. The debtor must turn over to the Chapter 13 trustee the amounts set forth in their plan. Debtors receive a discharge after they complete their repayment plan.
The changes in the bankruptcy law in October, 2005 seem designed to push debtors into filing Chapter 13 over Chapter 7. A recent study indicated that at least 85% of persons eligible to file Chapter 7 prior to the 2005 bankruptcy law will be able to file under the new law.
Chapter 13 is available to individuals with any regular source of income whose debts do not exceed $290,525 in unsecured debts plus $871,550 in secured debts. The sole proprietor of a business is eligible; corporations are not able to file Chapter 13.
In a Chapter 13 case, the debtor puts forward a plan, following the rules set forth in the bankruptcy laws, to repay certain creditors over a period of time, usually from future income.
A Chapter 13 case may be advantageous in that the debtor is allowed to get caught up on mortgages or car loans without the threat of foreclosure or repossession, and is allowed to keep both exempt and nonexempt property.
The debtor's plan is a document outlining to the bankruptcy court how the debtor proposes to dispose of the claims of the debtor's creditors. The debtor's property is protected from seizure from creditors, including mortgage and other lien holders, as long as the proposed payments are made and necessary insurance coverages remain in place. The plan generally requires monthly payments to the bankruptcy trustee over a period of three to five years.
Arrangements can be made to have these payments made automatically through payroll deductions.
The filing of a Chapter 13 stops proceedings against you in collection of a debt.
No more nasty telephone calls, collection letters, garnishments or other harassment about debts.
If you have been served with foreclosure papers by your mortgage company, a Chapter 13 is an excellent way (many times the only way) to stop that action and prevent losing your home.
A recently repossessed vehicle may be recovered by filing Chapter 13.
Chapter 13 will allow you to catch up on your house payments or car payments without interference from the creditor.
A Chapter 13 Plan is a structured repayment plan.
My job as your attorney in Chapter 13 is to analyze your information and prepare a plan tailored to your situation.
Your Chapter 13 plan is administered by the staff of the Chapter 13 Trustee. Money for your debts is turned over each pay period to the trustee who then distributes payments to your creditors in accordance with rules for Chapter 13 and your approved plan.
Your Chapter 13 plan can stretch your debt repayment up to 60 months.
When you file a Chapter 13, you will also receive notice from bankruptcy court regarding the court's appraiser.
It is required by court that your personal property be appraised. This includes furniture and vehicles, among other things.
Someone from the appraiser's office will contact you to set up a convenient time to meet with you at your home, or you may call them to arrange an appointment. The appraiser is very nice, and easy to work with. They will not take up much time. The appraiser's fee is paid through your Chapter 13 plan.
* Presently applicable only in Western District of Kentucky
The Order of Confirmation is prepared by the Chapter 13 Trustee.
The document lists those secured and/or priority creditors (not unsecured creditors) who filed their proof of claim in time for the Meeting of Creditors or who are listed at the request of your attorney.
Normally, unsecured accounts have 90 days after the date of your Meeting of Creditors in which to file their claims, and they are listed on the "Schedule of Allowed Claims".
If you see on your Order of Confirmation that one of your secured creditors is not listed, that creditor has probably not yet filed a proof of claim, or there may be some other explanation.
* Presently applicable only in Western District of Kentucky
The Schedule of Allowed Claims is prepared by your attorney.
After the deadline for filing claims has passed, I check the court's record of claims filed. I compare the claims with information you provided about these creditors. If a claim appears correct, it is listed in a document called "Schedule of Allowed Claims". This is a formal listing of all unsecured creditors who have timely filed an approved proof of claim in your chapter 13.
If you see on the Schedule of Allowed Claims that an unsecured creditor is not listed, it is because they have not filed a proof of claim.
If a claim is filed which is not correct, I will file an objection asking the court to correct the claim. Although it seldom occurs, if a claim is filed which you just do not owe at all, I will ask the court to reject it. This may require you to attend a hearing and testify.
* Presently applicable only in Western District of Kentucky
For any Chapter of the bankruptcy code each and every person who files a petition in bankruptcy must attend a "341" meeting, also known as First Meeting of Creditors (FMOC).
The name does not necessarily mean that all or even any of your creditors will attend. This meeting is required under Section 341 of the Bankruptcy Code, so it is also referred to as a "341" meeting.
While it is mandatory that you and your attorney attend the FMOC, creditors may choose to attend or they may file papers with the clerk of court, if they have anything to say about your case. You must attend this hearing as scheduled. If you have a very important reason why you will not be available on the date scheduled for the FMOC, it is imperative that you contact me immediately. Bankruptcy court will reschedule your hearing only if the Judge believes you have a valid reason for doing so.
You will receive written notice from the clerk of U. S. Bankruptcy Court stating the date and time your FMOC is scheduled. This date is set by court, and notices are mailed by the clerk of court to you, to me, and to each creditor listed in your bankruptcy petition. Your notice will give you at least three weeks advance notice of your hearing date. The FMOC will normally take place in the fourth or fifth week after filing of your bankruptcy petition.
Please look closely at your Notice for the date, time and location of your hearing.
The person who presides at your hearing is the trustee assigned to your case. Cases are handled in case number order. While your time spent with the trustee might be five minutes or less, you may have to wait for your case to be called. You will be placed under oath. The trustee will then ask you a few questions. While you are waiting for your case to be called, try to sit in the meeting room in a seat where you can hear the trustee interview persons ahead of you. You will see that the trustee follows a repeating pattern of questioning every person, which will help you prepare your answers to the questions. For the most part the questions ask for information which you have already given me and which is contained in the copy of your petition already provided to the trustee. The trustee is required to verify your information with you under oath. Try not to be nervous and just answer questions as you did when you gave me information in the first place.
In a Chapter 7 the trustee will also ask you about the following questions, explanations to which are discussed herein:
- Do you understand the potential consequences of seeking a discharge in bankruptcy, including it's effects on credit history?
- Do you understand the effect of receiving a discharge of debts?
- Do you understand the effect of reaffirming a debt? Do you understand your ability to file a petition under a different Chapter of the bankruptcy code, such as Chapter 13?
Please arrive at the front door of the Federal courthouse at least 20 minutes prior to the time scheduled for your hearing. You must pass through a security check where you empty your pockets of all metallic objects and pass through a metal detector.
You must also show a picture ID or you will not be allowed to enter the building. Acceptable picture identification includes a valid driver's license, government issued picture identification documents, passports and permanent resident alien cards.
You must show your picture identification to the bankruptcy trustee at the start of your hearing to prove your identity. You must also have with you proof of your Social Security Number to show to the trustee: Social Security Card is the preferred proof. Other acceptable items are current W2 forms, or a current wage statement which has your Social Security Number printed on it. The purpose of this review of your identity is to help stop identity theft. Failure to provide required information is grounds for dismissal of your case.
For Chapter 13 cases, in the same envelope as the Notice of FMOC, a form called "Proof of Claim" is mailed by the court clerk.
After receipt of the court notice, creditors have a fixed period of time in which to examine your plan and to file with the court an objection or a completed proof of claim.
A proof of claim lists the amount you owe the creditor and the basis of the account (credit card agreement, signature loan, secured loan). If an unsecured creditor does not timely file its proof of claim, that creditor's claim will not be allowed and thus not paid.
There may be exceptions where we will allow a late unsecured claim to be paid. This is something we will discuss with you should this happen. If you believe you have a defense to the claim of any creditor, you must tell me so I can file an objection to their claim.
The court will then hold a hearing to determine the validity of the claim.
In Chapter 7 a proof of claim is not needed in the vast majority of cases.
The bankruptcy code requires that a Debtors List be created by the petitioner that contains pertinent information about the petitioner's current financial state.
This list includes, but not limited to, the following items:
- Assets (property) are things you own or in which you have any legal entitlement. Assets include your house, money in your bank or your purse, furniture, clothing, jewelry, pension plan, claims you have against other people, car, boat, and anything else you possess.
- Creditors are people, businesses, government agencies, etc. to whom you owe money or who claim you owe them money even if you dispute the claim.
- Income may be from employment, investment, business, child support, social security or any other legal source.
- Expenses are your ordinary expenses, such as: rent, house payment, utilities, food, clothing, doctors, medicines, gas for the car, insurance and any others.
Other information which, by requirement of the office of the bankruptcy trustee, you are required to provide, if applicable to you, includes:
- All books, records of account, bank books, bank statements and cancelled checks for the 6 months preceding bankruptcy (the last bank statement must show the amount on deposit on the date of bankruptcy, which you provide as soon as available)
- The original or a certified copy of the deed or contract under which the debtor holds title to or any interest in real estate, and certified copies of all recorded mortgages, liens, or encumbrances upon said real estate (these documents may be obtained from the office of the county clerk of the county in which the real estate is located)
- Title papers to any motor vehicles, mobile homes, trailers or boats (if original papers have been lost, duplicates must be obtained from the office of the county clerk)
- Certificates of stock, bonds and keys to any safe deposit boxes
- Contracts of life or burial insurance
- Complete copies of the debtor's last state and federal income tax returns
- Contracts or title papers pertaining to any other property of the debtor
- Copies of all notes, security agreements, loan disclosure statements and other documents relating to loan transactions to which the debtor is a party
Items I require to properly evaluate your case include:
- All original bills or statements mailed to you by each creditors or their collection agencies (Please remove your bills from envelopes and do not tear them apart).
- A written list containing each creditor's name, address, account number and balance.
- Any paperwork you have received about pending lawsuits or garnishments.
- Your most recent pay stub.
I cannot help you protect your present assets or properly advise you if I do not have full disclosure of your financial status.
Whether you like or dislike a particular creditor, or, whether you wish to pay or not to pay a particular creditor, they must all be listed in your petition.
Deliberately choosing not to list a creditor, to hide an asset, or to misrepresent the answer to any information can result in the following actions:
- Prosecution by the court for perjury or bankruptcy fraud.
- The court may also dismiss your case and refuse to grant you relief from your debts.
If you inadvertently leave something out or make an honest mistake, your bankruptcy petition can be amended as needed.
- Filing and attorney fees are paid as part of your plan.
- In Western District of Kentucky the court actually sets the basic attorney fees. The Chapter 13 Trustee will see that I am paid from your Chapter 13 payments.
- Fees range from $1500.00 to $2500.00.
- In Eastern District of Kentucky and in Southern District of Indiana the court must approve the requested attorney fee.
- Filing and attorney fees are paid directly to me.
- I set my fee based upon my experience in handling similiar cases and by judging from your information the amount of time and effort involved to properly handle your individual case.
- This will be discussed at the time we first meet to review your case.
- Fees generally range from $800.00 to $1500.00 (more if a case has complicated issues)
These fees are universal nationwide.
It is normally expected to be paid to the Cout Clerk at the time your petition is filed.
Under certain circumstances, we can file for you a motion asking for court permission to pay the filing fee in installments. If such a motion is filed, the Bankruptcy Court Clerk will mail you a paper within a week or so of the filing which approves the request to pay in installments.
If you have any questions about the payment of your filing fee, please talk to me or my secretary. I prefer that all court cost be paid through this office so that I can keep track of deadlines and as a convenience to you, my client.