Chapter 7 Personal Bankruptcy Law

• Most people do not lose any of their belongings in bankruptcy. The end goal of bankruptcy is to get you back on your feet financially. Therefore, your basic necessities are protected in bankruptcy, so as to help you re-establish yourself.

• The equity in your home and most of your personal belongings will, in all likelihood, be protected in bankruptcy.

• The exemptions (the bankruptcy law which protects your assets) are very complicated and you should consult an attorney to maximize the protection that you are afforded under Bankruptcy Law.

Contrary to common belief, income taxes can be discharged in bankruptcy provided that:

1. The taxes are at least three years old.

2. The tax returns must have been actually filed at least two years ago.

3. Any assessment was more than 240 days ago.

4. The debtor did not engage in any type of fraud or tax evasion.

Student loans are not dischargeable in bankruptcy, except in cases where it would create an extreme hardship on the debtor to pay back the student loan.

No.

There is a possibility that a property settlement agreement can be discharged in bankruptcy. The law in this area is somewhat unsettled, however an attorney could advise you as to whether there is a chance that the property settlement could be discharged in bankruptcy. 

There is a possibility that a property settlement agreement can be discharged in bankruptcy. The law in this area is somewhat unsettled, however an attorney could advise you as to whether there is a chance that the property settlement could be discharged in bankruptcy. 

• Anyone that is overwhelmed with financial problems should consider filing bankruptcy. Financial problems greatly affect your entire life causing some, if not all, of the following problems:
  

  1. Physical ailments (ulcers, high blood pressure, insomnia).

  2. Problems within a marriage and within a family due to the stress of the financial situation.

  3. Negative affect on your job performance.

  4. Depression and a feeling of being overwhelmed.

• Bankruptcy should be considered as medicine for those who are financially ill.

• Creditors can make you feel guilty and ashamed, but creditors are NOT on your side. They forget that it is a long-standing tradition in the United States, most other countries, and in most religions to forgive debts and let a person get a fresh start.

In a sense, you appear through documents which you must file with the court. The documents require detailed disclosure of a number of items including your assets (and their values), your creditors, and any transfers made prior to bankruptcy. Needless to say, accuracy and completeness are essential.

Beyond the documents, you will be required to appear at a first meeting of creditors (the Section 341 Meeting). All your creditors receive notice of the meeting and can attend and question you about your financial condition and the bankruptcy. The meeting is conducted by a trustee who typically takes the lead in the examination. As a practical matter, creditors seldom appear, and, in a Chapter 7 at least, unless the trustee believes there are nonexempt assets, the questioning is short. In Chapters 11, 12, and 13, the examination will typically be more involved.

Whether you need to make any appearances beyond the first meeting of creditors depends on the Chapter, the issues in your case, and local requirements. To the extent a matter arises in your case which requires your presence or testimony at a Court hearing, you will need to appear. This, therefore, is something you should discuss with your attorney.

Bankruptcy generally discharges in personam liability. In personam liability is personal liability for a debt. Bankruptcy discharge, does not, however, ordinarily prevent creditors with consensual "purchase money" liens in your property from enforcing those liens. The lien creditor's rights include repossessing their collateral, after discharge is granted (or earlier if they seek and are granted relief from stay). However, lien creditors ordinarily cannot sue you for any deficiency (i.e., the difference in value between what is owed and the value of their collateral). For example, assume you purchased a couch in which the seller retained a security interest (i.e., lien) to secure your payment obligations. Assume that at the date of the bankruptcy, you still owed $1000 on the couch, but that the fair market value of the couch (i.e., the amount the creditor would realize if it repossessed the couch and sold it) is $400. The deficiency would be $600.

Of course, you may want to keep property subject to liens. Your options with respect to such property are essentially as follows:

1. Reaffirm the debt

2. Redeem the collateral

3. Attempt to negotiate reaffirmation in a lower amount than the full debt

4. Do nothing and hope the creditor decides not to pursue repossession

Reaffirmation. When you reaffirm a debt, you agree to remain liable on that debt. Accordingly, your in personam liability to the creditor is not discharged. If you reaffirm a debt, and you later default, you will be liable for any deficiency. Secured creditors, although not obligated to do so, will generally let you keep the property if you agree to reaffirm the entire amount they are owed. Reaffirmation involves your signing a written document that is then filed with the Court. The document typically sets forth your repayment obligations, or incorporates the original document under which you are liable.

Redemption. Redemption involves paying the creditor in one lump sum an amount equal to the current value of its collateral. Redemption makes sense, if you can afford it, if the value of the collateral is less than the debt. A debtor may only redeem tangible personal property intended primarily for personal, family or household use from a lien securing a dischargeable consumer debt. If the parties cannot negotiate the redemption amount, an action can be filed with the Court asking it to value the property to be redeemed.

Negotiating reaffirmation of an amount lower than the full amount of the debt. Recognizing that their main remedy in the event of a failure to redeem or reaffirm is a state court repossession action, many creditors are willing to let the debtor reaffirm in an amount less than the full debt. The negotiated reaffirmation amount is typically close to the value of the collateral to be retained. The debt is then paid off according to the terms of the agreement.

Doing nothing. The last option is to basically "call the creditor's bluff." Unless the personal property is valuable, and or worth more than the debt owed, it may not be economically prudent for the creditor to pursue state law repossession after discharge. A debtor cannot, however, rely on a creditor to always act in an economically prudent manner. In addition, there is always a possibility that the creditor will seek damages for the debtor's "wrongful retention" (although this is a problematic claim). However, doing nothing is certainly an option available to the debtor. In addition, there is nothing to prevent the debtor from seeking to negotiate something with the creditor if it turns out the creditor is going to pursue repossession.

With respect to the last option, it should be noted that there are cases which hold that a debtor need not reaffirm or redeem in order to retain the property subject to the lien if he is current on his obligations to the creditor at the time of the bankruptcy filing. The rationale of the cases is based on an interpretation of certain statutory language. Whether this argument is available to you depends on the law of the jurisdiction in which you file.

Your credit is not hurt by the bankruptcy itself; what hurts your credit is that the debts are not paid. The way to rebuild your credit is to buy an inexpensive item on time and pay for it; then buy something else and pay for it, etc.

An automobile is one of the easiest items to buy after the bankruptcy is over. Check out the automotive section of the newspaper.

You can maintain your bank accounts and all of your utilities.

You can make arrangements to pay any creditor, if you want or feel obligated.

Bankruptcy will stay on your credit report for up to 10 years, but if you have a decent income, you will find credit. With over a million people a year filing bankruptcy, creditors would run out of customers if they refused to extend credit to everyone who has filed bankruptcy.

Most people do not lose any of their belongings in bankruptcy. The end goal of bankruptcy is to get you back on your feet financially. Therefore, your basic necessities are protected in bankruptcy, so as to help you re-establish yourself.

The equity in your home and most of your personal belongings will, in all likelihood, be protected in bankruptcy.

The exemptions (the bankruptcy law which protects your assets) are very complicated and you should consult an attorney to maximize the protection that you are afforded under Bankruptcy Law.

You can file bankruptcy more than once. To file another Chapter 7 bankruptcy, there must be at least six years time from discharge to discharge. You can file a Chapter 13 bankruptcy at any time, so long as you intend to pay your creditors 100%. If you are going to be paying your creditors less than 100%, then it needs to be at least six years from your last discharge.

This is, of course, something which you should ask the attorney who you intend to consult. There is, however, a significant amount of information which you would need to disclose to the court upon a bankruptcy filing. If possible, you should accumulate as much of the information and/or documents as you can prior to meeting with counsel. Availability of the information and relevant documents at your initial meeting will facilitate a discussion of your options and expedite the bankruptcy filing if you decide to move forward.

The kinds of information which you should accumulate include:

1. A list of all real estate you own together with copies of the deeds.

2. A list of all creditors with liens or other claims against your real estate, including all mortgage holders, judgment creditors, unpaid real estate taxes or other municipal claims, etc. To the extent you can, you should bring with you copies of mortgages and mortgage notes, related loan agreements if relevant, notices of the entry of judgment, notices of municipal liens for unpaid real estate taxes, etc.

3. Anything which reflects the value of the real estate.

4. A list of your personal property, together with values, as detailed as is practicable. Remember that you must disclose intangible as well as tangible property. Intangible property includes investments (stocks, bonds, partnership interests, etc.), pension plans, causes of action you may have against third parties, etc. To the extent you have intangible assets, you should also bring all available documentation. In the area of tangible personal property, your list (and values) should contain the identification of bank accounts (and amounts), security deposits, household goods and furnishings (separately listing anything that is individually worth more than $400), collectibles, furs and jewelry, automobiles, tools of your trade, etc.

5. A list of all creditors including the name of the creditor, the creditor's address, the creditor's account number (if it used one), the date or dates the obligation was incurred, a very brief explanation of what goods or services the creditor provided, and the amount owed. To the extent you have bills, statements, invoices, etc., which reflect any of this information, you should bring it with you. This list should include anybody who might have a claim against you, whether you admit the liability or not, and whether the liability is contingent or un-liquidated.

6. Any information regarding any taxes you owe including any notices of taxes due or assessments from any tax collecting entity. You should bring copies of any such notices, together with copies of your most recent filed tax returns to your first meeting with your attorney.

7. A list of all uncompleted contracts and leases to which you are a party together with copies of all such contracts and leases.

8. A list of the names and addresses of all persons or other entities which are also liable for any of your debts (whether the person's liability is primary or secondary).

9. A list of all pending lawsuits in which you are either the plaintiff or defendant.

10. Copies of any other documents, letters, etc., which you think may be relevant to a bankruptcy filing.