Articles

Individual Bankruptcy - When Can It Work?

Declaring bankruptcy can be a complicated legal process, but if you have an attorney, it may be relatively quick. Things happen in the same order in most bankruptcies, and you can at least get a general idea of what's likely to happen. It will also help to know some of the words and phrases that come up in a bankruptcy.

The following chronology gives a general idea of how a bankruptcy filing proceeds. Your action may be different because of differences between local court rules, state laws, and rules of civil procedure. Your attorney can help you understand exactly how your case will fit with this chronology-remember, your attorney works for you, and should clearly explain every step o f the legal process.

A bankruptcy case begins with a Petition.

The Petition is a complex document, and includes characterization of debts. Typically, because the filing requirements are so stringent, a lawyer will prepare this document. In most cases, preparing and filing your Petition is the hardest part of the process.

The Petition will be under Chapter 7 or Chapter 13 of the Bankruptcy Code. Chapter 7 discharges your debts; Chapter 13 allows you to pay most of them off over time. (There are other Chapters: Chapter 11' deals with business reorganization, and other Chapters deal with farms, railroads and municipalities.)

"Automatic Stay"

When you file bankruptcy, federal law imposes an "automatic stay" which prevents your creditors from taking any action to collect debts against you, including court judgments and tax debts, during the pendency of the bankruptcy. For instance, if you have been sued with a lawsuit by one of your creditors to appear in court over a debt, the bankruptcy filing will stop this lawsuit.

Notice of Filing

Immediately after you file, the Bankruptcy Court will send out a Notice of Filing and a Notice of Stay to your creditors. This Notice makes it illegal for your creditors to continue trying to collect from you, although they are free to contact your attorney. If you are contacted before the Notices go out, tell the creditor that you have filed and give them the Bankruptcy Court docket number.

Meeting of Creditors

Between four and six weeks after your filing, you will have to attend a "Meeting of Creditors" chaired by the Bankruptcy Trustee assigned to your case. Unless there is a "red flag" that alerts the Trustee that your case is unusual, this will be a brief meeting. Generally, the Trustee will ask you a few form questions and a few questions related to your business, and then will ask if there are any creditors present, with questions. Usually there will not be, although some credit card providers attend many or most Meetings of Creditors.

If the Meeting of Creditors is uneventful, the process is probably over for you and your lawyer. In a Chapter 7 Petition, you will receive a Notice of Discharge in about six weeks.

If the creditors have problems with your Petition, they have a certain amount of time to object to your discharge. This is done with an adversary proceeding. An adversary proceeding asks the Bankruptcy Court to refuse to discharge a certain debt for some particular reason. The most common reason is fraud, either giving rise to the debt (like if you got the money by stealing from your employer) or fraud in the bankruptcy (like lying about your assets). An adversary proceeding goes on like regular litigation, and it can take as long as regular litigation. Your discharge of these debts will be delayed until the adversary proceeding is resolved.

Notice of Discharge

If there are no problems with your Chapter 7 Petition and once any adversary proceedings are resolved, you will receive a Notice of Discharge. You may have to fill in forms to get a judgment removed from a judgment roll, but other than bookkeeping matters you have been given a fresh start.

It's hard to say how long all these steps will take in your case. The entire process can take from as little as three months, to as long as five years. Adversary proceedings are as uncertain as any other litigation, although most Bankruptcy Courts are fairly vigilant about moving them through the system quickly.

Bankruptcy does not solve all debt problems - When not to file bankruptcy

The idea of declaring bankruptcy, wiping out certain debts or repaying them over time with court protection-no more hassles or nasty phone calls from menacing creditors--and then moving on more or less debt free has undeniable appeal to anyone faced with overwhelming debt.

But be careful. Compelling as it may sound, bankruptcy has a lingering and far-reaching impact that touches every aspect of life. Bankruptcy can prevent you from getting the best rates and limits on credit, make it difficult to keep bank accounts and credit cards, can take some valued, and valuable, possessions.

But is bankruptcy really necessary? In other words, what alternatives and options have you thoroughly looked into? Oh, you haven't? It is important to speak with an experienced bankruptcy attorney before making any decisions on filing for bankruptcy. Some types of debt are exempted from bankruptcy discharge. For example, taxes may not be dischargeable, but some taxes may be dischargeable depending upon your situation. Also, if you file for chapter 7 bankruptcy, some of your assets may not be protected depending upon the types and amount of value of the asset(s). If you are considering filing for chapter 13 bankruptcy relief, your assets can still play a part in your repayment plan. Call us for a free consultation to learn more.

What is not Dischargeable in Bankruptcy?

The debts discharged vary under each chapter of the Bankruptcy Code. Section 523(a) of the Code specifically excepts various categories of debts from the discharge granted to individual debtors. Therefore, the debtor must still repay those debts after bankruptcy. Congress has determined that these types of debts are not dischargeable for public policy reasons (based either on the nature of the debt or the fact that the debts were incurred due to improper behavior of the debtor, such as the debtor's drunken driving).

There are 19 categories of debt excepted from discharge under chapters 7, 11, and 12. A more limited list of exceptions applies to cases under chapter 13.

Generally speaking, the exceptions to discharge apply automatically if the language prescribed by section 523(a) applies.

The most common types of non-dischargeable debts are:

• Certain types of tax claims
• Debts not set forth by the debtor on the lists and schedules the debtor must file with the court
• Debts for spousal or child support or alimony
• Debts for willful and malicious injuries to person or property
• Debts to governmental units for fines and penalties
• Debts for most government funded or guaranteed educational loans or benefit overpayments
• Debts for personal injury caused by the debtor's operation of a motor vehicle while intoxicated
• Debts owed to certain tax-advantaged retirement plans
• Debts for certain condominium or cooperative housing fees.

The types of debts described in sections 523(a)(2), (4) and(6) (obligations affected by fraud or maliciousness) are not automatically excepted from discharge. Creditors must ask the court to determine that these debts are excepted from discharge. In the absence of an affirmative request by the creditor and the granting of the request by the court, the types of debts set out in sections 523(a)(2), (4) and (6) will be discharged.

A slightly broader discharge of debts is available to a debtor in a chapter 13 case than in a chapter 7 case.

Conclusion

Bankruptcy is not the cure-all solution but can provide a good alternative in some situations. Deciding how or if to file bankruptcy is not an easy decision, particularly since there are so many different stipulations depending upon the state you live in and the individual circumstances you find yourself in. The best thing you can do for yourself is to find a certified professional or bankruptcy service company that can assist you in the filing process and that can help you decide how to file. You want someone with a solid track record, and someone that you can trust to handle this delicate situation in your life.