General Bankruptcy Questions

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There are numerous ways of presenting information about Virginia’s laws on bankruptcy. Writing a long narrative on the subject is one way. However, we know that if there is one thing that a person overloaded with debt has more of than bills – it is a lot of questions of whether a bankruptcy will be to their benefit. So we elected to follow a “Question and Answer” format for this and other pages dealing with the subject of personal bankruptcy. Click on any question below to reveal the answer:

General Bankruptcy Questions  |  General Bankruptcy Questions (cont.)  | Chapter 7 Bankruptcy Questions  |  Chapter 13 Bankruptcy Questions

Simply put, a Chapter 7 is a “straight discharge” of most, if not all, of your debts. It is pursued because the debtor has, at the time of the filing, no current or foreseeable ability to pay toward any of these debts. Under Chapter 7, the debtor is immediately discharged of the obligation to pay those debts. The debtor may have to surrender certain non-exempt property in exchange for the discharge, but Chapter 7 leads to a prompt and relatively final end. (There is much more to Chapter 7 than this short description provides. Not all debts are dischargeable, and that is explained further here.

A Chapter 13 bankruptcy is pursued when a debtor can pay some, but just not all, of his or her monthly installments on the unsecured debt (again, this is a simplified explanation. Read more details about Chapter 13 by clicking here). Under Chapter 13, the debtor usually retains his or her non-exempt property while paying off, over a three to five year period, as much of his or her debts as possible.

In Chapter 7, the debtor is essentially saying to the judge: “I have only enough money to pay my essential living expenses, and no more. I am drowning in debt and the creditors are breathing down my neck. There is no relief in sight. I need to get a fresh start and protection from my creditors in order to put my life back in order. In exchange for any property the law does not allow me to keep, please discharge me from the obligation to repay my creditors.”

A Chapter 13 debtor’s request is a little different. It is essentially: “I have enough money to pay some of my creditors all of what they want, or all of my creditors some of what they want, but not all of my creditors all of what they want right now. I need to reorganize my finances, and want to pay something back to my creditors. However, because of my current situation (foreclosures or repossessions are imminent, garnishments are being threatened, an overwhelmingly high debt load, a recent job furlough, etc.), I need the protection of the court in order to accomplish this.”

After you have retained your attorney and provided him or her the information necessary to complete the formal petition, it generally will take a couple of weeks to have everything typed up, assembled, reviewed and filed with the court. (In an emergency, everything can be compressed to a matter of days, even hours. There is, however, under the new Code, a requirement for credit counseling within 6 months before a filing. If you are feeling pinched and think that bankruptcy might be in your future, go ahead and participate in appropriate pre-bankruptcy counseling. “Short filings” can be accomplished to prevent foreclosures and repossessions. The short filing provides only a skeleton of information (it will have to be augmented with complete information within 2 weeks).

Once you have retained an attorney, it is likely that the attorney will be willing to accept phone calls from your creditors. (We at Denbigh Law Center feel that this is an essential service.) If a creditor calls you after you have retained your attorney, give them your attorney’s name and phone number. The creditor will call the office to confirm that you are in the process of filing for bankruptcy protection. With this information, most unsecured creditors are willing to cease their collection efforts to give you time to file. This may give you more or less immediate relief from possibly harassing creditor calls

The first step in the process is for you to meet with an attorney to discuss your specific situation and the various options (bankruptcy and non-bankruptcy) that appear to be available to address your financial situation. If bankruptcy appears to be a realistic and appropriate option, your attorney likely will give you forms to fill out. On these forms you will be asked to list your debts, your assets and your cash flow (income and expenses). Other documentary information (tax returns, tax assessments of real estate, etc.), will likely be requested. Regardless of whether you actually file for bankruptcy protection, it is a good idea to complete the forms given to you by your attorney, because they summarize in a few simple pages your current financial picture. This snapshot of your financial situation is helpful in making future decisions.

Your attorney will also refer you to a credit counseling agency. Participation in an individual or group briefing (which outlines the alternatives to bankruptcy) is now mandatory.

If, after the briefing described above, you elect to file for bankruptcy protection and retain our services, we will prepare the paperwork. After it is prepared and reviewed by your attorney, you will be called back into the office to review it. It is very important that you do so carefully and that the information contained in the petition and supporting schedules is accurate and complete. Perfection is not mandatory. Reasonable estimates (such as the amount owed a creditor or the value of your property) are allowed, but everything must be done in good faith. Most attorneys will correct any errors on the spot. You will then sign the petition in several places. The signings are done under penalty of perjury. These are serious and important matters. Once signed, the paperwork is filed with the United States Bankruptcy Court in the district which serves your community.

Notices of the bankruptcy filing will almost immediately be sent by the court to your creditors. A trustee will be appointed by the bankruptcy judge to handle your case. (The duties of the trustee are described elsewhere.) A date is set for you to appear at what is called the “first meeting of creditors” (or the section 341 meeting). This date is typically about 30 days from the date your petition was filed.

A substantial amount of time is allowed for creditors and the trustee to review the documents and decide whether any aspect of the bankruptcy should be opposed. (Opposition to a filing is rare, and long before the filing, your attorney should have advised you of what risks you were facing in this regard.) Assuming a typical “no-asset” case (i.e., a case where the trustee is not expected to take and sell any property that you were not able to exempt), and no opposition to the filing or the granting of the discharge, the court will issue to you a “discharge in bankruptcy” (approximately 90 days from the date your petition was filed) documenting that the debts subject to the bankruptcy have been discharged. Your case will then be closed.

In a nutshell, no. But most are. Examples of non-dischargeable debts include: spousal and child support, recently incurred taxes, student loans, intentionally inflicted damage and personal injuries caused to another while the debtor was intoxicated. Other “non-dischargeable” debts are listed in the Bankruptcy Code, and a debtor who is concerned about the dischargeability of a debt should address specific concerns with his or her attorney.

Yes, if you have not previously filed for bankruptcy protection. The automatic stay prevents bill collectors from taking any action to collect debts. The automatic stay is effective immediately upon the filing of the bankruptcy papers (called a “petition”). However, for a period of time shortly after you file, creditors may still call you because they are not aware that you have filed. Immediately after the petition is filed, the court will mail a notice to all the creditors listed in your bankruptcy schedules. It usually takes several days for this notice to get to your creditors. Once a creditor or bill collector becomes aware that you have filed for bankruptcy protection, they will stop collection efforts. If you have previously filed for bankruptcy protection, please consult with your attorney regarding the effectiveness, if any, of the automotic stay as it pertains to your situation.

Creditors will generally stop calling even before the bankruptcy is filed if you retain an attorney to file for bankruptcy protection, and you inform the creditor of that fact. The creditor will ask for the name and phone number of the attorney you have retained to verify that an attorney has been hired. (Note, some attorneys do not provide this “pre-filing” service. Check with your attorney to make sure it is okay. Also note that in this “pre-filing” situation, you have not filed for bankruptcy. The creditors are not required to stop calling you, but they almost always do stop calling.)

If a creditor continues to use collection tactics against you once it has been informed of the bankruptcy, it may be liable for court sanctions and attorney fees for such conduct.

Your bankruptcy case can be filed in a number of locations. As a practical matter, a consumer debtor would file in the court closest to where he/she has lived for the past 6 months or the greater portion of the last 6 months. The specific statutory language provides that a bankruptcy can be filed in the court for the district in which the debtor has maintained a domicile, residence, principal place of business in the United States, or in which the principal assets of the debtor exist in the United States have been located, for the 180 days immediately preceding such filing or for a longer portion of such 180 day period than anywhere else.

This is a tough question, because the answer is sometimes “yes” and sometimes “no.” It really depends upon the timing. Generally, unpaid income taxes which were filed (but not paid) on time are dischargeable if the taxes were filed more than 3 years ago. Other taxes may be dischargeable, but the rules are complicated. The bottom line: taxes can be dischargeable under certain circumstances. A particular situation can be addressed well only by a knowledgeable attorney.

The process in our office begins with a call to schedule an interview with the attorney. The initial consultation takes only about a half an hour, during which we cover the essentials of bankruptcy law and apply them to your particular situation. You do not have to bring anything to the interview, except perhaps a brief listing of your creditors and how much you owe them. You will have a good idea at the end of that interview of your various options, and to the extent that non-bankruptcy options were suggested, you will be encouraged to pursue those before scheduling another interview in our office. We will give you several forms to complete and a list of items to return if you decide that bankruptcy protection is your best option. You will feel no pressure to retain one of our attorneys when you come in to talk with us. Except in emergency cases, you cannot even retain the attorney at this initial consultation.

If you decide to file for bankruptcy protection, we will schedule a second appointment to review the paperwork you completed and begin filling out the extensive paperwork for the filing. After the attorney completes your petition/paperwork, you’ll need to review and sign it. The bankruptcy petition and schedules are filed with the bankruptcy court.

The Court will schedule a hearing with a trustee and your potential creditors. Although creditors are invited to attend the hearing, they rarely do. We, of course, will be at the meeting to represent you.

At the hearing, the trustee will ask you questions about the accuracy of your filing, your present financial situation and may request additional information from you.

After the hearing, you must complete a “debtor education” course (this is different from “credit counseling”). This must be completed before a discharge will be granted.

Approximately three months from the date of the filing of the petition, and assuming you have completed the “debtor education” course and no complications arose (e.g., creditors haven’t filed claims to declare debts non-dischargeable, no property to surrender, etc.), your case will come to an end and you will be granted your discharge in bankruptcy.

There are many bankruptcies filed in a typical week, many more than any one judge can handle. Congress has provided for the appointment of officers to oversee the administration of the bankruptcy laws, rules and regulations on a day-to-day basis. These officers are called “bankruptcy trustees.” As it applies to the case of a typical debtor, the function of the trustee is to review the bankruptcy paperwork which you have filed (your petition and schedules), to make inquiry on unclear or questionable aspects of any statements you have made, to call a meeting of creditors to provide them an opportunity to ask questions which they may have about the paperwork, and to determine whether there are any assets available in the bankruptcy estate which could be liquidated and distributed to the unsecured creditors. If such “non-exempt” assets exist, it is the duty of the trustee to sell those items for a fair price and distribute them in accordance with the certain rules. If there are no assets to sell, the trustee will report this fact to the court and recommend that your case be closed as a “no-asset” case.

Bankruptcy petitions are public records. However, under normal circumstances, unless your employer or landlord is a creditor, they will not know you filed a bankruptcy petition. If your employer or landlord is a creditor, they must be listed as a creditor on the schedules and receive notice of the bankruptcy proceeding. In Virginia, Chapter 13 debtors are required to make payments through wage garnishment. The employer will learn about the bankruptcy because of this.

No. 11 U.S.C. sec. 525 prohibits government units and private employers from discriminating against you because you filed a bankruptcy petition or because you failed to pay a dischargeable debt. Let us know if you get fired or harassed because you filed for bankruptcy.

Yes. And if the debts owed by the married couple are primarily joint debts, this probably is the best way to proceed.

No. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable then it might be advisable to have only one spouse file.

Yes. If the business is operated as a sole proprietorship, the bankruptcy may have a direct effect on the operation of the business. Talk with your attorney about this. If the business is a corporation, it can continue to operate independently of the bankruptcy. (The value of the shares of stock the debtor holds in the business is considered an asset of the debtor.)

It depends on the credit reporting company rules. A Chapter 7 liquidation generally will stay on your report for up to 10 years. A Chapter 13 for up to 7 years after the completion of the plan.

Each bank or credit card company makes its own decision about to whom and when to give new credit. Some creditors may wait until a record of steady paying on another loan appears on the report. Your income and job stability at the time you apply for new credit will be critical factors. Others may grant credit soon after the bankruptcy filing because they know the debtor cannot discharge any new debts for 8 years. See article on Credit Repair.

If you file for bankruptcy under Chapter 7, a creditor can immediately begin pursuing anyone who co-signed the debt with you. Under the provisions of Chapter 13, you have the ability to better protect co-debtors and arrange (if this is your choice) to pay off co-signed debts ahead of certain other creditors. Talk with your attorney about this if it applies. See Frequently Asked Questions asked about Chapter 13 Bankruptcy.

Choosing the right attorney to represent you at this difficult time is an important decision. You want an attorney with experience. You want an attorney who will sit down with you face-to-face to discuss your particular situation and to propose to you an individual solution, not just put you in front of a TV set to watch a video. You want an attorney who will fully discuss with you your bankruptcy and non-bankruptcy options so that you can make the most informed choice possible at a difficult time. At Lasris & Vannan, P.C., we have helped clients with serious financial difficulties for over 20 years. We have no videos, just knowledgeable, experienced attorneys who will meet with you face-to-face to learn your situation and, with your help, develop the appropriate solution for your individual needs. Please call us if we can be of assistance.